Comprehensive interpretation: What is the impact and value of the US SEC Commissioner's "Token Safe Harbor Proposal"?

Source: 01 Blockchain

Editor's Note: The original title was "A Comprehensive Interpretation of the Impact and Value of the" Token Safe Harbor Proposal "

On February 6, 2020, Hester Peirce, a member of the United States Securities and Exchange Commission (hereinafter referred to as the SEC), presented a theme entitled "Running On Empty: A Proposal To Fill The Gap Between Regulation and Decentralization" at the International Blockchain Conference in Chicago. He gave a speech and put forward the "Token Safe Harbor Proposal".

The proposal provides a three-year buffer period for the decentralized project team. As long as it meets the relevant requirements of the Token Safe Harbor proposal, it is expected to obtain a three-year exemption, during which time financing can be made through Token. Although the "Token Safe Harbor Proposal" has not been officially adopted, it has attracted much attention and discussion in the industry.

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On February 23, Zero One Finance, the Zero One Think Tank, the Digital Asset Research Institute and the Token Thinking Lab jointly held a closed-door seminar on the theme of "Interpretation of the Impact of the" Token Safe Harbor Proposal "" with many industry experts and scholars. Work with corporate executives to discuss the impact of the proposal on decentralized projects, the DeFi ecosystem, and the industry as a whole. Chairman of the Academic and Technical Committee of the Digital Asset Research Institute, Jiaming Zhu, Deputy Director of the Digital Asset Research Institute, and Meng Yan, Founder of the Token Thinking Lab; Assistant to the Chairman of the Huobi Group and Dr. Yang Jinyan; Wu Hao, DKB FUND Wudaokou Blockchain Fund Management Partner, and Wang Wei, a partner of Beijing Zhide Law Firm, gave keynote speeches. Bai Liang, founder of Zero One Finance and executive vice president of the Digital Asset Research Institute, hosted this presentation. Field activities.

The following is a summary of the views of the guests of the closed-door seminar:

Meng Yan: Token safe harbor proposal is a " critical step " in crypto regulation

Meng Yan, the vice president of the Digital Asset Research Institute and the founder of the Token Thinking Lab, introduced the background of the Token Safe Harbor proposal and the specific content of the proposal. Meng Yan first affirmed the value of the Token Safe Harbor proposal. He believed that the proposal was "a key step forward" and was "restarting the ICO in some form".

The SEC safe harbor proposal was proposed by SEC member Hester Peirce. Meng Yan reminded that although the proposal is very valuable, Peirce himself is very insistent on the proposal and the crypto innovation industry, but we need to remain calm without the proposal being formally approved by the SEC.

Why did Peirce consider proposing a token safe harbor solution? This is because as a regulator, Peirce has seen the unfriendly attitude of current regulatory rules to decentralized network systems and believes that if it continues to develop like this, it will harm the long-term interests of the US economy. Traditional enterprises can develop their business first, and then issue stock bonds for financing, but decentralized networks need to be the first to issue Tokens, so that the Token system can work well, so that the decentralized network can develop rapidly and form network scale effects.

However, under the current circumstances, the decentralized network to issue Tokens needs to pass the Howey test. For crypto companies that are still struggling but have not yet built a functional or decentralized network, it is difficult to pass the Howe test. Once Howe Test determines that the tokens it issues are securities, the issuer will be severely punished by law. Peirce believes that the Howell test has two problems: First, it is difficult to define the relationship between investment behavior and tokens . Even if the contract for the sale of tokens is an investment contract, the object token of the contract may not have the characteristics of securities; second , it should not be The subjective willingness of investors to judge the nature of the Token cannot be determined by the buyer's purchase of the Token for profit or the seller's publicity and sales as a criterion for determining the nature of the Token as a security, let alone the existence of the appreciation space of the Token. For securities. Regulation should not just expand power, but need to always think about where the boundary of regulatory power is.

