Why Centralized Exchanges Avoid Legacy Crypto Tokens Without SEC Protection

Vault12 raised $17.45 million through its 2018 token sale but says it has fulfilled or abandoned all its stated commitments. Despite this, its Vault Guardian Token (VGT) has never been listed on a centralized exchange.

The cryptocurrency issuer is providing an early example of the challenges facing the U.S. Securities and Exchange Commission’s (SEC) proposed safe harbor framework for digital assets.

Vault12, a crypto wallet backup company backed by Winklevoss Capital and Naval Ravikant, warned that the SEC’s proposal may not offer enough legal certainty to encourage exchanges to list tokens. Platforms remain concerned that regulators could challenge a token’s status even after it qualifies for the proposed protections.

The safe harbor forms part of the SEC’s Regulation Crypto Assets proposal, introduced in August. The framework aims to establish conditions under which a token could no longer be considered subject to its original investment contract.

In a comment letter submitted Tuesday, Vault12 said it raised $17.45 million from 38 investors in 2018 through agreements for future tokens. The company argued that its experience highlights potential problems with the SEC’s proposed process for older crypto projects seeking to move beyond securities regulation.

Vault12 said its token sale closely matches the requirements outlined in the proposal. The company claims it has completed or formally discontinued every commitment described in its white paper, yet VGT remains unavailable on centralized exchanges. Its concerns align with those raised by industry group The Digital Chamber, whose comment letter Vault12 said it supports.

According to the company, exchanges it contacted about listing VGT repeatedly requested assurances that the SEC would not challenge the token’s regulatory status at a later date. Vault12 argued that the proposed safe harbor does not provide the level of certainty needed for trading platforms to move forward.

Under the SEC’s proposed Regulation Crypto Assets framework, eligible issuers could receive exemptions for token fundraising and access a conditional safe harbor to end an investment contract associated with a token. Issuers would need to complete or permanently abandon essential managerial commitments, avoid making new commitments of that kind and confirm they have no plans to introduce them.

The proposal would also require issuers to submit a transition report, known as Form TR, explaining why they believe the investment contract has ended.

Vault12 said exchanges considering a VGT listing repeatedly raised concerns about the possibility of future regulatory action, questioning whether the SEC could later determine that the token remained covered by its original investment contract.

The SEC’s proposal preserves the agency’s ability to challenge an issuer’s eligibility for the safe harbor. If a certification were found to be inaccurate, regulators could determine that the investment contract remained in effect, leaving the issuer subject to applicable securities-law requirements.

The proposal also would not prevent other parties from arguing that a token remains subject to an investment contract or qualifies as a security under existing law.

To address these concerns, Vault12 proposed introducing a 60-day period during which the SEC could object to an issuer’s certification. Once that period expired, a properly submitted certification would become conclusive for the agency, except in circumstances involving fraud or material misrepresentations.

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