Venture capital firm Andreessen Horowitz (a16z) and the advocacy organization DeFi Education Fund have asked the US Securities and Exchange Commission (SEC) to set up a safe harbor program for non-fungible token (NFT) and decentralized finance (DeFi) applications from the agency’s broker-dealer registration requirements.
In a Wednesday letter to SEC Commissioner and Crypto Task Force head Hester Peirce, a16z and the DeFi group said they were following up on US President Donald Trump’s Working Group on Digital Assets call to “provide relief for certain DeFi service providers from the broker-dealer […], exchange […], and clearing agency […] registration provisions of the Exchange Act.”
In July, SEC Chair Paul Atkins also said he had directed the agency’s staff to “update antiquated agency rules and regulations” concerning certain crypto and blockchain applications.
A safe harbor, in terms of SEC regulations, would allow many companies offering crypto-related products and services to avoid enforcement actions. The commission and individual investors have previously filed civil lawsuits against cryptocurrency companies for operating as unregistered dealers, including Cumberland DRW, Coinbase and Kraken.
Related: SEC Commissioner says ‘safe harbor’ laws would’ve made ICO problems worse
“The guiding principle of the safe harbor is that only those Apps which do not engender the risks that the Exchange Act’s broker-dealer regulatory regime was designed to address should be eligible; in such cases, registration as a broker under the Exchange Act is unwarranted and inappropriate,” said the letter to the SEC, adding:
“A safe harbor would provide much-needed regulatory clarity, preserve the Commission’s authority to oversee high-risk activities, and ensure that developers can build in the United States without fear of the misapplication of legal categories inappropriate for modern software infrastructure.”
The proposed change in SEC policy followed a16z sending a letter in March to Peirce, detailing recommendations for an NFT safe harbor at the agency. The company also said in a separate letter that the commission “could take the following steps” of setting up safe harbors for airdrops and network tokens.
Which companies could be impacted by the “safe harbor” proposal?
In June, the SEC reported that about 3,340 broker-dealers with $6.4 trillion in assets had registered with the agency as of 2024. The agency noted at the time that there had been a trend of “industry consolidation, with a declining fraction of market participants responsible for a larger asset pool.”
The commission established the category of Special Purpose Broker-Dealers (SPBD) in December 2020 for custodying digital asset securities. However, the SEC clarified in May that the SPBD designation was not mandatory for “broker-dealers seeking to custody customer crypto assets that are securities,” adding that standard requirements would apply for both engaging in digital asset and traditional securities.
How the SEC and Commodity Futures Trading Commission (CFTC) handle digital assets could change once lawmakers in the US Congress address proposed legislation to establish a crypto market structure. The leading bill for market structure, called the CLARITY Act, was passed by the House of Representatives in July and awaits consideration in the Senate.
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