arbaloch99.tk@gmail.com
The Defi Education Fund (DEF) filed a letter to the Securities and Exchange Commission (SEC) on April 18, proposing five core principles for creating a “Token Safe Harbor” framework, supporting decentralized financial initiatives while pending broader regulatory laws.
This recommendation is intended to help the SEC build time-limited exemptions for token projects that develop towards decentralization, providing a regulatory environment that promotes disclosure without early classification of assets.
Technology and protest regulation
DEF emphasized that safe harbors should adopt a technology-independent approach. Rather than specifying rules for a particular blockchain model or technical implementation, frameworks should address the risks of activity.
The letter warned against entrenching certain technologies, saying that innovation can be suppressed if the SEC misprefers certain consensus mechanisms or architectural designs.
Regarding eligibility, the DEF argued that safe harbors should be open to a wide range of projects that are planned to be decentralized. Rather than assessing the status of tokens only in Genesis, the SEC must ensure that already decentralized tokens can qualify if they meet their decentralization goals.
Before establishing a clear regulatory framework for future compliance pathways, it argued that broad eligibility criteria are needed to ensure inclusion of launched projects.
Regarding disclosure requirements, DEF advocated a carefully coordinated obligation to balance material information needs with the realities facing early stage development teams.
The group proposed disclosure focusing on source code transparency, token economics, governance structure, team and insider activities, cybersecurity audits, and development roadmap.
DEF proposed regular disclosure during the Safe Harbor period, taking into account streamlining compliance through API connectivity and blockchain automation. Additional compliance measures, such as insider lockup periods, can help adjust incentives for decentralization without overburdening the project.
Finishing the termination criteria
The letter underscored the importance of establishing a clear “exit test” to define when projects are decentralized enough to no longer be considered security under US law.
Key criteria for passing the exit test include maximum transparency, unauthorized participation, management of assets users, lack of centralized management, fully automated trading processes, and lack of maintenance economic authority by a single group.
This defense recommended realistic time frames for projects to meet these benchmarks, such as 3-4 years. Projects that do not meet the criteria in the first window can be applied during the extended safe harbor period.
A key component of the DEF proposal included protection for secondary market participants.
The token remains within the Safe Harbor, but intermediaries that support transactions such as digital asset exchanges and market makers do not need to register as broker-dealers or stock exchanges.
A comprehensive framework is needed
DEF noted that by waiver infrastructure providers from traditional securities regulations, it reduces legal uncertainty and encourages wider participation in decentralized markets.
The DEF ultimately called on Congress to develop a comprehensive legislative framework for digital assets, while helping to create a token safe harbor.
The organization has stated that durable legal clarity must come from the law, not from the temporary regulatory engraving. Nevertheless, a well-built safe harbor can protect investors and developers while a longer legal production process unfolds.
DEF concluded its letter by committing to continued engagement with the SEC and the broader crypto community. The organization also indicates that it will publish recommendations to seek further feedback.
