SEC officer Hester Pierce expressed her “safe harbor” proposal for cryptocurrency projects during her recent appearance at the International Blockchain Congress in Chicago.
Pierce’s idea is to grant the new blockhain companies a three-year term, which will be counted from the first day of their Initial Coin Offer. The proposed period is granted with the purpose of allowing startups to reach a level of decentralization, which allows them to pass the subsequent evaluation of the SEC without major difficulties.
According to the official, three years must be enough for a blockchain initiative to build a consolidated community around its project, and reach the appropriate technical level for its network. In this way, the incipient company will not have to face the regulatory challenges from the beginning.
Perfectly aligned with the ICO framework produced by the agency last year, the SEC will submit the applicants to the Howey test, a test approved by the Supreme Court of Justice, which helps determine under what conditions a transaction should be classified as an “investment contract”.
Howey’s test considers certain variables to establish the “value” condition of a transaction, or if it is exempt from such definition.
The objective of the test is to determine if the price of the tokens will be influenced by the activities of the startup that proposes it, the relationship between its sale price and the market price.
Among other details, Pierce’s proposal clarifies that the evaluation of a token as a negotiable value depends on each particular case, and not the digital asset under analysis. The verdict, in addition, is flexible, and could vary depending on when the asset is evaluated.
SEC refines the proposal
In her Chicago speech, Commissioner Pierce specified certain terms that are part of the safe harbor structure. He defined the concept of “network maturity” as the status of a project where its network is fully functional, and has a degree of decentralization that prevents its control from falling into the hands of a particular person or interest group.
Pierce clarifies that the maturity of the network will serve to identify the moment in which the sale of a token is no longer an investment contract. He also recalled that this will depend on specific factors on each occasion.
The proposal also introduces the notion of “initial development team”, used to refer to both the group of programmers of the project and the rest of its members. Apart from providing a detailed report on their experience and technical skills, the members of this initial team must disclose the amount of tokens they own and to which they will have option, according to the benefits stipulated in the company’s guidelines.
As additional requirements, the SEC would require the project to provide data related to its growth program, or route map, a system for checking transactions and records of previous token sales. In addition, the initial development team must provide the commission with details about the operation of the token and its source code.