Author: Jack Inabinet, Bankless; Translated by: Deng Tong, Jinse Finance
Elected President Donald Trump promised to end the Biden administration's anti-crypto campaign and 'fire' SEC Chairman Gary Gensler on day one, winning the hearts of the crypto industry.
Despite Trump not having proposed a replacement for Gensler and his ability to remove the current SEC commissioners appearing legally dubious, cryptocurrency participants remain ecstatic at the prospect that the new SEC Chairman will soon alleviate one of the industry's biggest regulatory pain points.
Commissioners Hester Peirce and Mark Uyeda may have stepped back from the race for the chairmanship, but they have been outspoken advocates for digital asset freedom and regulatory limitations during their tenure at the SEC.
Today, we explore the official statements from Peirce and Uyeda in hopes of understanding what a hypothetical pro-crypto SEC under the Trump administration might look like.
Proposed Token Safe Harbor
The day before Gary Gensler was confirmed as SEC Chairman in April 2021, Commissioner Peirce began considering digital assets.
Recognizing that the new SEC Chairman will present a new agenda of enforcement priorities, Peirce attempted to steer the conversation towards how to craft securities regulations that accommodate blockchain-based tokens by releasing an updated token safe harbor proposal on GitHub.
Peirce's updated proposal aims to provide decentralized application developers a three-year federal securities registration exemption or safe harbor. It incorporates significant revisions based on feedback from the crypto community, securities lawyers, and the public on her previous draft from February.
Under the Trump administration, a pro-crypto SEC is expected to prioritize providing transparency in cryptocurrencies while actively soliciting industry feedback to formulate regulations that balance the needs of emerging decentralized applications with the agency's urgent need to protect the investing public.
Non-fungible stupidity
“Stoner Cats” is a collection of 10,320 NFTs minted for $8.2 million in ETH in July 2021; the proceeds from this sale will be used to fund the production of an animated series also called “Stoner Cats”, featuring Hollywood stars such as Mila Kunis, Ashton Kutcher, and Chris Rock. In exchange for the purchase, holders of Stoner Cats NFTs will gain exclusive access to the series, unspecified future entertainment content, and an online community.
Although the SEC ultimately settled with the entity behind Stoner Cats regarding the unregistered securities offering, Commissioner Peirce and the only Republican commissioner at the SEC, Mark Uyeda, opposed this enforcement action.
Commissioners Peirce and Uyeda acknowledged that NFT creators should not receive a free pass from securities regulation, but they believe that applying securities regulation in this case would only lead to legal ambiguity.
Under the Trump administration, a pro-crypto SEC is expected to issue comprehensive guidelines on how to apply securities regulations to NFTs; to replace the uncertainty surrounding the legal status of hypothetical tokenized Pokémon cards, it should clarify when digital assets may be exempt from securities regulation.
Token Tensions
In March of this year, the SEC took what appeared to be a controversial enforcement action against a cryptocurrency company, settling charges against the cryptocurrency exchange ShapeShift, accusing it of acting as an unregistered securities dealer in its online crypto asset trading platform.
Although ShapeShift became a peer-to-peer decentralized exchange in 2021, it has acted as a broker intermediary for over six years, fulfilling inventory orders and serving as the counterparty to all cryptocurrency trades occurring on its platform.
Although Commissioners Peirce and Uyeda did not challenge the assertion that ShapeShift operated as an unregistered securities dealer before 2021, they expressed concerns about the ambiguity resulting from the SEC's enforcement actions in a separate joint dissent.
To qualify as an unregistered securities dealer, ShapeShift must facilitate the sale of securities. The SEC's unwillingness (or inability) to identify the relevant securities or how these securities' sales create investment contracts has thus created an environment that is difficult to sustain for secondary trading of crypto assets.
Under the Trump administration, a pro-crypto SEC is expected to clarify which tokens qualify as securities, eliminating the threat of vague misconduct faced by crypto-native exchanges like Coinbase, while approving registered securities dealers to list such assets alongside existing products.
Imminent issues
Decades of precedent suggest that Chairman Gensler will resign and hand control of the SEC to Trump-appointed individuals, but his term does not expire until 2026, and it remains entirely unclear whether President Trump could forcibly remove Chairman Gensler before then without protracted litigation.
However, it is worth noting that many within the crypto industry interpreted Gensler's recent remarks on November 14 as an informal resignation notice, such as the chairman stating he was 'very honored to serve'.
As an independent regulatory agency, the SEC enjoys significant autonomy from the executive branch, although Trump boasted on his first day that he would fire Chairman Gensler, vague case law may support the view that SEC commissioners can only be removed 'for cause' rather than simply 'at will'.
Although the SEC Chairman has discretion over the agency's budget and supervises its staff, they need to obtain a majority consent from the commission to appoint executive branch heads, and each commissioner has equal voting rights in agency proceedings, which guide how the SEC interprets and enforces securities legislation.
Commissioners are appointed by the President of the United States for a five-year term but must be confirmed by a majority in the Senate. The terms are staggered to ensure that one member can be removed each year on June 5, although commissioners can serve an additional 18 months after their term ends to prevent vacancies, but at no time can more than three of the five commissioners belong to the same political party.
Although Commissioner Crenshaw's term expired on June 5 of this year, she continues to serve at the SEC and has been re-nominated by President Biden to fill the resulting vacancy.
If this vacancy persists until President Trump's inauguration, he could easily fill the Republican Senate seat with his chosen candidate, solidifying what seems to be a pro-crypto majority within the SEC. Unfortunately, the currently Democrat-controlled Senate still has ample time to confirm Crenshaw's additional five-year term, while the Biden administration could always take sneaky recess appointments after the Senate recess on December 20.
Even if Gensler does not resign and assuming Crenshaw's reappointment is confirmed, President Trump could still exert his influence over the SEC by appointing reluctant Peirce and Uyeda.
While no rule-making activity will occur in this situation, the acting chair has gained control over SEC staff, giving them the power to rescind controversial SEC staff accounting announcements 121, grant requests for action letters, suspend or terminate ongoing enforcement investigations and lawsuits, and solicit public feedback as the first step in future cryptocurrency rule-making processes.