The DEFI EDUCATION FUND (DEF) submitted a letter to the Securities and Exchange Commission (SEC) on April 18, offering five basic principles to create a “Token security scheme” framework to support decentralized financing initiatives, while wider regulatory legislation is pending.
The recommendations aim to help the dry structure an exemption from time limited in time for token projects that develop towards decentralization, offering a regulatory environment which facilitates disclosure without prematurely classifying assets as titles.
Technology Regulations
The DEF stressed that any security port should adopt a technological agnostic approach. The framework must meet the risks of activities rather than prescribing rules for specific blockchain models or technical implementations.
The letter has warned of specific technologies, declaring that it could suffocate innovation if the SEC inadvertently favors specific consensus or architectural conception mechanisms.
Regarding eligibility, DEF argued that the port of Safe should be open to a wide range of projects that intend to decentralize. Rather than assessing the status of a token only to its Genesis, the dry should allow the tokens already distributed to qualify, provided that they achieve decentralization objectives.
He argued that wide eligibility criteria are necessary to guarantee the inclusion of projects launched before establishing a clear regulatory framework for future compliance routes.
With regard to disclosure requirements, the DEF pleaded for carefully calibrated obligations that balance the needs for information on the realities faced by development teams at an early stage.
The group has suggested transparency of the source code, the token economy, governance structures, team and initiate activities, cybersecurity audits and development road sheets.
The DEF also proposed periodic disclosure throughout the refuge period, considering the rationalization of conformity thanks to the connectivity of the API and the automation of the blockchain. Additional compliance measures, such as locking periods for initiates, could help align incentralization incentralizations without plans in a surbingon.
Clear output criteria
The letter highlighted the importance of establishing a clear “output test” which defines when a project has sufficiently decentralized to no longer be considered security under American law.
The key criteria for passing the output test would include maximum transparency, participation without authorization, asset custody, centralized lack of control, fully automated transaction processes and the absence of an economic authority preserved by a single group.
The DEF has recommended a realistic period for projects to respond to these benchmarks, like three to four years. Projects that do not meet the criteria in the initial window can request a prolonged refuge period, provided they demonstrate efforts in good faith to decentralize.
An essential element of the DEF proposal involved protections for secondary market players.
Although a token remains in the port of Safe, intermediaries supporting its exchanges, such as exchanges of digital assets and market manufacturers, should not be required to register as brokers or exchanges of securities.
Complete framework required
The DEF noted that the exemption from provider providers of traditional securities regulations would reduce legal uncertainty and promote a broader participation in decentralized markets.
While supporting the creation of a safe port, the DEF finally called on the congress to develop a complete legislative framework for digital assets.
The organization expressed that sustainable legal clarity should come from the law rather than temporary regulatory cuts. Nevertheless, a well -structured refuge could protect investors and promoters while the longer legal process takes place.
The DEF concluded its letter by committing to a continuous commitment to the SEC and the wider cryptography community. The organization also indicated that it would publicly publish its recommendations to request additional comments.
