Two powerful forces in the DC crypto policy field, Andreessen Horowitz and the Defi Education Fund, officially called on the SEC to create a safe port to protect developers of decentralized apps on Wednesday.
The proposal ensures that businesses and developers will create popular types of distributed apps when enacted ( Dapp), decentralized exchange, freestanding wallets, and NFT Marketplace protocols, are exempt from being labelled as broker-dealer by the SEC.
Importantly, even if the app itself handles transactions in offering tokenized securities and other securities, it is exempt from SEC monitoring as long as it meets certain criteria.
Washington-based crypto lobbying group Andreessen Horowitz and The Defi Education Fund today proposed four qualities that the app must own to enter the Safe Harbor.
The app must be non-mandatory and do not control user funds. You can also use optimization software to recommend cheaper or more efficient transactions, but you cannot implement these suggestions without the consent of the user. You should avoid providing investment recommendations. And in most cases, it is necessary to interact only with protocols that exclude operational control, or to “definitely demonstrated (a) dispersed honestly.”
Perhaps the last prong represents the biggest change from previous SEC policies. Under today’s recommendations, certain centralized entities that manage crypto apps are still If they are pursuing long-term decentralization goals, and if the total value of the assets is at a certain threshold, they will acquire a safe port. Today’s letter to the SEC did not suggest what such a threshold was.
SEC and Developers
The SEC has previously pursued legal action against centralized developers of decentralized apps, including the Creator of Self Custodial Ethereum Wallet Metamask of Contersys, a Texas-based Consensys, and Uniswap Labs, the developer of New York-based Decentralized Exchange UnisWap.
By way of example, the SEC’s actions against Consensys allegedly functioning the company as an unregistered broker under the definition established in the Securities and Exchange Act of 1934, during the New Deal era. The centrality of that discussion was considerations including whether Consensys is a centralized entity and whether the developed app provided securities to its customers.
Shortly after the start of President Donald Trump’s second term, the SEC moved to dismiss the lawsuits they previously sued against Consensey, Uniswap, and all major American crypto companies.
In today’s letter to the SEC, Andreesen Horowitz and the Debt Education Fund have stated entirely that existing definitions of broker-dealers could actually attract some decentralized app developers, but this should not be an acceptable situation for a Dapp meeting the standards for safe ports.
“They are usually off-chain software and products, so someone is new to how (usually centralized companies) operate and control them,” the letter said. “As a result, it is plausible that even if the app is inappropriate, it is possible to engage in risk-related activities and provide services that the broker registration system aims to address.”
However, the letter continues to argue that it can force the launch of young, distributed apps to quickly remove operational controls to avoid second jurisdiction, and may hinder innovation.
“(i) F projects will eliminate operational management early, and investors may be exposed to risk through security or other undiscovered vulnerabilities,” the letter continued. ”
SEC’s “Project Cryptography”
Today’s recommendations come in response to recent moves by the White House and SEC to create new explicit securities law guidelines and exemptions for digital assets with the aim of growing the crypto industry domestically.
At the end of last month, SEC Chairman Paul Atkins announced “Project Crypto.” This has announced an aggressive SEC initiative to formally greenlight many categories of crypto projects and product categories, outside the scope of the agency. Atkins said the SEC will soon begin offering suitability disclosures, exemptions and secure ports for crypto projects that meet certain criteria.
“Developers deserve clearly and our hopes to submit this proposal is to provide front-end developers with guidelines that they can build without fear of being scoped to the reality of technology and misorganized unfair requirements,” said today, Executive Director of the Defi Education Fund.
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