US lawmaker proposes safe harbor for digital tokens in new bill

North Carolina House Representative Patrick McHenry has proposed a bill that would amend one of the laws governing the United States Securities and Exchange Commission (SEC) to provide a safe harbor for certain token projects.

In a draft of the “Clarity for Digital Tokens Act of 2021,” provided by the House Committee on Financial Services, McHenry suggested amending the Securities Act of 1933 to establish a safe harbor for token development teams. He proposed letting projects offer tokens without registering for up to three years, during which time teams would be given the opportunity to create a fully decentralized network.

McHenry’s bill seemingly builds on an initiative from SEC commissioner Hester Peirce, who has called for the creation of a safe harbor for projects that raise funds to build decentralized networks after first floating the concept in 2019. Peirce’s proposal likewise suggests granting network developers a three-year grace period to build a decentralized network without threats of legal action from the SEC.

“If adopted, the proposed safe harbor could be the most groundbreaking development for the U.S. cryptocurrency market to date,” Peirce said in February 2020. “By putting development first and giving projects runway to build robust networks, the proposed safe harbor puts an important stake in the ground towards supporting American access and acceptance of digital asset markets.”

The proposal comes the same day SEC chair Gary Gensler spoke to the committee regarding oversight of the government agency. McHenry said Gensler had made "concerning and contradictory" statements on crypto assets concerning the SEC's enforcement actions and regulatory purview. 

"We need to nurture innovation and technology in this country, not send it overseas," said McHenry. "This bill [...] helps bring legal certainty to digital asset projects that we badly need regulatory clarity to launch."

Kristin Smith, executive director of the Blockchain Association, commended McHenry’s efforts to create a safe harbor, emphasizing the collaboration between innovators and regulators. The Chamber of Digital Commerce, a crypto advocacy group in the United States, said the bill “has the potential to provide a much needed clear path forward for those creating new innovations and solutions leveraging digital tokens.”

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McHenry — known by many in Congress as “Mr. Fintech” — has put forth several pieces of pro-crypto legislation, including suggesting that the Commodity Futures Trading Commission and SEC "establish a joint working group on digital assets” to address regulatory clarity in the crypto space. He has also told his fellow lawmakers that attempts to stop Bitcoin (BTC) were futile as the cryptocurrency was an “unstoppable force.”