Two major organizations in the cryptocurrency field – the Decentralized Finance Education Fund (DeFi Education Fund) and the Uniswap Foundation – recently made clear statements to the U.S. Securities and Exchange Commission (SEC) regarding the regulation of decentralized autonomous organizations (DAOs). Call on the SEC to adopt a more lenient regulatory attitude towards DAOs, and even advocate excluding DAOs from the regulatory scope in certain circumstances.
In a letter sent to Hester Peirce, the head of the Crypto Working Group of the U.S. Securities and Exchange Commission, on May 27th, the two organizations elaborated on their own viewpoints in detail. They emphasized that if decentralized autonomous organizations are “sufficiently decentralized”, they should not be included in the category of the Howey test used to define securities. This is because such highly decentralized DAOs are neither precisely identifiable nor, like traditional enterprises, a group with a clear coordination mechanism. In their view, unless there is conclusive evidence suggesting the opposite, decentralized autonomous organizations should be regarded as individuals or a group of individuals rather than regulated entities in the traditional sense.
The letter specifically states: “If a decentralized autonomous organization has a wide distribution of token holders and these holders have the opportunity to actively participate in and govern the organization and its network, then the organization is sufficiently decentralized.” In this situation, its network token should not be regarded as a security, and transactions involving the network token should not be recognized as security transactions either. The core of this view lies in emphasizing the unique decentralized structure and governance model of the DAO, which distinguishes it from traditional securities issuance and trading entities that require strict regulation.
Looking back at the regulatory journey of the U.S. Securities and Exchange Commission in the crypto field, its attitude and actions have always been closely watched. As early as 2017, in its investigation report on The DAO project, the SEC used the Omniway test to determine that DAO coins were securities, thereby clarifying that the issuance and sale of DAO coins were subject to federal securities laws. This move set the tone for the subsequent regulation of cryptocurrency-related projects by the SEC. Since then, the SEC has repeatedly stated that if digital assets meet the definition of “securities” under federal law, their issuance, sale, investment, consultation, trading, circulation and other links will all be included in the regulatory scope of the federal securities law system.
However, in recent years, with the rapid development of blockchain technology, the number and scale of DAOs have been continuously increasing, and their role in the cryptocurrency ecosystem has become increasingly important. Like Uniswap DAO manages the world’s largest decentralized exchange (DEX), Aave DAO is responsible for managing lending protocols in the DeFi field, and MakerDAO supervises the monetary policy of the stablecoin Dai, etc. These DAOs play a crucial role in promoting innovation in crypto finance and building a new financial ecosystem. The Decentralized Finance Education Fund and the Uniswap Foundation believe that the current regulatory approach of the SEC may pose an obstacle to the innovative development of DAOs.
From both technical and operational perspectives, highly decentralized DAOs typically do not have a clear control center or a single decision-making entity like traditional enterprises. Smart contracts play a core role in it. Rules are encoded and automatically executed. Members vote and make decisions by holding governance tokens, and the participation process does not require the approval of a centralized institution. This model makes the DAO more flexible and efficient in operation and better reflects the decentralized spirit of blockchain technology. If it is restricted in accordance with the traditional securities regulatory methods, it may limit its innovation vitality and even lead to some projects transferring their business to regions with a more relaxed regulatory environment.
The letters sent by the two major organizations to the SEC this time are also responses to Hester Pierce’s statement on February 21st. At that time, Pierce invited the industry to express their opinions on issues related to cryptocurrencies, which provided an opportunity for crypto industry groups to convey their demands. With the continuous development of the cryptocurrency market and the expanding influence of DAOs within it, how the SEC balances the relationship between investor protection and industry innovation, and how it formulates more reasonable and effective regulatory policies, not only concerns the future direction of the US cryptocurrency market, but will also have a profound impact on the global cryptocurrency regulatory landscape.
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