A New Path to Launch, but Where to Trade? Regulation Crypto Assets, DeFi and Trading Markets

Regulation Crypto Assets would give digital asset projects new flexibility to raise capital and distribute tokens to potential users, but it would come with important caveats for secondary markets. A token sold under the exemptions would be subject to an investment contract and therefore a security, until the investment contract ceases to exist. However, because the proposal does not exempt digital asset exchanges and other intermediaries from federal or state registration, the limited ability of market participants to support initial token distribution and secondary market liquidity may dampen some of the enthusiasm for the newfound flexibility for future launches.

This is the second installment in our series on Regulation Crypto Assets, the SEC’s proposed tailored offering regime for non-security crypto assets subject to an investment contract. The first installment can be found here.

Key Takeaways

1. Regulation Crypto Assets does not provide an exemption from registration for exchanges, brokers, dealers or other intermediaries. The preemption in Regulation Crypto Assets does not exempt intermediaries from federal registration or preempt state registration of brokers, dealers or other intermediaries even if the crypto asset was initially offered pursuant to Regulation Crypto Assets. The proposing release recognizes this limitation in a footnote referencing SEC Commissioner Hester Peirce’s 2020 proposal recommending exemptions from the definitions of “exchange,” “broker” and “dealer” under the Exchange Act of 1934.
2. Regulation Crypto Assets may encourage DeFi transactions over U.S.-based centralized platforms. While the proposal does not provide an exemption for intermediaries, the SEC has issued a staff statement setting out conditions under which the operator of a non-custodial user interface may assist users in crypto asset securities transactions without registering as a broker-dealer (we discuss the statement here). Because those conditions turn on the interface taking no custody or control of user assets, a decentralized front end may have a path that a custodial centralized venue does not. General purchasers may be able to access DeFi applications immediately, while unregistered centralized venues may wait for assurance that the risk of handling covered investment contracts has diminished.
3. The exemptions may continue to encourage early offshore digital asset markets. Many token launches and instances of secondary trading are already conducted primarily or entirely offshore in light of perceived U.S. regulatory risk. U.S. trading platforms may face potential registration as an exchange, broker or dealer, limiting onshore options, while offshore platforms are generally under no such obligations. As a result, the proposal may encourage early secondary market activity to remain offshore while the token remains subject to an investment contract.
4. Decentralization certifications. Proposed Rule 400 provides a non-exclusive safe harbor through which a digital asset issuer can establish that its crypto asset has “exited” securities status, regardless of whether the issuer relied on a prior securities exemption. The issuer certifies on Form TR that it has completed or otherwise permanently ceased all essential managerial efforts that it represented or promised it would undertake and has met the other conditions. A digital asset can be a non-security without invoking the non-exclusive safe harbor, but market practice could develop in which exchanges and other intermediaries require a Form TR or similar documentation before listing or otherwise supporting a crypto asset.
5. Potential to encourage projects to pursue decentralization over utility. The safe harbor is available where the issuer has completed or permanently ceased the essential managerial efforts it promised, which is consistent with many decentralized assets. Other digital asset innovators, however, may seek to offer legitimate non-security digital assets while continuing to provide ongoing efforts, similar to the way corporate entities provide other tangible and intangible goods and services. The safe harbor may encourage issuers to wind down their managerial efforts earlier than they otherwise would rather than continue building stronger network ecosystems.
6. Ongoing restrictions for certain holders. Covered investment contracts sold under the exemptions would not be restricted securities, so general purchasers could resell without a holding period. However, issuers, affiliates and statutory underwriters remain subject to restrictions. Affiliate and statutory underwriter status is fact specific but can sometimes implicate major investors, including venture capital firms and other large early purchasers, who may then look to Rule 144 or Regulation S for resales. These constraints may affect preferences and practices around launch.
7. Token sale processes and documentation will likely evolve. The proposal’s express disclosure requirements, and the need to establish that a purchaser is not a statutory underwriter or an affiliate, may drive changes to offering processes and token purchase agreements. Those may include representations of purchaser investment intent and disclosure-based representations.

Proposed Regulation Crypto Assets is subject to an ongoing comment period that closes on October 20, 2026, and the final rules are likely to shape secondary market dynamics in the U.S.