Over the past few years, significant excitement has surrounded the innovative promise associated with the development of blockchain networks and the crypto tokens most often used on them. However, the SEC has sent mixed messages to developers of such technologies about whether crypto tokens used on those networks will be deemed securities subject to onerous SEC regulation and oversight. This uncertainty has caused some to move development efforts outside the United States, and many others to bemoan what is viewed as yet another instance of regulators stifling innovation.
Last week, SEC Commissioner Hester Peirce fired a welcome shot in the debate, by releasing a proposed rule that would provide crypto token issuers with a three-year exemption from federal securities laws to allow them time to bring the underlying token networks to maturity. The proposed rule is intended to allow token issuers building decentralized networks to issue tokens in furtherance of such development without risk that the tokens will immediately become subject to certain securities laws.
Many in the cryptocurrency community have welcomed the proposed rule as a step in the right direction for the U.S. But Commissioner Peirce has yet to secure agreement from her four fellow commissioners, and it remains to be seen whether any can be convinced by her approach. Furthermore, while the proposal would assist new token issuers, it may not apply to the many more advanced token projects currently in operation, or to other actors in the cryptocurrency industry, who continue to face potential SEC enforcement actions related to past token issuances or activities relating to the trading, investment, and storage of existing tokens.
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