Regulation Crypto Assets: The SEC Proposes a Tailored Offering Regime for Crypto Assets

The SEC is charting a new course with proposed rules that seek to facilitate capital formation and allow crypto asset innovation to flourish in the United States. On August 18, the SEC introduced Regulation Crypto Assets, a proposed tailored offering regime for non-security crypto assets subject to an investment contract, building on the SEC’s March 17 interpretation. This overview is the first in a series of publications examining the proposed rule. Future installments will address specific aspects in greater detail.

The proposal establishes four main components: (1) an investment contract safe harbor providing a defined “exit” path for crypto assets sold pursuant to an investment contract to exit securities status; (2) a non-exclusive “startup exemption,” which would allow for offerings up to $5 million during a four-year period; (3) a non-exclusive “fundraising exemption” allowing for offerings of up to $75 million in each 12-month period; and (4) the preemption of state registration and qualification requirements for offerings under Regulation Crypto Assets and for certain secondary market transactions. Issuers that rely on either exemption would remain subject to the antifraud and antimanipulation provisions of the federal securities laws. The proposals expand options for digital asset projects with important implications for digital asset issuers, intermediaries, trading platforms, market makers and others.

SEC Chairman Paul Atkins previewed the proposal in a March 17 speech, describing a framework that would give crypto innovators “bespoke pathways” to raise capital in the United States while providing investor protections. Chairman Atkins recognized Commissioner Hester Peirce for laying much of the groundwork for Regulation Crypto Assets, with her framework first introduced in February 2020. The proposed rule was published in the Federal Register on August 21, with comments due on or before October 20, 2026.

Investment Contract Safe Harbor

A crypto asset that starts life subject to an investment contract will not necessarily remain so. Under the new proposed Rule 400 safe harbor, if the issuer certifies to the SEC that it has completed or otherwise permanently ceased all essential managerial efforts under the investment contract and satisfies certain other conditions, then the SEC would no longer deem the non-security crypto asset to be subject to an investment contract and, therefore, no longer subject to the authority of the SEC.

Choosing Between the ‘Startup’ and ‘Fundraising’ Exemptions

Regulation Crypto Assets provides two new exemptions. Issuers of digital assets have generally relied either on the position that the digital assets are not securities or prudentially sought to fit within an SEC safe harbor, primarily Regulation D in the U.S. or Regulation S outside the U.S.

Startup Exemption

The two exemptions are calibrated to different capital needs. The startup exemption is built for an early stage of development, where a team, which may be an entity, an individual, or a group, has promised to build a network and needs modest capital to do it. The issuer files a short notice on Form NOR, posts principles-based disclosure on its own website, and may then conduct covered transactions of up to $5 million over a period of up to four years, with no financial statements, no SEC qualification, and no purchaser eligibility conditions. The trade-offs are a hard ceiling, a four-year clock that ends in a Form TR filing, and a one-time use condition that extends to the issuer’s affiliates and to substantially similar crypto assets.

Startup Exemption Compared to Regulation D

Many initial crypto asset offerings conducted in the United States to date have relied on Regulation D. Under Rule 506 of Regulation D, an issuer may raise an unlimited amount, but the purchaser pool is limited primarily to accredited investors and the securities are restricted. The startup exemption caps the raise at $5 million over four years and is available only once for a given crypto asset, but it places no conditions on who may purchase, imposes no investment limitation, and the covered investment contracts sold under it are not restricted securities or otherwise subject to rule-based resale restrictions. General solicitation is permitted under both the startup exemption and Rule 506(c). See Appendix A.

Fundraising Exemption

The fundraising exemption is built for larger raises, and it borrows the machinery of Regulation A. The issuer files an offering statement on Form 1-CRYPTO containing the same Rule 103 disclosure plus financial statements, the SEC must qualify it before sales begin, non-accredited purchasers are subject to an investment limitation, and the issuer takes on ongoing annual, semiannual, and current reporting. In exchange, the issuer may raise up to $20 million under Tier 1 or $75 million under Tier 2 in each 12-month period, may return to market repeatedly, and may include sales by existing securityholders within limits.

Fundraising Exemption Compared to Regulation A

The fundraising exemption is modeled in large part on Regulation A and adopts the same two-tier offering limits. Much of the process architecture carries over, including SEC qualification of an offering statement, non-public draft submission, testing the waters, the financial statement aging and audit framework, and the Rule 262 bad actor disqualification standard. There are certain tier-differentiated departures altering the treatment of Tier 1, where Regulation A is at its lightest. Explaining its decision to require ongoing reporting from both tiers, the SEC states that it does not anticipate Tier 1 offerings of covered investment contracts to be more local in nature than Tier 2 offerings, and that secondary markets may develop for securities issued in Tier 1 offerings. See Appendix B.

