In a series of remarks over the past year, SEC Commissioner Hester Peirce laid the groundwork for a potential SEC safe harbor for developmental token offerings, which could provide a registration exemption for three years to give token networks a sufficient incubation period to achieve “maturity.”

The theory behind the proposed safe harbor is that the current regulatory framework functions as a barrier to launching token networks because offerors fear they may be treated as securities before they have time to mature into decentralized networks. The safe harbor would exempt certain tokens, subject to various conditions, with the aim of creating a regulatory environment that promotes fairness and predictability, while encouraging new offerings and the concomitant competition and innovation that could flow therefrom.


Continue Reading Proposed SEC Safe Harbor Could Provide New Tokens With an Enforcement Grace Period Before Hitting Open Water

Long awaited guidance from the US Securities and Exchange Commission (SEC) on application of the Howey test to digital assets came on April 3 in the form of a Framework for “Investment Contract” Analysis of Digital Assets (“Framework”) and a No-Action Letter regarding TurnKey Jet, Inc. (the “TurnKey No-Action Letter”). These two documents are best understood as part of a trilogy with the June 2018 Hinman speech.

The Framework offers the clearest indication yet of the SEC staff’s thinking on the Howey test, with the TurnKey No-Action Letter and the Hinman speech providing examples of where a digital asset fails to meet a necessary element of the test. For purposes of clarity, it helps to think of the Howey test as having four elements:  (1) an investment of money (2) in a common enterprise (3) with a reasonable expectation of profits (4) derived from the efforts of others.[1]

The first two prongs are essentially throwaways inasmuch as the Framework devotes only three sentences to them in total. SEC staff note that these prongs are “typically satisfied” in evaluating digital assets. On the other hand, the Framework pays significant attention to the third and fourth elements.
Continue Reading SEC Smooths Out Digital Assets Turbulence With Further Guidance