In 2017, cryptocurrency fans praised the so-called Initial Coin Offerings, a kind of initial public offering for the Bitcoin crowd, as the future of corporate fundraising. Amid the rumor, crypto companies quickly profited by selling digital tokens to fans and investors.
Fearing consumers would be scammed, the Securities and Exchange Commission warned against ICOs and later declared that such offers amounted to an illegal sale of securities.
Commissioner Hester Peirce, who proposed the plan at a blockchain conference in Chicago on Thursday, says she wants to create a “safe harbor” that gives digital token projects three years to prove that the tokens they issue are not securities.
In an interview with Fortune, Peirce says his fellow SEC commissioners have legitimate concerns about the potential for fraud with token offerings. But he says the security measures he has proposed would protect investors and allow innovation to flourish.
Those security measures would require companies selling tokens to post detailed information about their projects on their websites, including the identities of ICO team members, as well as the project’s source code, transaction history, and financial beneficiaries. To take advantage of the safe harbor and avoid problems with the SEC, companies would have to file notification documents in the SEC’s Edgar online system.
If the SEC adopts Pierce’s proposal, it would address complaints from cryptocurrency supporters that the agency is cracking down on innovation in fintech and pressuring entrepreneurs to leave the US for places with more regulatory climates. favorable as Asia. and Switzerland.
“If adopted, the proposed safe harbor could be the most innovative development for the US crypto market to date,” said Catherine Coley, CEO of crypto exchange Binance US.
But Peirce’s plan could also open the door to the kind of speculative excesses and rampant fraud that took place during the cryptocurrency bubble of 2017. According to an analysis of 1,450 digital currency offerings in early 2018, 271 of them contained signs of alert, such as plagiarized investor documents or fictitious executive biographies.
Peirce, whose positions have earned her the nickname “crypto mother,” acknowledged that the risk of digital token scams is real, but emphasizes that his proposed transparency rules would help prevent them.
While Peirce’s proposal has the backing of the crypto industry, the plan is unlikely to win the backing of his colleagues at the SEC.
According to Valerie Dahiya, a lawyer who specializes in digital currency at the Perkins Coie law firm, the other four commissioners, including Chairman Jay Clayton, have so far had an unclear view of token sales, making Peirce a an outlier.
“This is really a commissioner expressing his personal thoughts in a speech,” he says, adding that the SEC does not have a formal process for reviewing its regulations.
Peirce’s term at the SEC ends in June, and her views could help her follow other former regulators who have joined the crypto industry.
An SEC official acknowledged last year that certain tokens, notably Ethereum, could be securities at launch, but will then cease to be securities over time as they are decentralized like Bitcoin, which is not controlled by any. company or individuals.
This legal uncertainty has frustrated many in the crypto industry, who say it has hampered their ability to launch and raise money for token projects.
Ultimately, however, it may come not from the SEC, but from the courts, clear regulatory guidance. Dahiya, the lawyer, points out that the agency has put its execution tokens in a legal fight over the definition of securities.
Peirce, for his part, says his proposal represents a way for his fellow commissioners to achieve what they want from a compliance perspective without limiting innovation in the crypto space.
