SEC’s Regulation Crypto Assets Is A Major Step Toward Clarity

Key Points

• This is the most significant step the SEC has taken toward providing clarity to its regulation of crypto assets. The proposal thoughtfully draws clear lines in many areas, often taking out the guesswork of whether something may be a crypto asset security.
• It would provide a path for small startups, U.S.-based issuers conducting offerings of up to $20 million or $75 million over a single year, and issuers planning to relinquish control over their projects. Large projects and tokenized equities offerings likely would not qualify for a proposed exemption.
• While the rule generally does a good job of avoiding the regulatory ambiguity that has kept many on the sidelines, there are a few principles-based concepts that could introduce areas of uncertainty, such as the disclosure requirements for the startup exemption.
• The proposed rules further the current SEC’s goal of democratization by making exempt offerings available to retail investors. Anyone could purchase securities offered under the startup exemption. Under the fundraising exemption, non-accredited investors could invest up to 10% of the greater of their annual income or net worth.

Introduction / Background

On August 18, 2026, the U.S. Securities and Exchange Commission (SEC) released its proposed rules for investment contracts involving crypto assets, titled “Regulation Crypto Assets.” This follows joint SEC and Commodity Futures Trading Commission (CFTC) guidance from March on token taxonomy and how the federal securities laws apply to crypto assets,¹ and the recently stalled efforts by Congress to pass the CLARITY Act.

Regulation Crypto Assets is the SEC’s most significant crypto-related rulemaking effort to date, now providing two exemptions from the registration requirements of the federal securities laws and a safe harbor from the definition of “investment contract.”

Startup Exemption

The Startup Exemption seeks to facilitate capital raising by early-stage crypto projects. It would exempt offerings of up to $5 million from the registration requirements of Section 5 of the Securities Act of 1933 for up to four years. An issuer may use this exemption only once for a crypto asset.

Before any sales, an issuer would have to file a notice of reliance on a newly proposed Form NOR, which would require limited information about the issuer and the crypto project, as well as “principles-based” disclosures on its website “tailored to the issuer … in clear, concise, and understandable language.”² There is also an obligation to disclose material changes. None of these disclosures would require review or approval by the SEC prior to filing.

By the end of the Startup Exemption’s four-year period, issuers would have to file a transition report in a newly proposed Form TR in which the issuer certifies it (i) has completed or otherwise permanently ceased all essential managerial efforts represented and (ii) is not making and does not intend to make any new representations or promises to engage in essential managerial efforts. The transition report makes investors, the SEC and the public aware that the exemption no longer applies. It would not require SEC review or approval and would take effect immediately upon filing.

Though it would be available only to a minority of crypto asset projects — small ones with a plan to achieve decentralization — this exemption appears to offer a workable framework and represents meaningful regulatory relief. In a significant departure from analogous exemptions, offerings made under the Startup Exemption would not have restrictions on general solicitation and non-accredited investor participation. The principles-based disclosure requirements also would avoid a one-size-fits-all approach to disclosures, allowing issuers to tailor their disclosures to the unique circumstances of their offerings without first seeking SEC input and approval. However, that same flexibility carries risks because reasonable minds can differ on what specific information must be disclosed under applicable principles. Further, exempt offerings still would be subject to the antifraud provisions of the federal securities laws.

Fundraising Exemption

The Fundraising Exemption, apparently modeled on Regulation A, would exempt from the Securities Act’s registration requirements “Tier 1” offerings up to $20 million in any 12-month period (with a $6 million cap on affiliate sales) and “Tier 2” offerings up to $75 million in any 12-month period (with a $22.5 million cap on affiliate sales). A key difference is that while financial statements would be required for both tiers, audited financial statements would be required only for Tier 2. This exemption would impose eligibility criteria on issuers:

• An issuer must be organized in the United States.
• The majority of its executive officers or directors must be U.S. citizens or residents.
• More than 50% of its assets must be located in the United States.
• Its business must be administered principally in the United States.

Issuers of exempt offerings would have to file an offering statement on a newly proposed Form 1-CRYPTO, which requires disclosure of key information about the issuer and offering as well as the offering circular, financial statements, and signatures and exhibits. Unlike the Startup Exemption’s required disclosures, draft Forms 1-CRYPTO would have to go through an SEC qualification process. Pending that review, issuers could “test the waters” and make oral or written communications to potential investors to gauge interest in the offering.