Comparison of Both Exemptions

Securities issued under either exemption are not restricted securities, general solicitation is permitted under both, and state registration and qualification requirements are preempted under both while the issuer remains current with its obligations. The chart below compares the two pathways.

	Startup Exemption (Rule 200)	Fundraising Exemption, Tier 1 and Tier 2 (Rules 300 to 307)
Offering limit	$5 million over four-year period. Conditional airdrops, distributions tied to staking, governance and gas fees, and tokens paid for testing or services, count towards the limit to the extent consideration is received.	$20 million (Tier 1) or $75 million (Tier 2), over a rolling 12 month period.
Inclusion of Selling securityholders	Not available. Only the issuer may rely on the startup exemption for its own covered transactions.	$6 million (Tier 1) or $22.5 million (Tier 2) for affiliates. Selling securityholder portion capped at 30% of aggregate offering price in the first offering and in offerings qualified within one year of the first qualification date.
Eligible issuer	A domestic or foreign entity, an individual, or a group of individuals or entities, except as disqualified by proposed Rule 104 (incorporating the Regulation A bad-actor disqualification in Rule 262(a)).	Entity organized in the United States, with a majority of officers or directors who are U.S. citizens or residents, more than 50% of assets in the United States, and business principally administered in the United States. Not available to development stage companies without a specific business plan, registered investment companies or business development companies, issuers subject to a Section 12(j) order within five years, or delinquent filers. Rule 104 bad actor disqualification applies.
Investor limits	None.	Non-accredited purchasers limited to 10% of the greater of annual income or net worth (or in the case of non-natural persons, the greater of revenue or net assets).
SEC action required	No.	Yes, qualification of an offering statement on Form 1-CRYPTO.
Testing the waters	No. The release cautions that communications before the Form NOR filing may constitute an offer outside the exemption.	Permitted under proposed Rule 304 before qualification.
Initial filing	Form NOR filing before any covered transaction.	Offering statement on Form 1-CRYPTO, with optional non-public draft submission and public filing at least 15 calendar days before qualification.
Rule 103 disclosure	Posted free of charge at a website address specified in Form NOR.	Included in the Form 1-CRYPTO offering circular.
Financial statements	Not required.	U.S. GAAP financial statements (Tier 1), not required to follow Regulation S-X and no audit required, unless obtained for other purposes. Article 8 of Regulation S-X (Tier 2) as if a smaller reporting company with audit under U.S. GAAS or PCAOB standards, auditor independent under Rule 2-01.
Updating and ongoing reporting	Annual amendment of website disclosure within 30 calendar days after each calendar year end if there are material changes; prompt amendment of Form NOR for material mistakes or changes.	Annual Form 1-KC within 120 days, semiannual Form 1-SC within 90 days, current Form 1-UC within four business days.
Exit or transition	Form TR no later than four years after the Form NOR filing.	Form TR to suspend reporting at fewer than 300 holders of record, or to terminate on satisfying the safe harbor or on the covered investment contract otherwise ceasing to exist.
State preemption	Yes (if issuer remains current with reporting).	Yes (if issuer remains current with reporting).

Crypto Disclosure Requirements and Proposed Rule 103

Proposed Rule 103 would apply to both exemptions and would be principles-based, requiring a description of the material aspects of each topic rather than enumerated line items. Rule 103(a) would require disclosure tailored to the issuer, the subject crypto asset, and the associated network or application, presented in clear language without undue reliance on technical jargon, addressing the current stage of development, delineating forward-looking plans, and remaining consistent with the issuer’s public statements and promotional materials, including white papers.

Rule 103(b) Topic	Substance
Covered investment contract	Material terms, the issuer’s representations or promises to engage in essential managerial efforts, progress against those representations, purchaser obligations and any conditions.
Offering	Units offered, purchase price per unit or the method of determination, offering period, purchaser qualifications or restrictions, material distribution agreements, estimated net proceeds and expenses, use of proceeds and the website address for white papers and other offering materials.
Subject crypto asset	Name and material aspects of the crypto asset.
Management, related persons, and conflicts of interest	Material aspects of management and related persons, conflicts and related person transactions and related person holdings.
Associated crypto network or application; plan of development	Material aspects of the network or application and the issuer’s development plan.
Security; source code	Material aspects of the security of the crypto asset and the network or application, and the website address for publicly available source code.
Subject crypto asset economics and allocations	Supply, pricing, lockups, distribution methods, related person holdings, and release schedules.
Governance	Material aspects of governance of the network or application.
Subject crypto asset ecosystem	Current and anticipated onchain and offchain contributors and participants.
Risk factors	Short, concise statements of material risks relating to the covered investment contract, the issuer, the crypto asset and the network or application.