Meng Yan quoted Peirce's speech, introduced six current methods for crypto companies to deal with the US SEC regulation, and pointed out its shortcomings: the first is to avoid becoming a security, only publishing white papers, open source code and mining genesis blocks, and then It's a fate and waiting for users to grow organically. This approach is very negative, and the chance of success is very small. The second is to secretly issue with luck, which is very risky. Once caught, it will basically be guilty. The third is for startups to pass. RegD is registered and can be exempted from issuing securities registered with the SEC within its constraints, but RegD's restrictions on qualified investors and liquidity make this option unattractive to the project team; the fourth is similar to the third and is through RegA Rules for non-public fundraising, but this route is not only costly, but the tokens need to be registered and transferred among licensed institutions, which runs counter to the nature of the decentralized system; the fifth is to go overseas, that is, to conduct business outside the United States, However, it is difficult to ensure that the business is completely irrelevant to the United States. In the long run, the United States will lose important economic development opportunities. Is to obtain registration or exempt registration, but through the SEC no objection letter, to obtain registration exemption, but this approach is not a system, but a one-by-one discussion, to win the full SEC, who can better relationship with the SEC Waiver, which sends a bad signal to the market.

The Token Safe Harbor proposal is to provide an exemption channel for token issuance for crypto innovative companies. But to be clear, the Token Safe Harbor proposal is not US Congress law, even if the SEC passes it is only a regulation. Peirce's proposal has two goals, one is to protect investors, and the other is to provide flexible policies for innovation and development.

The main content of the Token Safe Harbor proposal is to provide the initial development team with a three-year period. During this period, the team can obtain the exemption from the registration requirements of the federal securities law as long as the conditions are met, develop a functional or decentralized network, and improve User engagement. In simple terms, it is to provide a three-year buffer period for the project team. As long as the project meets the requirements of the Token Safe Harbor, it can obtain a three-year exemption and can be financed through Token .

The requirements here mainly include five items:

1. The initial team of the project must have good intentions, reasonable planning, and appropriate efforts, and strive to bring the decentralized network to a mature and usable state within three years. Within three years, the project is allowed to be financed by selling tokens , and it does not specifically distinguish whether tokens have securities attributes. After three years, the token must be proven to be a functional token without securities attributes.

2. Disclose project information on a freely accessible public network, where source code and Token transaction records are required to be disclosed. In addition, information such as consensus mechanism, governance mechanism, development plan, number of issuances, number of tokens held by team members, and changes in major events also need to be disclosed;

3. The issuance and sale of Tokens must be based on the purpose of promoting network development and increasing user participation, and cannot issue stocks and bonds under the guise of Tokens ;

4. The project team must have good intentions and make appropriate efforts to provide users with liquidity, which means that a secondary market needs to be created and injected with liquidity;

5. The project team needs to issue a credible public statement in the SEC 's EDGAR database system.

Peirce also reminds everyone not to consider the Token Safe Harbor as a "protective umbrella" for fraud. As long as anyone in the Token Issuing Team is identified by the SEC as a bad performer, the projects he participates in will not be able to enter the safe haven. Secondly, if the Token Safe Harbor proposal is passed in the future, it may become Article 195 of the Federal Supervision Act, replacing securities Relevant regulations issued, but the state's anti-fraud regulations will not be invalidated, and various regulatory agencies can still conduct anti-fraud supervision of the project.

After sharing Peirce's content on the Token Safe Harbor proposal, Meng Yan went on to introduce some details of Peirce's interview with Forbes, including the process from proposal to regulation. According to Peirce, public opinion needs to be collected after the proposal is submitted; then the proposal is formally submitted in the SEC's 5-member committee, and if passed, the committee proposal will be formed; then it will enter the publicity period to receive public suggestions. It will take effect after feedback of major opinions and necessary amendments. It seems that US regulators do have a set of rules for communicating with civil society and industry.

Yang Jinyan: Facing the particularity of decentralized blockchain is a general trend of global regulation

As a well-known legal expert in the industry, Dr. Yang Jinyan, assistant to the chairman of Huobi Group, shared his understanding of the "Token Safe Harbor Proposal" and industry thinking. Yang Jinyan pointed out that Peirce's proposal is focused on balancing the relationship between supporting innovation and protecting investors, while giving "safe harbor treatment" to decentralized projects, and providing disclosure obligations to promote investor protection through openness.

Previous US regulations were too stringent. Taking token issuance as an example, the SEC almost strictly applied the "Howe Test" to recognize token issuance as a securities act. This approach fails to take into account the special features of decentralized blockchain projects, which has hurt the development of related blockchain projects in the United States and even the entire industry. In contrast, Singapore has adopted relatively loose supervision over the issuance of tokens for blockchain projects, and Japan has also issued related policies in the fall of 2019 to allow the issuance of tokens for blockchain projects. In this context, a change in the regulatory attitude of the U.S. regulators can be said to be the inevitable of global industrial competition, which is both timely and significant, and will definitely help promote the development of U.S. blockchain projects, and even the global region. The blockchain industry has a positive impact.

