SEC Proposes “Regulation Crypto Assets”: A New US Framework for Crypto Fundraising and Investment-Contract Transition

On 18 August 2026, the United States Securities and Exchange Commission (SEC) published a 402-page proposed rulemaking release entitled “Regulation Crypto Assets.” The proposal would establish a bespoke securities-offering regime for certain investment contracts involving crypto assets. It follows the SEC’s March 2026 interpretive guidance addressing how the federal securities laws apply to crypto assets and related transactions.

The proposal distinguishes between a non-security crypto asset and the investment contract created by the representations, promises and managerial efforts associated with its sale.

The proposed regulation would create:

• a Startup Exemption permitting qualifying offerings of up to USD 5 million during a one-time four-year period;
• a Fundraising Exemption, comprising a USD 20 million Tier 1 and a USD 75 million Tier 2 offering pathway;
• crypto-specific, principles-based disclosure requirements;
• annual, semiannual and current reporting obligations for issuers using the Fundraising Exemption;
• a conditional Investment Contract Safe Harbor through which an issuer may establish that the investment contract has ceased to exist; and
• federal pre-emption of specified state securities registration and qualification requirements.

It is only a proposed rule. Its provisions may change following public consultation, and businesses should not treat it as presently available law.

1. The regulatory problem the SEC is attempting to solve

US securities law requires every offer and sale of a security to be registered under section 5 of the Securities Act of 1933 unless an exemption applies. Crypto projects have historically attempted to rely on private-placement exemptions, Regulation Crowdfunding or other existing pathways. These frameworks were not designed around token functionality, network development, decentralised governance, source code, token economics or the possibility that an investment contract may eventually separate from the underlying crypto asset.

Conventional securities disclosures may impose significant cost without eliciting the information most relevant to token purchasers, including network development, token allocations, cybersecurity, governance, smart-contract risks and the issuer’s continuing influence. Moreover, a transaction’s legal status may change over time. At launch, purchasers may expect profits from a developer’s promised efforts. Once those efforts are completed or permanently discontinued, that dependence may no longer exist. The proposal creates a pathway through that lifecycle.

2. The crucial distinction: the crypto asset is not necessarily the security

Proposed Rule 100 would define a “covered investment contract” as a contract, transaction or scheme constituting an investment contract where:

1. a crypto asset is subject to the investment contract;
2. that crypto asset is not itself a security; and
3. no other asset—whether a security or non-security asset—is subject to the investment contract.

The proposed definition deliberately excludes digital securities such as tokenised shares or bonds. Such instruments are securities independently of the promises surrounding their distribution and should generally use existing registered or exempt securities-offering frameworks.

The “subject crypto asset” would be the non-security crypto asset associated with the covered investment contract. The security being regulated is the investment contract, not necessarily the token itself.

This distinction is central to the proposal. Consider a developer that sells tokens while promising to build a blockchain application, create token utility, attract users, establish partnerships and develop a secondary-market ecosystem. The token may be a digital representation of value recorded on a cryptographically secured distributed ledger and may not independently be a security. Nevertheless, the combination of the token sale and the developer’s promises may constitute an investment contract under the principles derived from SEC v. W.J. Howey Co.

The analysis therefore extends beyond code to offering documents, whitepapers, roadmaps, promotional statements and purchaser expectations.

3. The proposed Startup Exemption: a four-year regulatory runway

Proposed Rule 200 would create the Startup Exemption. It is intended to give eligible projects time to develop, test and launch a crypto network or application while operating under requirements tailored to covered investment contracts.

3.1 Offering limit and duration

An issuer could conduct qualifying covered transactions during a period of up to four years, subject to an aggregate USD 5 million offering limit. The amount would include cash and other consideration, including permitted payment stablecoins. Foreign currency would be translated into US dollars, while non-cash consideration would require a reasonable valuation based on bona fide sales or an accepted fair-value standard.

Issuer expenses paid from offering proceeds would not reduce the amount counted against the limit. This prevents an issuer from treating legal, marketing or intermediary expenses as though they had never been raised.

3.2 Eligible issuers

The Startup Exemption could be used by an entity, individual or group. Each group member—or an authorised representative—would sign the notice of reliance and transition report and share responsibility for satisfying the conditions. Describing a team as decentralised would not eliminate accountability.

3.3 One-time use

The issuer and its affiliates could not repeatedly use the Startup Exemption for the same or a substantially similar crypto asset. A superficial rebranding would not restart the four-year period. Tokens with different names may be substantially similar where their functionality and associated networks or applications are effectively identical.

