The DeFi Training Fund (DEF) submitted a letter to the Securities and Change Fee (SEC) on April 18 proposing 5 core rules for making a “token protected harbor” framework to help decentralized finance initiatives whereas broader regulatory laws is pending.
The suggestions goal to assist the SEC construction a time-limited exemption for token tasks creating towards decentralization, providing a regulatory surroundings that facilitates disclosure with out prematurely classifying property as securities.
Expertise-agnostic regulation
The DEF emphasised that any protected harbor ought to undertake a technology-agnostic strategy. The framework ought to deal with the dangers of actions slightly than prescribing guidelines for particular blockchain fashions or technical implementations.
The letter warned in opposition to entrenching specific applied sciences, stating that it might stifle innovation if the SEC inadvertently favors particular consensus mechanisms or architectural designs.
Concerning eligibility, DEF argued that the protected harbor needs to be open to a variety of tasks that intend to decentralize. Somewhat than evaluating a token’s standing solely at its genesis, the SEC ought to enable already-distributed tokens to qualify, offered they meet decentralization targets.
It argued that broad eligibility standards are crucial to make sure the inclusion of tasks launched earlier than establishing a transparent regulatory framework for future compliance pathways.
Concerning disclosure necessities, the DEF advocated for rigorously calibrated obligations that stability materials info wants with the realities confronted by early-stage improvement groups.
The group advised disclosures targeted on supply code transparency, token economics, governance constructions, group 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. Further compliance measures, similar to lock-up intervals for insiders, might assist align incentives towards decentralization with out overburdening tasks.
Clear exit standards
The letter harassed the significance of creating a transparent “Exit Take a look at” that defines when a undertaking has sufficiently decentralized to now not be thought of a safety beneath US legislation.
Key standards for passing the Exit Take a look at would come with most transparency, permissionless participation, consumer custody of property, lack of centralized management, absolutely automated transaction processes, and the absence of retained financial authority by any single group.
The DEF beneficial a sensible timeframe for tasks to fulfill these benchmarks, similar to three to 4 years. Initiatives that fail to fulfill the factors inside the preliminary window can apply for an prolonged protected harbor interval, offered they exhibit good religion efforts to decentralize.
A crucial element of the DEF’s proposal concerned protections for secondary market individuals.
Whereas a token stays inside the protected harbor, intermediaries supporting its buying and selling, similar 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 scale back authorized uncertainty and foster broader participation in decentralized markets.
Whereas supporting the creation of a token protected harbor, the DEF finally referred to as for Congress to develop a complete legislative framework for digital property.
The group expressed that sturdy authorized readability should come from statute slightly than short-term regulatory carve-outs. However, a well-structured protected harbor might defend 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.
