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 protected 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 atmosphere that facilitates disclosure with out prematurely classifying belongings as securities.
Expertise-agnostic regulation
The DEF emphasised that any protected harbor ought to undertake a technology-agnostic method. The framework ought to tackle the dangers of actions moderately than prescribing guidelines for particular blockchain fashions or technical implementations.
The letter warned towards entrenching specific applied sciences, stating that it might stifle innovation if the SEC inadvertently favors particular consensus mechanisms or architectural designs.
Relating to eligibility, DEF argued that the protected harbor ought to be open to a variety of initiatives that intend to decentralize. Relatively 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 mandatory 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 fastidiously calibrated obligations that steadiness materials info wants with the realities confronted by early-stage improvement groups.
The group prompt disclosures targeted on supply code transparency, token economics, governance constructions, crew 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 API connectivity and blockchain automation. Further compliance measures, comparable to lock-up intervals for insiders, might assist align incentives towards decentralization with out overburdening initiatives.
Clear exit standards
The letter confused the significance of building a transparent “Exit Check” that defines when a venture has sufficiently decentralized to now not be thought-about a safety beneath US regulation.
Key standards for passing the Exit Check would come with most transparency, permissionless participation, person custody of belongings, 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 initiatives to satisfy these benchmarks, comparable to three to 4 years. Tasks that fail to satisfy the standards inside the preliminary window can apply for an prolonged protected harbor interval, offered they reveal good religion efforts to decentralize.
A important element of the DEF’s proposal concerned protections for secondary market contributors.
Whereas a token stays inside the protected harbor, intermediaries supporting its buying and selling, comparable 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 cut back authorized uncertainty and foster broader participation in decentralized markets.
Whereas supporting the creation of a token protected 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 moderately than momentary 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 might be publishing its suggestions publicly to solicit additional suggestions.