The DeFi Schooling Fund (DEF) submitted a letter to the Securities and Alternate Fee (SEC) on April 18 proposing 5 core ideas for making a “token protected 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 initiatives growing towards decentralization, providing a regulatory surroundings that facilitates disclosure with out prematurely classifying belongings as securities.
Know-how-agnostic regulation
The DEF emphasised that any protected harbor ought to undertake a technology-agnostic strategy. The framework ought to tackle the dangers of actions reasonably than prescribing guidelines for particular blockchain fashions or technical implementations.
The letter warned in opposition to entrenching explicit applied sciences, stating that it might stifle innovation if the SEC inadvertently favors particular consensus mechanisms or architectural designs.
Relating to eligibility, DEF argued that the protected harbor needs to be open to a variety of initiatives that intend to decentralize. Moderately than evaluating a token’s standing solely at its genesis, the SEC ought to enable already-distributed tokens to qualify, offered they meet decentralization objectives.
It argued that broad eligibility standards are crucial to make sure the inclusion of initiatives launched earlier than establishing a transparent regulatory framework for future compliance pathways.
Relating to disclosure necessities, the DEF advocated for fastidiously calibrated obligations that stability materials data wants with the realities confronted by early-stage improvement groups.
The group urged disclosures targeted on supply code transparency, token economics, governance constructions, workforce and insider actions, cybersecurity audits, and improvement roadmaps.
The DEF additionally proposed periodic disclosures all through the protected harbor interval, with consideration given to streamlining compliance by way of API connectivity and blockchain automation. Extra compliance measures, akin to lock-up durations for insiders, might assist align incentives towards decentralization with out overburdening initiatives.
Clear exit standards
The letter careworn the significance of creating a transparent “Exit Take a look at” that defines when a challenge has sufficiently decentralized to not be thought-about a safety below US legislation.
Key standards for passing the Exit Take a look at 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 useful a sensible timeframe for initiatives to fulfill these benchmarks, akin to three to 4 years. Tasks that fail to fulfill the factors throughout the preliminary window can apply for an prolonged protected harbor interval, offered they display good religion efforts to decentralize.
A important part of the DEF’s proposal concerned protections for secondary market contributors.
Whereas a token stays throughout the protected harbor, intermediaries supporting its buying and selling, akin 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 rules would cut back authorized uncertainty and foster broader participation in decentralized markets.
Whereas supporting the creation of a token protected harbor, the DEF in the end referred to 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 protected harbor might 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 neighborhood. The group additionally indicated that it might be publishing its suggestions publicly to solicit additional suggestions.