Peirce's proposal recognizes the particularity of decentralized blockchain projects, recognizes the necessity of tokens in such projects, and also recognizes the rigid application of the "Hawwell Test" to incorporate token issuance into the securities supervision. The disadvantages. But her proposal has some limitations. The core difference between a decentralized blockchain project and a traditional project is not just the issuance of tokens, but more profoundly, its speciality lies in the fact that a project that is still in its infancy is a global public fundraising, global transaction, and There may be no centralized entity responsible for the project. Peirce's proposal focuses on the supervision of fundraising and the prevention of project startup team fraud. It does not involve more in-depth issues, such as how the project party's passive implementation of project planning is supervised after fundraising, and investor protection after unsuccessful project development. Questions, how to monitor community participation in decentralized projects, how to monitor global fundraising and global circulation of projects, etc. Of course, this does not affect the positive promotion significance of Peirce's proposal to the industry.

Yang Jinyan said that the change in US regulatory attitude, Japan ’s proactive token issuance policy, and Singapore ’s loose blockchain system reflect to a certain extent the fierce competition among countries in capturing the commanding heights of the blockchain industry. What they all have in common is the currency characteristics of blockchain projects. Based on the study of the special characteristics of such projects, they have introduced policies suitable for the development of the industry, supported innovation, and protected investors. On October 24, 2019, China's top leadership mentioned the blockchain technology as a very important development height.The alliance chain has ushered in a good policy environment in China, but China's regulatory attitude towards public chains and decentralized projects remains to this day. Not clear enough. We should face the policy gap in this field. We must attach importance to the development of alliance chains and provide more policy support for public chain and decentralized projects.

Wang Wei: The Token Safe Harbor proposal provides a good idea for Chinese regulators

Wang Wei, a partner of Beijing Zhide Law Firm, believes that the Token Safe Harbor proposal has a very good reference for global securities regulators, global blockchain and digital asset regulators. He pointed out that the regulatory ideas shown in the proposal are very unique and innovative. If implemented, the safe harbor program will effectively solve many risks that have been criticized by previous ICOs, such as air currency, fraud, illegal issuance, disclosure, and transactions Wait. After the sponsor's supervisory ideas are combined with community suggestions, it is possible to eventually produce a new, benign mechanism that can promote the development of innovative industries.

Wang Wei said that Beijing and other places in China had proposed to be a regulatory sandbox for fintech, but there were not many follow-up actions. In Wang Wei's view, considering the competition between China and the United States in various fields, only the US regulatory thinking can truly draw lessons from and promote China's regulation, because the weight and importance of other countries are incompatible with the United States Than. He further pointed out that the reason why Chinese regulators have always adopted high pressure for ICOs and digital currencies is that on the one hand, the country is really chaotic, on the other hand, Chinese regulators are also watching how the United States conducts supervision, because the SEC chairman Jay Clayton has always held a strict negative view of ICOs. The Token Safe Harbor proposal will be a very important reference for Chinese regulators when considering their own regulatory innovations, because from a certain point of view, the securities regulators of mainstream countries in the world have common values, such as promoting capital formation Protect investors. Therefore, the Token Safe Harbor proposal is a very good regulatory idea for Chinese regulators.

At the same time, Wang Wei also pointed out that the Token Safe Harbor proposal will not be subversive good news for China's current blockchain public chain in the short term, but in the long run, there will be supervision of the blockchain industry in China in the future. Very large propulsion.

Dai Shichao: Promoting Defi Innovation and Increasing Competition in the Chinese and American Markets

DeFi Labs Founder Cypher Jump CEO Dai Shichao shared the theme of "the current status of DeFi and its impact on the proposal". After a detailed analysis of the nature of DeFi products and user needs, Dai Shichao pointed out that at the innovation level, the development of DeFi has completely copied the traditional financial gameplay to the generation of new species based on the characteristics of the blockchain. There are pros and cons.

Dai Shichao believes that the larger scenario of DeFi is to connect traditional financial assets and blockchains, rather than the development of two parallel worlds. She also emphasized that various laws and regulations have a great impact on DeFi. If there is no clear law to protect asset investors, then DeFi can only innovate based on these assets on the existing chain. Is very limited.

