1/ 🚨BREAKING🚨: SEC Commissioner @HesterPierce today publicly proposed a safe harbor for token sellers building decentralized networks.
It is an elegant solution to the most complex legal challenge of this crypto era.
Thread is go.👇
It is an elegant solution to the most complex legal challenge of this crypto era.
Thread is go.👇
@HesterPierce 2/ The proposal seems straightforward: So long as you, dear token seller, comply with the securities laws in selling the token initially, you've got 3 years to get the network off the ground, during which SEC won't come after you.
Could it really be that simple? Read on.
Could it really be that simple? Read on.
@HesterPierce 3/ Recall that, to sell securities in the US, the law requires you to register them with the SEC (e.g. an "IPO"), which is an expensive and lengthy process, or rely on an exemption.
(usually Regulation D for private placements to accredited investors, or Reg S for offshore sales
(usually Regulation D for private placements to accredited investors, or Reg S for offshore sales
@HesterPierce 4/ Since registration doesn't make much sense for token sellers, most rely on these exemptions to sell the tokens initially.
This makes sense: (not all but) many of these early purchasers aren't buying the token to use it. They're buying it speculatively, as investors.
This makes sense: (not all but) many of these early purchasers aren't buying the token to use it. They're buying it speculatively, as investors.
@HesterPierce 5/ This process is part of the SAFT Framework - all well and good. But what happens after you sell tokens to these initial investors? How do the securities laws apply then?
@HesterPierce 6/ More to the point: When do they *stop* applying? The SAFT framework calls this line "functionality", in the famous "Hinman Speech" the SEC took that milestone and added additional factors, calling the line "decentralization".
7/ Legally speaking, this line is drawn when a token purchaser stops relying on the the technical and managerial expertise of the issuer/promoter for any profits she might expect.
If that seems fuzzy to you, it's for good reason. It's a difficult facts-and-circumstances test.
If that seems fuzzy to you, it's for good reason. It's a difficult facts-and-circumstances test.
8/ How are token sellers supposed to know when they've passed this milestone?
Since it's facts-based, there's never going to be a clear answer.
Enter the safe harbor.
Since it's facts-based, there's never going to be a clear answer.
Enter the safe harbor.
9/ Peirce's proposal recognizes that this question is hard to answer at first, but gets easier to answer over time. During that time - say 3 years - developers are free to BUIDL and launch a network that just doesn't need them anymore.
10/ Under the proposal, these 3 years aren't free time. The developers must demonstrate that they are actually working toward decentralization, likely by way of regular disclosures to SEC.
11/ This is good for developers. They can raise and deploy capital in a permissionless, innovation-forward manner supported by an environment of commercial and legal certainty.
12/ This is good for venture investors. They can rely on the same environment of certainty as the developers, and they keep a seat at the head of the investment table in exchange for taking on additional risks and financing their "VC ground game"
13/ This is good for retail investors. They can take informed risks, get access to new, innovative technologies, support developers whose work they👏actually👏want👏to👏use👏, and think the whole world will use on day, too.
14/ Finally, this is good for regulators. Issuers still need sell pursuant to the existing securities regs. Accredited investors still bear the greatest, early risks instead of retail investors. Disclosure requirements funnel actionable data to the regulators who need it most.
15/ It's a logical and sensible continuation of the SAFT Framework we proposed back in 2017. Follow the securities laws while investor risks predominate; follow consumer regs once consumer protection risks predominate. Give it some time to evolve from one to the other.
16/ So, the big question: Will this proposal be accepted by industry and the SEC?
Well, this is where lawyering ends and politicking begins. This is crypto twitter, not politics twitter, but for today only:
:sigh:
plz shill me your hot political takes
Well, this is where lawyering ends and politicking begins. This is crypto twitter, not politics twitter, but for today only:
:sigh:
plz shill me your hot political takes
17/ You can read some additional analysis here:
coincenter.org/entry/sec-comm…
and here:
medium.com/@BlockchainAss…
coincenter.org/entry/sec-comm…
and here:
medium.com/@BlockchainAss…
18/ Once the full text of the speech is posted, we may have some additional data to digest together :)
19/ To close the loop for future readers: Here is brief analysis of the full text. New thoughts...
