The DeFi Schooling Fund (DEF) submitted a letter to the Securities and Alternate Fee (SEC) on April 18 proposing 5 core ideas for making a “token protected harbor” framework to help decentralized finance initiatives whereas broader regulatory laws is pending.
The suggestions purpose to assist the SEC construction a time-limited exemption for token tasks growing towards decentralization, providing a regulatory atmosphere 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 method. The framework ought to deal with the dangers of actions relatively 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 ought to be open to a variety of tasks 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 vital 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 steadiness materials info wants with the realities confronted by early-stage growth groups.
The group urged disclosures targeted on supply code transparency, token economics, governance constructions, crew and insider actions, cybersecurity audits, and growth roadmaps.
The DEF additionally proposed periodic disclosures all through the protected harbor interval, with consideration given to streamlining compliance by means of API connectivity and blockchain automation. Further compliance measures, equivalent to lock-up durations for insiders, might assist align incentives towards decentralization with out overburdening tasks.
Clear exit standards
The letter confused the significance of creating a transparent “Exit Take a look at” that defines when a challenge has sufficiently decentralized to now not be thought-about a safety below US regulation.
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 advisable a sensible timeframe for tasks to fulfill these benchmarks, equivalent to three to 4 years. Initiatives that fail to fulfill the factors throughout the preliminary window can apply for an prolonged protected harbor interval, offered they reveal good religion efforts to decentralize.
A crucial part of the DEF’s proposal concerned protections for secondary market contributors.
Whereas a token stays throughout the protected harbor, intermediaries supporting its buying and selling, equivalent 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 in the end known as for Congress to develop a complete legislative framework for digital property.
The group expressed that sturdy authorized readability should come from statute relatively than short-term regulatory carve-outs. Nonetheless, 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 neighborhood. The group additionally indicated that it could be publishing its suggestions publicly to solicit additional suggestions.
