The SEC is proposing new fundraising rules for crypto projects that sell tokens while building a blockchain network or application. Regulation Crypto Assets would allow qualifying developers to raise capital from a broad investor base and support secondary trading through tailored exemptions from Securities Act registration.
However, these new freedoms come with additional regulatory burdens. Issuers would need to describe the token, network, development plan, governance, security and token economics, then keep that record current. These disclosures would also document the essential managerial efforts on which investors are relying, helping to define both the investment contract and the conditions for its eventual cessation. For intermediaries, those filings may inform decisions about which exemption applies, whether its conditions remain satisfied and whether an investment contract has ended.The proposal addresses a practical impediment to growth. Existing exemptions allow crypto fundraising but come with restrictions limiting access to a broad investor base. Congress, meanwhile, continues to debate the wider market structure.
How Current Rules Restrict Access
A crypto asset is a digital representation of value recorded on a blockchain or comparable distributed ledger. Some assets are generated by the network protocol; others are issued through code running on an existing network.
The problem arises when a developer or foundation wants to sell tokens to finance the creation of a new network. Token purchasers may rely on the developer to deliver promised functionality and development milestones. The offer and sale can therefore constitute an investment contract, even where the underlying token is not itself a security.
Existing exemptions were built mainly for instruments that remain securities. Regulation D generally restricts broad retail participation and can leave buyers holding restricted securities. Regulation Crowdfunding requires a registered broker or funding portal and imposes investment and resale conditions. Regulation A permits public fundraising, but the SEC does not currently regard covered crypto investment contracts as eligible securities.What issuers could do
The proposal would create a lighter route for small, early-stage projects and a more demanding regime for larger or repeat fundraising.
The startup exemption would permit an issuer to raise up to $5 million over four years. It could be used only once for the project. Eligible issuers could use general solicitation, sell to non-accredited investors without individual investment limits and avoid a mandatory crowdfunding intermediary. They would still need to publish prescribed disclosures, update them for material changes and file notices with the SEC.
The fundraising exemption would permit larger public offerings: up to $20 million under Tier 1 and $75 million under Tier 2 during any 12-month period. Both tiers would require SEC qualification, financial statements, continuing reports and crypto-specific disclosures. Non-accredited purchasers could participate, but their investment would be limited to 10% of the greater of annual income or net worth. Tier 2 financial statements would need to be audited.
Covered investment contracts sold under either exemption would not be classified as restricted securities under federal law, although contractual or other restrictions could still apply.
It would also pre-empt state registration and qualification for qualifying offers and certain secondary transactions. (www.sec.gov)
Commissioner Mark Uyeda said the framework “would replace the guesswork with fixed thresholds, defined disclosure obligations, and a set of conditions that issuers can measure themselves against.”
The proposed safe harbour tackles what happens after development. An issuer could file a transition report once it has completed or permanently stopped the essential managerial efforts promised to investors and made no new promises. The investment contract would then be deemed to have ceased. The safe harbour would not itself extinguish the token. It would change its treatment under federal securities law because holders were no longer relying on the issuer’s undertaking. (www.sec.gov)A Live Compliance Record
For compliance teams, regulatory status would require life-cycle monitoring. The SEC estimates about 717 hours for preparing Form 1-CRYPTO and 600 hours for each annual Form 1-KC. Current and semi-annual reports would add further obligations.
Intermediaries may need controls that connect issuer filings with onboarding, product governance, custody, trade surveillance and transfer restrictions: How quickly must they respond if an issuer misses a filing, changes its development plan or files a transition report? Who validates the claim that essential managerial efforts have ended? Can asset-reference data distinguish the token from the investment contract through which it was sold?
SEC Chair Paul Atkins describes the approach as the “minimum effective dose, maximum freedom to build, and durable clarity under existing law.” Commissioner Hester Peirce supplied a useful qualification: “The exemptions and safe harbour we are proposing today will not fit every model.”
The next firm milestone is 20 October, when the SEC’s comment period closes, at which point submissions will be reviewed and decision taken on whether to revise and adopt the proposal. In parallel, the CLARITY Act has cleared the Senate Banking Committee and awaits Senate floor action. Firms therefore have a proposal to analyse rather than a rule to implement. Their immediate task is to determine how the proposed issuer filings and transition reports would feed product approval, reference data and secondary-market controls.
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