The DeFi Schooling Fund (DEF) submitted a letter to the Securities and Alternate Fee (SEC) on April 18 proposing 5 core rules for making a “token secure harbor” framework to assist decentralized finance initiatives whereas broader regulatory laws is pending.
The suggestions purpose to assist the SEC construction a time-limited exemption for token initiatives creating towards decentralization, providing a regulatory surroundings that facilitates disclosure with out prematurely classifying belongings as securities.
Expertise-agnostic regulation
The DEF emphasised that any secure harbor ought to undertake a technology-agnostic method. The framework ought to deal with the dangers of actions quite than prescribing guidelines for particular blockchain fashions or technical implementations.
The letter warned towards entrenching explicit 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 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 rigorously calibrated obligations that steadiness materials data wants with the realities confronted by early-stage improvement groups.
The group advised 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 secure harbor interval, with consideration given to streamlining compliance by means of API connectivity and blockchain automation. Extra compliance measures, resembling lock-up durations for insiders, may assist align incentives towards decentralization with out overburdening initiatives.
Clear exit standards
The letter pressured the significance of creating a transparent “Exit Check” that defines when a mission has sufficiently decentralized to not be thought-about a safety below US legislation.
Key standards for passing the Exit Check would come with most transparency, permissionless participation, person custody of belongings, lack of centralized management, totally automated transaction processes, and the absence of retained financial authority by any single group.
The DEF really helpful a practical timeframe for initiatives to fulfill these benchmarks, resembling three to 4 years. Initiatives that fail to fulfill the standards inside the preliminary window can apply for an prolonged secure harbor interval, offered they display good religion efforts to decentralize.
A crucial element of the DEF’s proposal concerned protections for secondary market contributors.
Whereas a token stays inside the secure harbor, intermediaries supporting its buying and selling, resembling 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 scale back authorized uncertainty and foster broader participation in decentralized markets.
Whereas supporting the creation of a token secure harbor, the DEF finally known as for Congress to develop a complete legislative framework for digital belongings.
The group expressed that sturdy authorized readability should come from statute quite than short-term regulatory carve-outs. However, a well-structured secure harbor may shield buyers 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 could be publishing its suggestions publicly to solicit additional suggestions.