Qualifying issuers would have to file annual, semiannual and current reports. While submitting a Form TR is not an eventual requirement (therefore a plan to decentralize is not a prerequisite), doing so relieves the issuer of ongoing reporting obligations. Reporting obligations also could be suspended if there were fewer than 300 holders of a class of securities.

For offerings under the Fundraising Exemption, retail investors could invest only up to 10% of the greater of their annual income or net worth. Issuers would be able to rely on purchasers’ representations but not if they know at the time of the representation that it is not true. Similar to the Startup Exemption, covered investment contracts under the Fundraising Exemption would not be restricted securities, general solicitation would be permitted and issuers still would be subject to the antifraud provisions of the federal securities laws.

Compared to the Startup Exemption, the Fundraising Exemption would provide a wider path to an exempt offering, which could include sizable offerings by issuers with no plan to step away from the project. The qualification process for Form 1-CRYPTO would eliminate the uncertainty of the Startup Exemption’s principles-based disclosure requirements, but at the cost of time and expense. Also, U.S.-centric eligibility requirements unique to the Fundraising Exemption could incentivize crypto projects to launch or reorganize in the U.S. And while non-accredited investor eligibility (also unique to the Fundraising Exemption) may be based on purchaser representations, issuers may want to consider basic Know Your Customer processes designed to reliably capture this information.

Investment Contract Safe Harbor

The Investment Contract Safe Harbor would provide a non-exclusive safe harbor from the term “investment contract” in the definition of “security” under the Securities Act and the Securities Exchange Act of 1934, contingent on filing of a Form TR certifying all essential managerial efforts to be made in connection with a given project have been completed. While the SEC would not require issuers to participate in a qualification process, the agency could challenge a certification after an issuer files a Form TR.

This is a welcome development from the status quo. Under the Supreme Court’s test in SEC v. W.J. Howey Co., 328 U.S. 293 (1946), a crypto asset is no longer a security if purchasers cease to have an expectation of profits based on the essential managerial efforts of the promoter. This can be an unworkable standard because it turns on what lies in the minds of purchasers, who rarely share uniform thinking. Previously, the SEC has recognized that this expectation can no longer exist when a project becomes decentralized, which it has defined as occurring when “a crypto system functions and operates autonomously with no person, entity, or group of persons or entities having operational, economic, or voting control of the crypto system.”³

In practice, this is often difficult to achieve, and any remnant of issuer control or participation can potentially undermine a claim of decentralization. Rather than demanding such purity here, the SEC would establish a test that turns on requirements that are more easily achieved and that create more certainty because the inquiry is a simpler one less prone to differences of opinion. This safe harbor would be available to any issuer, including one that uses the Startup or Fundraising Exemptions, or neither. Moreover, satisfaction of the safe harbor’s requirements would not be the only way that a crypto asset might be found to not be subject to an investment contract under the Howey test. And while the safe harbor would govern the SEC’s enforcement of the federal securities laws, it would not prevent other parties from asserting that a crypto asset is subject to the federal securities laws or state law claims.

Additional Provisions

The proposed rule would preempt state efforts to regulate crypto asset offers and sales that would be eligible for one of Regulation Crypto Asset’s exemptions or safe harbor. The rule would also impose disclosure requirements for “related persons,” which captures a wide range of project participants and would require careful analysis of disclosure obligations.

What’s Next?

There is a 60-day comment period beginning after the proposed rule is published in the Federal Register, which has not yet occurred. Congress may also pass the CLARITY Act in the coming months, which is aimed at providing a regulatory framework for cryptocurrencies and digital assets and could impact these rules.

Footnotes

^{1. SEC and CFTC, Joint Interpretation, Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, Sec. Act Rel. No. 11412 (Mar. 23, 2026), https://www.sec.gov/files/rules/interp/2026/33-11412.pdf (SEC/CFTC Interpretation).}

^{2. Regulation Crypto Assets at 53. The requirements would require disclosures concerning the terms of the investment contract, a description of the crypto asset, identification of key persons and disclosures of material conflicts, the crypto network, security and source code, the project’s tokenomics, its ecosystem participants, and risk factors. See id. at 49-66.}

^{3. SEC/CFTC Interpretation at 14 n.50.}

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