a16z and The Digital Chamber Send Crypto Regulation Wish Lists to the SEC

The Securities and Exchange Commission’s (SEC) new Crypto Task Force is soliciting public submissions on what it needs to do to keep crypto companies in the U.S. and bring back those already offshore.

Those papers offer insights into what the crypto industry hopes a newly friendly government will do next. Here’s a look at what venture capital firm a16z and The Digital Chamber, a major industry advocacy group, are asking for.

Both also start at the same place: The SEC’s unrelenting attacks on crypto and its refusal to create regulations that acknowledge the needs and realities of the digital asset industry have caused great harm and should be addressed as quickly as possible.

It’s also worth noting that some of these wishlists have items that have already been granted, most notably the repeal of SAB 121. This bulletin required digital asset custodians to recognize assets held for clients on the custodians’ balance sheets, effectively discouraging banks from custodying crypto assets. It went well beyond what was required for other asset classes.

a16z’s wish list: Airdrops and disclosure requirements

Also known as the storied venture capital firm Andreessen Horowitz, a16z’s agenda calls on the agency to enable greater retail participation in innovative crypto projects by providing guidance around airdrops.

A16z’s chief compliance officer, Scott Walker, and advisory partner, Bill Hinman, called this type of token distribution “a critical tool for enabling blockchain projects to build community and progressively decentralize, as they disseminate ownership and control of a project to its users.” As a result of this lack of guidance, this type of distribution sometimes excludes U.S. users of a protocol, they added.

Walker and Hinman emphasize the need for resale restrictions for insiders and the protection of investors with “robust disclosure requirements” about relevant material information about the venture. That means not just things like the directors and their compensation but also “disclosures around the underlying blockchain, its governance, and consensus mechanisms,” which may prove more valuable to crypto investors.

Other details include making it easier for broker-dealers to operate in the crypto space, reforming exchange-traded products (ETPs) standards, and providing guidance on the custody and settlement of digital assets.

The Digital Chamber

The Digital Chamber, a crypto advocacy and promotion group, broke its wishlist down into priorities of Day 1, Day 30 and Days 30-90.

Some Day 1 priorities have been met, such as the repeal of SAB 121, “guidance” that told banks to to put customers’ custodied crypto onto their own balance sheets, effectively prohibiting banks from custodying digital assets. The SEC has also begun halting lawsuits and stayed enough investigations to suggest it is reviewing all of them. The Digital Chamber also wants the SEC to only bring lawsuits in cases of fraud or imminent loss, but “no more theory cases.”

On the 30-Day front, one of its requests is to begin work on a token safe harbor proposal, like the one proposed several years ago by Commissioner Hester Peirce. That’s the same Hester Peirce, known as “Crypto Mom,” running the SEC’s brand new Crypto Task Force. In a statement on Feb. 21, she announced that it would consider her old proposal, among other things.

The Digital Chamber also seeks a lot of quick action to define what is not a security in the crypto space and who is not breaking the rules and the law. It would also like the agency to rescind a letter limiting or prohibiting investment companies from providing exposure to digital assets.

In the 30-90 day category, The Digital Chamber’s requests include the SEC finalizing a definition of when a digital asset is or is not a security, in coordination with the Commodity Futures Trading Commission, Congress and the Trump administration.

Other priorities include proposing regulations that govern exchanges, and allowing in-kind contributions to spot Bitcoin and Ether exchange-traded funds (ETFs).