Author: Jack Inabinet, Bankless; Translated by: Deng Tong, Jinse Finance
Elected President Donald Trump promised to end the Biden administration's anti-cryptocurrency campaign, winning over the crypto industry by vowing to "fire" SEC Chair Gary Gensler on day one.
Although Trump has yet to propose a replacement for Gensler, and his ability to remove the current SEC commissioners seems legally questionable, cryptocurrency participants remain ecstatic about the prospect that the new SEC Chair 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 chair position, but they have consistently advocated for freedom in digital assets and regulatory limitations during their tenure at the SEC.
Today, we explore the official statements of Peirce and Uyeda, hoping to understand what a pro-cryptocurrency SEC under the leadership of the Trump administration might look like.
Proposed Token Safe Harbor
On the day before Gary Gensler was confirmed as SEC Chair in April 2021, Commissioner Peirce began considering digital assets.
Recognizing that the new SEC Chair will propose a new enforcement priority agenda, Peirce attempted to steer the dialogue on how to formulate securities regulations to accommodate blockchain-based tokens by publishing an updated token safe harbor proposal on GitHub.
Peirce's updated proposal aims to provide a three-year federal securities registration exemption or safe harbor for developers of decentralized applications. It incorporates significant revisions based on feedback from the cryptocurrency community, securities lawyers, and the public on her previous draft from February.
Under the Trump administration, the pro-cryptocurrency SEC is expected to prioritize providing transparency in cryptocurrency while actively soliciting industry feedback to formulate regulations that balance the urgent need for the agency to protect the investing public with the demands of emerging decentralized applications.
Irreplaceable Foolishness
"Stoner Cats" is a collection of 10,320 NFTs minted in July 2021 for 8.2 million dollars in ETH; the proceeds from this sale will 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 their purchase, holders of Stoner Cats NFTs will gain exclusive access to the series, unspecified future entertainment content, and online community.
While the SEC ultimately reached a settlement with the entity behind Stoner Cats regarding the unregistered securities issuance, Commissioner Peirce and the only Republican commissioner at the SEC, Mark Uyeda, opposed this enforcement action.
Commissioners Peirce and Uyeda acknowledge 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, the pro-cryptocurrency SEC is expected to develop comprehensive guidelines on how to apply security regulations to NFTs; clarity should be provided on when digital assets can be exempt from securities regulation to replace the uncertainty surrounding the legal status of hypothetical tokenized Pokémon cards.
Token Tension
In March this year, the SEC took its most recent seemingly controversial enforcement action against a cryptocurrency company, resolving allegations against the cryptocurrency exchange ShapeShift for acting as an unregistered securities dealer in its operation of an online cryptocurrency trading platform.
Although ShapeShift became a peer-to-peer decentralized exchange in 2021, it had acted as a brokerage intermediary for over six years, fulfilling inventory orders and acting as the counterparty to all cryptocurrency transactions occurring on its platform.
Although Commissioners Peirce and Uyeda did not question the assertion that ShapeShift operated as an unregistered securities dealer before 2021, they expressed concerns about the ambiguity created by the SEC's enforcement actions in another joint dissent.
To qualify as an unregistered securities dealer, ShapeShift must facilitate the sale of securities. The SEC's unwillingness (or inability) to identify relevant securities or how these sales create investment contracts has created an untenable environment for secondary trading of crypto assets.
Under the Trump administration, the pro-cryptocurrency SEC is expected to clarify which tokens qualify as securities, eliminating the threat of ambiguous misconduct facing cryptocurrency-native exchanges like Coinbase, while approving registered securities dealers to list such assets alongside existing products.
Pressing Issues
Decades of precedents indicate that Chair Gensler will resign and cede control of the SEC to someone appointed by Trump, but his term does not expire until 2026, and it remains entirely unclear whether President Trump can forcibly remove Chair Gensler before then without protracted litigation.
However, it is worth noting that many within the crypto industry interpreted Gensler's recent remarks made on November 14 as an informal resignation notice, such as his statement expressing "great honor" in serving.
As an independent regulatory agency, the SEC enjoys considerable autonomy from the executive branch, though Trump’s bombastic promise on day one to fire Chair Gensler may face legal ambiguity, suggesting that SEC commissioners can only be removed "for cause" rather than simply "at will."
Although the SEC Chair has discretion over the agency's budget and oversees its staff, they require a majority of the commission's consent to appoint heads of administrative departments, and each commissioner has an equal voice in agency procedural votes that 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 of the Senate. The terms are staggered to ensure that one member can be removed on June 5th each year, although commissioners can serve an additional 18 months after their term expires to prevent vacancies. However, at no time may more than three of the five commissioners belong to the same political party.
Although Commissioner Crenshaw's term expired on June 5 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 a candidate of his choice to solidify a seemingly pro-cryptocurrency majority within the SEC. Unfortunately, the currently Democrat-controlled Senate still has ample time to confirm Crenshaw's additional five-year term, and the Biden administration could always take stealthy recess appointments after the Senate recesses on December 20.
Even if Gensler does not resign and assuming Crenshaw's reappointment is confirmed, President Trump could still exert his influence on the SEC by appointing reluctant Peirce and Uyeda.
While rule-making clarification activities will not occur in this case, the acting chair has gained control over SEC staff, granting them the power to rescind controversial SEC staff accounting announcement 121, process requests not to take action letters, suspend or terminate ongoing enforcement investigations and litigation, and solicit public feedback as the first step in future cryptocurrency rule-making procedures.