Zachary Fallon, James Blakemore, and Josh Garcia are attorneys who lead Ketsal, a strategic advisory firm focused on fintech compliance, as well as an associated law firm.
Earlier this month, SEC Commissioner Hester Peirce announced a proposed three-year safe harbor from the application of specific securities laws for token issuers developing decentralized networks.
Commissioner Peirce’s Token Safe Harbor Proposal (the “Proposal”) has already generated a good deal of helpful discussion of both the Proposal itself and the U.S. federal securities laws (the “Securities Laws”) generally. We welcome the Proposal and appreciate its focus on cryptocurrency specific issues. As legal professionals with the expertise and interest to advise this space, we are all too familiar with the issues raised by the Proposal. We also appreciate the need for greater dialogue, as it may ultimately lead to an effective regulatory solution.
To be clear, the goal of the Proposal is laudable. And, like a gavel, we hope it will be an effective call to order. When the gallery din fades, however, we believe taking a scalpel, not a sword, to existing regulations will best achieve many of the Commissioner’s policy objectives. The Proposal is a useful starting place for the regulatory discussion, but in reality, its scope is too sweeping to have any meaningful chance at adoption.
Yet, all is not lost. The Securities Laws already include an exemption for primary offerings that meets many of the Commissioner’s objectives. Regulation A (“Reg A”) provides decentralized network creators with the ability to publicly raise up to $50 million annually from an unrestricted pool of future network participants through the sale of tokens (or rights to tokens) that, at least for some initial period of time, would be considered securities.