Hester Peirce known as Crypto Mom has yet again spoken in favor of cryptocurrencies. Recently, the leaked interviews of SEC Commissioner gave us hope for Bitcoin ETF approval. Now, Hester Peirce, SEC Commissioner is talking about the most crucial aspect that is “security offerings.”
Blockchain-based Networks doesn’t Fit Neatly within Securities Framework
In her latest speech on “Protecting the Public While Fostering Innovation and Entrepreneurship,” she addresses cryptocurrencies that has been challenged by regulators all over the world, along with SEC. Peirce shares that the “very essence” of this space that is decentralization makes regulating it challenging.
The existing securities law are designed with the assumption that “every issuer has someone at the helm who can authoritatively disclose the relevant material information about the organization.” However, Peirce says,
“Blockchain-based networks offer a new way of coordinating human action that does not fit as neatly within our securities framework.”
She further notes that the objective of these projects is to “run on diffuse contributions” instead of centralized entities that run networks. “In the end, there may not be anyone steering the ship.”
“As Director Hinman noted in his speech, it is the nature of the transaction that determines whether an offering of securities has occurred, not the item being sold.”
Director Hinman had said that “Once “a network becomes truly decentralized, the ability to identify an issuer or promoter to make the requisite disclosure becomes less meaningful” and offers and sales of tokens are no longer subject to the securities laws.”
Whether and How Regulation should be Employed
Giving an example of the Basis project, that returned $133 million in capital to its investors due to not being compliant with the security regulations, she says, “my antennae will go up when apparently legitimate projects cannot proceed because our securities laws make them unworkable.”
Once more blockchain projects mature, she says, clear lines could be drawn. And this delay, she says, “may actually allow more freedom for the technology to come into its own.”
The point is not only the regulation of token sales but also the platforms where they are traded. She also addresses the “great interest” in Bitcoin ETFs where the approach is merit-based regulation, noting that the regulators are “impulsive in running away from anything labeled crypto,” just like investors “jumping blindly at anything labeled crypto.”
She concludes that regulators must think carefully about, “whether and how regulation should be employed,” as there are potential consequences of regulation that involves substituting a government mandate, overruling private arrangements, and the penalty for failure to comply with the mandate.