A New (Digital) Age at the SEC

As technology evolves, the U.S. Securities and Exchange Commission (SEC) must evolve with it. Nowhere is this truer than in crypto, and now: The market for crypto assets has grown in size and sophistication such that the SEC’s recent harmful approach of enforcement and abdication of regulation needs urgent updating.

While the long-term future of the crypto industry in the U.S. will likely require Congress to sign a comprehensive regulatory framework into law, here are six steps the SEC could immediately take to create “fit-for-purpose” regulations – without sacrificing innovation or critical investor protections.

#1 Provide guidance on ‘airdrops’

The SEC should provide interpretive guidance for how blockchain projects can distribute incentive-based crypto rewards to participants — without those being characterized as securities offerings.

Blockchain projects typically offer such rewards — often called “airdrops” — to incentivize usage of a particular network. These distributions are a critical tool for enabling blockchain projects to progressively decentralize, as they disseminate ownership and control of a project to its users.

If the SEC were to provide guidance on distributions, it would stem the tide of these rewards only being issued to non-U.S. persons — a trend that is effectively offshoring ownership of blockchain technologies developed in the U.S., yet at the expense of U.S. investors and developers.

What to do:

Establish eligibility criteriafor crypto assets that can be excluded from being treated as investment contracts under securities laws when distributed as airdrops or incentive-based rewards. (For example, crypto assets that are not otherwise securities and whose market value is, or is expected to be, substantially derived from the programmatic functioning of any distributed ledger or onchain executable software.)

#2 Modify crowdfunding rules

The SEC should revise Regulation Crowdfunding rules so they are suitable for crypto startups. These startups often need a broader distribution of crypto ass

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Author: Bill Hinman, Scott Walker

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