SEC’s Commitment to Onchain Fundraising
In a recent interview with CNBC’s Squawk Box on September 29, 2023, Paul Atkins, Chair of the Securities and Exchange Commission (SEC), emphasized the agency’s commitment to clarifying the landscape for onchain fundraising, even following the rejection of the CLARITY Act in Congress. During the conversation, surprisingly veering towards the topic of cryptocurrency, Atkins highlighted the SEC’s intention to independently establish guidelines that would aid investors and entrepreneurs in the blockchain space.
SEC’s Initiative Post-CLARITY Act
Atkins made headlines when he declared on X shortly after the Senate’s disappointing 49-50 cloture vote on September 15—which fell short of the necessary 60 votes—that the SEC would take initiative regardless of legislative outcomes:
“With or without legislation, we will act decisively within the SEC’s statutory authority to deliver certainty for American investors and entrepreneurs shaping our technological future.”
While Atkins did not specify whether this guidance would take the form of exemptions, registration processes, or advisory notes, he assured that the agency would proceed in its capacity to illuminate the paths for capital raising on blockchain. The proposed CLARITY Act’s downfall was primarily due to the failure to resolve disagreements about ethics rules linking to officials’ crypto asset holdings, rather than the expected tussle over regulatory jurisdiction between the SEC and the Commodity Futures Trading Commission (CFTC). Despite a motion from Senator Thom Tillis to reconsider the bill, the calendar is short, as the Senate is scheduled to resume on October 5, coinciding with midterm election campaigns, putting future prospects for the Act in doubt until at least 2026, based on current predictive market trends.
SEC as Primary Source for Guidance
In light of the legislative stalemate, the SEC is now positioned as the primary source for guidance in this rapidly evolving sector. Notably, on September 17, the agency provided a framework for tokenized stocks, paving the way for potential 24/7 trading in this market. Just days later, on September 25, the SEC’s Division of Corporation Finance issued a set of nine frequently asked questions addressing how the commitments of token issuers might influence their classification as securities. The guidance indicated that merely articulating current network usage or aspirations would not imply significant management activity. Conversely, guarantees of yield on a nascent equated network could be interpreted as promises of profit, indicating a nuanced approach the SEC intends to adopt as it crafts the onchain capital-raising guidelines.
Resignation of Commissioner Hester Peirce
This development follows the resignation announcement of Commissioner Hester Peirce, often dubbed “Crypto Mom,” effective October 2, resulting in a slimmer SEC leadership with only Paul Atkins and Mark Uyeda remaining amidst vacant Democratic seats. Peirce left with a clarion call for better protections for crypto innovators and an insistence on the necessity of preserving financial privacy, even in the absence of the CLARITY Act. Previously, she urged the agency to incorporate zero-knowledge proofs to enhance know-your-customer (KYC) requirements.
Regulatory Volatility and Future Uncertainty
It is pertinent, however, to note the regulatory volatility; while the SEC can issue rules more expediently than Congress can enact statutes, such rules are subject to overhaul by future administrations. This ongoing uncertainty casts a long shadow over the efforts that the CLARITY Act sought to stabilize.