Regarding the impact of the Token Safe Harbor proposal, Dai Shichao made three points. First of all, she believes that the Safe Harbor proposal is a three-year exemption system, similar to the one in which I give you enough space for user growth and participate in a new round of financial competition worldwide. Review you carefully and pass the level if you meet the requirements. Failure to meet the requirements will inhibit your growth.

Back to DeFi itself, Dai Shichao emphasized that due to various factors, the DeFi market will become more and more localized. For example, China's DeFi products will have some characteristics, such as more attention to the market and less attention to technology and decentralization; DeFi in the West may take decentralization as the highest criterion, but instead pay less attention to the market. This is also because they are relatively strict in regulations and they dare not do it. So far, the advantages of China's DeFi come from our larger market and better market means, so we have gained some growth. But if the US legal level is relaxed, the competition between China and the United States in the field of DeFi will become more intense.

The second point is that the Safe Harbor proposal has a better tolerance for financing and asset issuance, so this will increase the vitality of innovation, and the problems of DeFi's liquidity and lack of high-quality assets may be slightly alleviated.

Third, this proposal gives the industry a good hint. The traditional financial field is also thinking about a possibility, that is, how to embrace the blockchain to make the financial market more efficient and more innovative, not just as it is now almost There is no bridge for communication, so this proposal is a good guide for innovation at the DeFi level.

Wu Hao: Even if the Token Safe Harbor proposal forms a bill, it will have limited impact on China

Regarding the significance of the Token Safe Harbor proposal, Wu Hao, Managing Partner of DKB FUND Wudaokou Blockchain Fund, interpreted it from two dimensions, the global level and the Chinese level.

Wu Hao pointed out that from a global perspective, the Token Safe Harbor proposal has positive significance on the whole, and has taken a step towards innovation in the balance of innovation and supervision. However, he also emphasized that the overseas assumption of this regulation is more idealistic regulation, that is, assuming that there are more good people, how the Token Safe Harbor proposal does more good people into innovation and promote new growth points in the global economy. Wu Hao said that the relevant proposal, including the requirements for the initial team and the requirements for information disclosure, can promote the development of the entire industry on the premise that everyone is a good person. But the problem is that not all people in this world are good. There must be many people who use this to seek benefits, such as borrowing money from this safe harbor to raise funds, and do n’t work after getting the funds. So this proposal is only the first step, and it needs to be detailed later.

Wu Hao also suggested that supervision should limit the amount of financing when entering the safe harbor in the early stage to prevent the situation mentioned above after getting a large amount of funds; let it be released as the project progresses. At the same time, he also pointed out that such a restriction is not a market behavior but a regulatory behavior. In the end, how to limit the initial financing needs further discussion.

Going back to the Chinese level, Wu Hao believes that the Token Safe Harbor proposal, even if a bill is formed in the future, will have limited impact on China. In the short term, there is no tendency to liberalize ICO in China. The digital currency development path of the domestic digital economy may be most likely to be implemented by the central bank. Securitization token STO is the second step. Finally, it is not possible to reach the ICO step until the distant future.

Wu Hao pointed out that in the Chinese environment, in the future, it is still more inclined to build a digital economy with the existing financial system as a supporting point instead of building a new digital economy, that is, it will be an improved approach rather than a comprehensive innovation approach. . After all, STO is supported by basic assets, which is relatively mature. Therefore, tokenization at the STO level, because with the central bank digital currency, if it is already completed, it will be easier later. In the future, the IPO part can use the physical IPO. It can be developed in the form of STO, which is also envisaged several years later. The overall idea is that the domestic development path is the way of central bank currency, then STO, and then ICO.

Zhu Jiaming: Regulation will mature in the next two years to achieve a balance between regulation and financial innovation

At the end of the closed session, Zhu Jiaming, chairman of the Academic and Technical Committee of the Digital Asset Research Institute and well-known economist, made a concluding speech. Zhu Jiaming said that due to the epidemic situation in China, many people are in isolation and cannot communicate face-to-face, but the operation of the world, especially the development of the digital economy, has not stopped, and there are still many issues that need attention, research, discussion, and exchange.

At the same time, he also pointed out that supervision will mature in the next two years to achieve a balance between supervision and financial innovation. The core background of this balance is to open up financial resources and opportunities for financial innovation to ordinary people.

In the end, Zhu Jiaming emphasized that 2020 is a turning point, and the digital economy and digital currency field will mature. All the issues discussed before will be re-mentioned in a new historical environment and historical background to be upgraded and re-implemented.

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