b'SEC AND CFTC GUIDANCEThree-year Safe Harbor Proposed by SECantifraud provisions, (2) the tokens from registration Commissioner Hester Peirce (Feb. 6, 2020) under the Exchange Act, and (3) persons engaged On February 6, 2020, SEC Commissioner Peircein certain token transactions from the definitions delivered a speech describing the regulatory Catch 22of exchange, broker, and dealer under the for people who want to build functioning token networksExchange Act.without violating U.S. securities lawsoutlining the problem and proposing a three-year safe harbor.Commissioner Peirce began by explaining: WhetherCommissioner Peirce proposed a safe harbor it is issuing tokens to be used in a network, launchingthat would provide network developers with a an exchange-traded product based on bitcoin,three-year grace period within which they could providing custody for crypto assets, operating afacilitate participation in the development of a broker-dealer that handles crypto transactions, orfunctional or decentralized network. That safe setting up an alternative trading system where people can trade crypto assets, our securities laws stand inharbor would exempt (1) the offer and sale of the way of innovation. tokens from the provisions of the Securities Act Commissioner Peirce then outlined the problem:other than the antifraud provisions, (2) the tokens Would-be networks cannot get their tokens out intofrom registration under the Exchange Act, andpeoples hands because their tokens are potentially(3) persons engaged in certain token transactions subject to the securities laws. However, would- from the definitions of exchange, broker, and be networks cannot mature into a functional ordealer under the Exchange Act.decentralized network that is not dependent upon a single person or group to carry out the essential managerial or entrepreneurial efforts unless the tokens are distributed to and freely transferableCommissioner Peirce also proposed that, to qualify among potential users, developers, and participants for the safe harbor, network developers would need of the network. to meet five conditions: (1) the developers must intend Commissioner Peirce next proposed a safe harborfor the network on which the token functions to reach that would provide network developers with a three- network maturity (defined as either decentralization year grace period within which they could facilitateor token functionality) within three years of the date participation in the development of a functionalof the first token sale and undertake good faith or decentralized network. That safe harbor wouldand reasonable efforts to achieve that goal, (2) the exempt (1) the offer and sale of tokens from thedevelopers would have to disclose key information provisions of the Securities Act other than theon a freely accessible public website, (3) the token 6'