Vault12 secured $17.45 million from investors in 2018, but its Vault Guardian Token (VGT) has never been listed on a centralized exchange, despite the company saying it has completed or abandoned all the commitments outlined in its original white paper.
The case offers an early example of the uncertainty surrounding the U.S. Securities and Exchange Commission’s (SEC) proposed safe harbor rules for crypto tokens.
Vault12, a cryptocurrency wallet backup provider backed by Winklevoss Capital and Naval Ravikant, warned that the proposed framework may not give exchanges sufficient legal protection to list older tokens. Trading platforms remain concerned that the SEC could revisit a token’s regulatory status even after its issuer claims to qualify for the safe harbor.
The proposed safe harbor is included in the SEC’s Regulation Crypto Assets framework, introduced in August. It aims to establish conditions that would allow certain tokens to move beyond the securities obligations associated with their original investment contracts.
In a comment letter submitted Tuesday, Vault12 said it raised $17.45 million from 38 investors through future-token agreements in 2018. The company argued that its experience exposes a potential weakness in the SEC’s plan for older crypto projects seeking to end their investment-contract status.
Vault12 maintains that VGT meets the proposal’s requirements because it has fulfilled or formally discontinued every commitment outlined in its white paper. However, the token remains unlisted on centralized exchanges. The company also expressed support for similar concerns raised by industry group The Digital Chamber.
Vault12 said exchanges approached about listing VGT wanted confirmation that the SEC would not later challenge the token’s classification. According to the company, the proposed rules do not provide enough certainty for platforms to accept the associated regulatory risk.
Under the SEC’s proposal, eligible projects could receive fundraising exemptions and use a conditional safe harbor to end an investment contract tied to a token. To qualify, issuers would need to complete or permanently abandon essential managerial commitments, refrain from making new commitments and have no plans to introduce them in the future.
Issuers would also have to submit a transition report, known as Form TR, explaining why they believe the investment contract has ended.
Vault12 said exchanges repeatedly raised concerns about whether the SEC could later determine that VGT remained subject to its original investment contract, potentially exposing trading platforms to regulatory challenges.
The proposed framework allows the SEC to question whether an issuer has satisfied the safe harbor conditions. If a certification contains inaccurate information, the agency could determine that the investment contract remains in force, meaning securities-law obligations would continue to apply.
Additionally, the safe harbor would not prevent other parties from arguing that a token remains covered by an investment contract or otherwise qualifies as a security.
Vault12 proposed a 60-day deadline for SEC objections to an issuer’s certification. Under its suggested approach, a properly filed certification would become conclusive for the agency once the period expires, with exceptions for fraud and material misstatements.
