The DeFi Training Fund (DEF) submitted a letter to the Securities and Alternate Fee (SEC) on April 18 proposing 5 core ideas for making a “token secure harbor” framework to help decentralized finance initiatives whereas broader regulatory laws is pending.
The suggestions intention to assist the SEC construction a time-limited exemption for token tasks creating towards decentralization, providing a regulatory setting that facilitates disclosure with out prematurely classifying belongings as securities.
Know-how-agnostic regulation
The DEF emphasised that any secure harbor ought to undertake a technology-agnostic strategy. The framework ought to deal with the dangers of actions reasonably than prescribing guidelines for particular blockchain fashions or technical implementations.
The letter warned towards entrenching specific applied sciences, stating that it may stifle innovation if the SEC inadvertently favors particular consensus mechanisms or architectural designs.
Relating to eligibility, DEF argued that the secure harbor ought to be open to a variety of tasks that intend to decentralize. Slightly than evaluating a token’s standing solely at its genesis, the SEC ought to permit already-distributed tokens to qualify, offered they meet decentralization objectives.
It argued that broad eligibility standards are mandatory to make sure the inclusion of tasks launched earlier than establishing a transparent regulatory framework for future compliance pathways.
Relating to disclosure necessities, the DEF advocated for fastidiously calibrated obligations that steadiness materials info wants with the realities confronted by early-stage improvement groups.
The group prompt disclosures centered on supply code transparency, token economics, governance buildings, workforce and insider actions, cybersecurity audits, and improvement roadmaps.
The DEF additionally proposed periodic disclosures all through the secure harbor interval, with consideration given to streamlining compliance by means of API connectivity and blockchain automation. Further compliance measures, comparable to lock-up intervals for insiders, may assist align incentives towards decentralization with out overburdening tasks.
Clear exit standards
The letter confused the significance of creating a transparent “Exit Check” that defines when a challenge has sufficiently decentralized to not be thought of a safety underneath US legislation.
Key standards for passing the Exit Check would come with most transparency, permissionless participation, person custody of belongings, lack of centralized management, absolutely automated transaction processes, and the absence of retained financial authority by any single group.
The DEF really helpful a sensible timeframe for tasks to satisfy these benchmarks, comparable to three to 4 years. Tasks that fail to satisfy the standards throughout the preliminary window can apply for an prolonged secure harbor interval, offered they exhibit good religion efforts to decentralize.
A essential part of the DEF’s proposal concerned protections for secondary market contributors.
Whereas a token stays throughout the secure harbor, intermediaries supporting its buying and selling, comparable to digital asset exchanges and market makers, shouldn’t be required to register as broker-dealers or securities exchanges.
Complete framework wanted
The DEF famous that exempting infrastructure suppliers from conventional securities laws would cut back authorized uncertainty and foster broader participation in decentralized markets.
Whereas supporting the creation of a token secure harbor, the DEF in the end known as for Congress to develop a complete legislative framework for digital belongings.
The group expressed that sturdy authorized readability should come from statute reasonably than non permanent regulatory carve-outs. However, a well-structured secure harbor may shield traders and builders whereas the longer lawmaking course of unfolds.
The DEF concluded its letter by committing to ongoing engagement with the SEC and the broader crypto group. The group additionally indicated that it might be publishing its suggestions publicly to solicit additional suggestions.
