As the U.S. Securities and Exchange Commission (SEC) wraps up its public comment process on proposed crypto rules, the industry has called for clearer safe harbor requirements and standards for determining whether airdrops are securities. While it broadly agrees with the regulatory direction, it says the current draft does not sufficiently ease legal uncertainty for startups.

Cointelegraph, a blockchain media outlet, reported on Oct. 19 (local time) that the SEC is set to close comment submissions on Oct. 20 for its crypto asset rule proposal. The SEC proposed in August a regulatory framework to apply to certain investment contracts involving crypto assets and received about 140 comments over 60 days.

The proposal focuses on setting standards for token issuance and disclosure obligations and on providing regulatory exceptions for projects that meet certain requirements. It is seen as a move by the SEC to flesh out a regulatory framework through administrative rules as broad, comprehensive digital asset market legislation at the congressional level is delayed.

In comments submitted to the SEC, the Hyperliquid Policy Center called for five key changes to the proposal. Key issues include the legal nature of airdrops and compliance standards, safe harbor requirements, links to secondary markets, and adjustments to supervisory authority between federal and state governments.

The group in particular argued that clear standards are needed so free tokens distributed as rewards for on-chain activity are not treated as investment contracts. It said airdrops in which users do not invest funds or take on financial risk should be distinguished in the determination of whether something is a security. It also stressed that completing know-your-customer (KYC) procedures or connecting a wallet to receive tokens should not be interpreted as consideration.

It also raised demands for changes to the safe harbor design. The SEC draft includes a plan to allow startups to raise up to $75 million annually through a simplified process and to provide regulatory protections for tokens that meet certain requirements. The Hyperliquid Policy Center said the current requirements could instead increase litigation risk by pressuring projects to acknowledge past reliance on token management teams. It called for rules to include an option to declare that a token was not a security from the outset.

It also cited insufficient consideration of secondary markets such as decentralised exchanges (DEX). It argued that the proposal would be less effective if it regulates only the token issuance stage without addressing the actual on-chain trading environment. It urged that exemptions from state-level supervisory liability, which disappear when the safe harbor ends, should be maintained over the longer term to reduce the regulatory burden on projects.

Market participants' reactions have been largely positive. The MiCA Crypto Alliance, set up to support the introduction of the European Union's digital asset regulatory framework, proposed clarifying crypto-specific disclosure concepts and data structures, and SkyBridge Capital founder Anthony Scaramucci backed the direction of regulatory refinement. Some legal experts, however, voiced concern that administrative rules may offer less legal stability than legislation passed by Congress.

Ultimately, the key issue is how the SEC adjusts its approach to determining whether airdrops are securities, the entry requirements for the safe harbor, and the scope of on-chain trading and state-level supervision after reflecting submitted comments. The extent to which the proposal accommodates industry demands is expected to affect the operating environment for U.S. Web3 startups and the pace of institutionalisation in the digital asset market.