New Forms

Regulation Crypto Assets would introduce six new forms, each to be filed electronically on EDGAR. Form NOR initiates the startup exemption, and Form 1-CRYPTO, Form 1-KC, Form 1-SC and Form 1-UC carry the offering statement and ongoing reporting obligations under the fundraising exemption. Form TR is common to all three provisions, serving as the transition report under the startup exemption, the mechanism for suspending or terminating reporting under the fundraising exemption and the certification filing required to satisfy the investment contract safe harbor. See Appendix C.

Preemption of State Registration and Qualification

Proposed Rule 500 preempts state law for registration and qualification purposes by defining “qualified purchaser” under Securities Act Section 18(b)(3), making covered investment contracts “covered securities” for which state registration and qualification requirements are preempted. The definition reaches both primary offerings under Regulation Crypto Assets and secondary transactions by any person other than an issuer, underwriter, or dealer, provided the issuer has satisfied a Regulation Crypto Assets exemption and remains current with its obligations. Preemption extends to all units of the same covered investment contract regardless of the exemption under which a given unit was first sold. States retain antifraud enforcement authority under Section 18(c).

Regulation Crypto Assets Will Not Eliminate SEC Enforcement Risk

The proposed rule explicitly states: “Issuers that rely on these exemptions would remain subject to the antifraud and antimanipulation provisions of the federal securities laws.” Interestingly, the investment contract safe harbor does not contain the same explicit disclaimer and states that if the conditions of the safe harbor were satisfied, then a covered investment contract would be deemed by the SEC to have ceased to exist and the crypto asset would be deemed not to be subject to an investment contract for purposes of those definitions of “security”; however, it is hard to imagine that the SEC would concede that it no longer has jurisdiction over the crypto asset issuer or its executives if they engaged in fraud. This means that the SEC’s Division of Enforcement will still charge companies, broker-dealers, investment advisers, funds, and individuals that solicit, offer, or sell crypto assets for disclosure violations, insider trading, market manipulation, sham offering schemes and other types of securities fraud under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, Section 17(a) of the Securities Act of 1933 and the other antifraud and antimanipulation provisions – if the SEC’s Enforcement Staff perceives that there has been fraud.

This is consistent with the SEC’s current crypto asset enforcement policy whereby the SEC Enforcement Staff is still sometimes taking very aggressive positions that an asset is a security where they believe there is investor fraud in order to sweep the matter under the SEC’s jurisdiction. Moreover, because crypto asset issuers must publicly file offering materials including a discussion of the issuer’s financial condition and financial statements (which for the Tier 2 fundraising exemption must be audited) and comply with ongoing reporting requirements like publicly traded companies, it will increase the risk that crypto asset issuers and their executive leadership team will be sued by the SEC and in private securities class actions for allegedly making material misstatements and omissions or engaging in accounting fraud. And while the proposed rule provides for preemption of state registration requirements, states will, however, retain jurisdiction to bring antifraud enforcement actions. Accordingly, crypto asset issuers must be vigilant regarding the accuracy of their public filings and financial statements and should consider purchasing D&O insurance.

 

 

