As a Commissioner of the U.S. Securities and Exchange Commission (SEC), Hester Peirce, nicknamed “Crypto Mom,” clearly stated at the SEC Speaks annual conference on May 19 that most crypto assets, including stablecoins, meme coins, and NFTs, are not securities. Peirce also proposed a Safe Harbor framework to provide new crypto projects with a compliance period, allowing them some breathing room to develop product functionality and decentralization without being immediately classified as illegal securities.
New SEC Commissioner Paul Atkins Strongly Supports, Crypto Task Force Takes Action
Currently, under the support of new SEC Commissioner Paul Atkins, the “Crypto Task Force” led by Peirce has undertaken the following actions:
- Held four roundtable meetings, with the fifth scheduled for June
- Received over 100 written comments from the industry
- Conducted over a hundred meetings with industry representatives and scholars
- Issued legal guidance covering mining and digital asset custody
- Revoked outdated policies
- Assisted Congress in drafting legislation and aligned with the White House’s crypto policy direction
Most Crypto Assets Are Not Securities, Including Stablecoins, Meme Coins, and NFTs
Peirce explicitly stated:
“Most crypto assets in the market do not actually constitute securities.”
She further categorized which coins fall into the “non-security” category:
- Stablecoins: Primarily used as payment instruments, not involving investment returns
- Memecoins: Value derived from culture and community consensus, not reliant on any company’s profitability, lacking economic dependency
- NFTs: Creators can collect resale royalties through smart contracts, but buyers do not enjoy profit-sharing with the creators
- Utility Tokens: Used solely as tools for utilizing protocols or applications, not relying on third-party profits
Safe Harbor Assists Businesses in Transitioning Safely, Avoiding Immediate Legal Issues
Peirce also cautioned that if a crypto project:
Pre-sells tokens before the protocol is launched and decentralized, while promising future functionality and developments, then this transaction may likely constitute an “investment contract,” potentially violating securities laws.
To address this issue, she proposed the Safe Harbor mechanism for businesses to transition safely:
- Provides a buffer period for crypto projects, such as three years
- During the buffer period, as long as they meet information disclosure obligations, such as project progress, team structure, and use of funds
- Can temporarily exempt from the cumbersome registration procedures of securities laws
- Allows businesses a buffer period to launch functionality and decentralize without immediate penalties
Even if early issuances involve investment contracts, once the tokens are launched and freely traded on the market, subsequent transfers will no longer be subject to securities laws.
SEC Will Gradually Issue Clear Guidelines on NFTs, Staking, and Airdrops
Peirce emphasized that clear guidelines on crypto assets and yield mechanisms will be issued in the future, including:
- Whether creator NFT earnings constitute securities earnings?
- Are airdrops considered fundraising?
- Does participation in staking involve the Howey Test, namely whether investors expect to profit from the efforts of others?
Tokenized Securities and Non-Securities Coexist, Market Needs Clear Rules to Maintain Order
Peirce pointed out that traditional assets like stocks and bonds, even when tokenized, still fall under the category of securities and must adhere to regulations. However, the market also contains a considerable amount of non-security crypto assets, such as:
- Utility Tokens
- Stablecoins
- Community Tokens
These two types are bound to coexist in the same market. The SEC should establish clear and predictable guidelines for this “dual-track system,” rather than applying a one-size-fits-all approach that suppresses all.
(Don’t let crypto startups get stuck in the definition of securities! Crypto Mom Peirce: Establishing clear and lasting mechanisms is key to crypto regulation)
Risk Warning
Investing in cryptocurrencies involves a high degree of risk, and prices may fluctuate significantly, leading to potential total loss of principal. Please assess risks carefully.