The DeFi Education Fund (DEF) Submitted a Letter to the SEC Proposing Five Core Principles for Creating a "Token Safe Harbor" Framework

The recommendations aim to help the SEC structure a time-limited exemption for token projects developing toward decentralization

The DeFi Education Fund (DEF) has submitted a letter to the Securities and Exchange Commission (SEC) proposing five core principles for creating a “token safe harbor” framework.

The recommendations aim to help the SEC structure a time-limited exemption for token projects developing toward decentralization, offering a regulatory environment that facilitates disclosure without prematurely classifying assets as securities.

This proposal comes as Congress is working on broader legislation for digital assets, which may take time to enact.

The DEF highlighted the urgent need for interim guidance to support the burgeoning DeFi sector.

The letter proposes a technology-agnostic approach to accommodate various Web3 innovations.

It recommends criteria for a broad class of tokens to be eligible, considering factors such as the issuer’s status, time of token distribution, and project's stage of decentralization at the time of application.

suggesting a focus on source code transparency, token economics, and governance structures.

It also proposes an "Exit Test" to gauge a project's progress in decentralization, examining aspects like transparency, participation, custody, control, and economic authority.

A project that meets the criteria could graduate from the safe harbor, and the time-limited nature of the program would encourage efficient decentralization efforts.

suggesting a period of three to four years for projects to achieve sufficient decentralization.

Those still in progress after the initial window can apply for an extension, demonstrating continued efforts to decentralize.

A critical component of the DEF’s proposal involved protections for secondary market participants.

While a token remains within the safe harbor, intermediaries supporting its trading, such as digital asset exchanges and market makers, should not be required to register as broker-dealers or securities exchanges.

suggesting that a broader infrastructure role is played by these firms, which support the secondary market ecosystem.

DEF noted that exempting infrastructure providers from traditional securities regulations would reduce legal uncertainty and foster broader participation in decentralized markets.

While supporting the creation of a token safe harbor, the DEF ultimately called for Congress to develop a comprehensive legislative framework for digital assets.

The organization expressed that durable legal clarity must come from statute rather than temporary regulatory carve-outs. Nevertheless, a well-structured safe harbor could protect investors and developers while the longer lawmaking process unfolds.

DEF concluded its letter by committing to ongoing engagement with the SEC and the broader crypto community. The organization also indicated that it would be publishing its recommendations publicly to solicit further feedback.