Centralized Exchanges Stay Cautious on Legacy Tokens Amid SEC Legal Risksc

Vault12 raised $17.45 million in 2018 through a sale involving 38 investors, yet its Vault Guardian Token (VGT) has never appeared on a centralized exchange. The company says it has either fulfilled or formally abandoned every commitment outlined in its white paper.

The situation raises questions about whether the U.S. Securities and Exchange Commission’s (SEC) proposed safe harbor framework will offer enough certainty for older cryptocurrency projects seeking to end their securities-related obligations.

Vault12, a digital asset wallet backup provider backed by Winklevoss Capital and Naval Ravikant, cautioned that exchanges could continue avoiding token listings because of concerns that regulators might challenge their status in the future.

The proposed protections are included in the SEC’s Regulation Crypto Assets framework, unveiled in August. The initiative aims to define when certain tokens can move beyond the investment contracts associated with their initial fundraising.

In a comment letter submitted Tuesday, Vault12 said its 2018 token offering followed a path that closely matches the proposed requirements. Despite completing or discontinuing all its stated commitments, the company has not managed to get VGT listed on a centralized trading platform.

Vault12 also expressed support for similar concerns raised by industry organization The Digital Chamber regarding the proposal.

The company said exchanges it approached repeatedly sought assurances that the SEC would not later determine that VGT remained subject to its original investment contract. Vault12 argued that the proposed rules fail to resolve this regulatory uncertainty.

Under the framework, eligible issuers could benefit from fundraising exemptions and a conditional safe harbor for terminating a token-related investment contract. To qualify, they must complete or permanently discontinue essential managerial efforts, avoid making new commitments of this kind and have no plans to make them in the future.

Projects would also need to file a transition report, called Form TR, explaining why they believe their investment contract has ended.

However, the SEC would retain the power to challenge an issuer’s eligibility. If a certification contained inaccurate information, the agency could conclude that the investment contract remained active, leaving the issuer subject to securities-law requirements.

The proposed safe harbor would not prevent other parties from claiming that a token remains tied to an investment contract or otherwise constitutes a security.

Vault12 proposed an alternative that would give the SEC 60 days to object to a properly filed certification. After that deadline, the certification would become conclusive for the agency, except in cases involving fraud or material misrepresentations.