Appendix A — Startup Exemption Compared to Regulation D

	Regulation D (Rules 506(b) and (c))	Startup Exemption (Rule 200)
Offering limit	None.	$5 million within four years from filing, per subject crypto asset or a substantially similar asset, applied to the issuer and its affiliates.
Eligible purchasers	Unlimited accredited investors (and for 506(b), up to 35 non-accredited purchasers who meet a sophistication standard).	Any purchaser (no accreditation or sophistication requirement).
Verification of purchaser status	506(b): Reasonable belief that the investor is an accredited investor. 506(c): Reasonable belief that the investor is an accredited investor and reasonable steps to verify accredited status.	Not applicable.
General solicitation	506(b): Not permitted. 506(c): Permitted.	Permitted.
Restrictions on resale	Yes. Restricted securities, generally subject to a one-year Rule 144 holding period (six months if the issuer is an Exchange Act reporting company).	Not restricted securities.
Disclosures	None (except under 506(b), if any non-accredited purchaser participates, then certain information must be provided, depending on the size of the offering).	Rule 103 principles-based disclosure across 10 topics, posted publicly and free of charge.
SEC filing	Form D.	Form NOR before any covered transaction, and Form TR on exit.
Financial statements	Not required (except under 506(b) when non-accredited investors are included).	Not required.
Ongoing obligations	None.	Annual amendment of website disclosure within 30 calendar days after each calendar year end if there are material changes; prompt amendment of Form NOR for material mistakes or changes.
Termination mechanism	None.	Form TR.
Bad actor disqualification	Rule 506(d).	Rule 104.
State preemption	Yes.	Yes.

 

 

 

Appendix B — Fundraising Exemption Compared to Regulation A

	Regulation A	Fundraising Exemption (Rules 300 to 307)
Eligible securities	Equity securities, debt securities, and securities convertible or exchangeable into equity interests, excluding asset-backed securities. Covered investment contracts are not eligible securities.	Covered investment contracts only.
Offering Limits	Tier 1: $20 million per 12 months, including no more than $6 million from selling securityholders who are affiliates. Tier 2: $75 million per 12 months, including no more than $22.5 million from selling securityholders who are affiliates. Secondary Cap: 30% of aggregate offering price in the first offering and in offerings qualified within one year of the first qualification date.	Same.
Issuer eligibility	Entity organized in and with its principal place of business in the United States or Canada.	Entity organized in the United States, with a majority of executive officers or directors who are U.S. citizens or residents, more than 50% of assets in the United States, and business administered principally in the United States.
Issuer exclusions	Development stage companies with no specific business plan or purpose, or whose plan is to merge with or acquire an unidentified company; registered investment companies and business development companies; issuers of fractional undivided interests in oil, gas or mineral rights; issuers subject to a Section 12(j) order within five years; delinquent filers.	Same, except the mineral rights exclusion, which the release omits as duplicative given the definitions of “covered investment contract” and “crypto asset.”
Investment limitation for non-accredited purchasers	Tier 2 only, at 10% of the greater of annual income or net worth, with a carveout for securities listed on a national securities exchange.	Both tiers, with no exchange carveout.
Ongoing reporting	Tier 2 only. Tier 1 issuers file an exit report on Form 1-Z and have no periodic reporting obligation.	Both tiers, on Form 1-KC, Form 1-SC and Form 1-UC.
State preemption	Tier 2 only.	Both tiers, conditioned on the issuer remaining current.
Non-public draft submission	Available only to issuers that have not previously sold securities under a qualified Regulation A offering statement or an effective registration statement.	Available to any eligible issuer.
Public filing before qualification	Not less than 21 calendar days.	Not less than 15 calendar days.
Disclosure content	Issuer, business, management, and management’s discussion and analysis on Form 1-A.	Rule 103 principles-based disclosure across 10 crypto-specific topics, plus a discussion of financial condition, on Form 1-CRYPTO.
Financial statements	U.S. GAAP. Tier 1 need not follow Regulation S-X; Tier 2 follows Article 8 as a smaller reporting company. Tier 1 unaudited permitted, with audited statements required to be filed if an audit is obtained for other purposes; Tier 2 audited.	Same.
Testing the waters	Permitted under Rule 255.	Permitted under Rule 304.
Bad actor disqualification	Rule 262.	Rule 104, incorporating Rule 262.
Suspension or termination of reporting	Fewer than 300 holders of record, on Form 1-Z.	Fewer than 300 holders of record, on Form TR. Additional route under Rule 305(d)(2) where the issuer satisfies the investment contract safe harbor or the covered investment contract otherwise ceases to exist.

 

Appendix C — New Forms Under Regulation Crypto Assets

Form	Purpose
Form NOR	Notice of reliance on the startup exemption, filed before any covered transaction, identifying the issuer and subject crypto asset, specifying the disclosure website address and certifying an intent to fulfill the represented essential managerial efforts within four years.
Form 1-CRYPTO	Offering statement under the fundraising exemption, comprising notification, offering circular, financial statements and exhibits.
Form 1-KC	Annual report under the fundraising exemption.
Form 1-SC	Semiannual report under the fundraising exemption.
Form 1-UC	Current report under the fundraising exemption.
Form TR	Transition report used under the startup exemption, the fundraising exemption and the investment contract safe harbor.