This prevents circumvention of the duration and offering limits and makes use of the exemption a strategic decision.

3.4 General solicitation, retail participation and distribution

The proposal would permit general solicitation and would not restrict participation to accredited investors. It would not impose an individual investment cap on non-accredited purchasers under the Startup Exemption.

Covered investment contracts issued through this pathway would not automatically be restricted securities or subject to conventional rule-based resale holding periods. This is intended to facilitate network effects and permit broader token circulation.

The exemption could accommodate distributions for testing, governance, staking, security, gas fees, user rewards and certain conditional airdrops. Under the SEC’s 2026 interpretation, however, an unconditional airdrop of a non-security crypto asset may fall outside an investment contract where recipients provide no consideration. Each arrangement requires fact-specific analysis.

3.5 Disclosure and transition obligations

An issuer would file a notice of reliance on Form NOR and make the disclosures required by proposed Rule 103 publicly accessible, free of charge. The information would need to be updated when material changes occur and reviewed at prescribed intervals.

No later than the end of the four-year period, the issuer would file Form TR. Depending on the project’s status, the form would explain that the essential managerial efforts have been completed or permanently ceased, or describe what remains outstanding and how the issuer intends to proceed.

Before the period ends, the issuer must determine whether the investment contract has ceased, another exemption is available, registration is required or relevant distributions must stop.

4. The proposed Fundraising Exemption

Proposed Rules 300–307 would establish a more substantial public fundraising pathway modelled partly on Regulation A but tailored to covered investment contracts.

The exemption would comprise:

• Tier 1: up to USD 20 million in a 12-month period; and
• Tier 2: up to USD 75 million in a 12-month period.

Both tiers would require an offering statement on Form 1-CRYPTO to be filed with and qualified by the SEC before sales commence. General solicitation would be permitted, but communications would remain subject to federal antifraud provisions.

4.1 Domestic eligibility requirements

The Fundraising Exemption is considerably narrower than the Startup Exemption. The issuer would need to be a legal entity organised under US federal, state, territorial or District of Columbia law.

In addition:

• a majority of its executive officers or directors would need to be US citizens or residents;
• more than 50% of its assets would need to be located in the United States; and
• its business would need to be administered principally in the United States.

Additional restrictions would apply to specified investment companies, blank-check companies, delinquent reporting issuers, entities subject to certain SEC orders and disqualified bad actors.

4.2 Non-accredited investors

Retail investors could participate. However, a non-accredited investor’s aggregate purchase price would generally be limited to 10% of the greater of annual income or net worth. For a non-natural person, the calculation would use the greater of annual revenue or net assets for the most recently completed fiscal year.

The limit controls exposure; it does not guarantee investment quality.

4.3 Testing the waters

Proposed Rule 304 would permit issuers to test investor interest before qualification and even before publicly filing Form 1-CRYPTO. Communications could be oral, written or broadcast and could include a mechanism for potential investors to indicate non-binding interest.

The issuer could not accept funds, crypto assets or binding commitments before SEC qualification. Written materials and broadcast scripts used to test the waters would generally be filed as exhibits. Materially inaccurate or inadequate communications would require correction, and all testing-the-waters statements would remain subject to antifraud liability.

4.4 Offering qualification and delivery

No sale could occur until the SEC qualified the offering statement. Where the issuer was not already subject to the proposal’s ongoing reporting regime, a preliminary offering circular would generally need to be delivered at least 48 hours before sale to a person who had indicated an interest in purchasing.

5. Form 1-CRYPTO and the proposed disclosure framework

Form 1-CRYPTO would comprise three principal parts.

Part I would provide structured notification data concerning the issuer and offering.

Part II would contain the substantive offering circular, including disclosures concerning:

• the covered investment contract and offering terms;
• the issuer, management and related persons;
• conflicts of interest;
• the subject crypto asset;
• the associated network or application;
• the development plan and promised essential managerial efforts;
• cybersecurity, security audits and source code;
• how VARA regulates token issuance categories via token supply, issuance, burning, allocation and lockups;
• governance and voting mechanisms;
• on-chain and off-chain ecosystem arrangements;
• use of proceeds;
• financial condition; and
• specific material risks.

Part III would contain signatures and exhibits, including material agreements, legal opinions and testing-the-waters materials.

Proposed Rule 103 would require disclosures to be clear, concise, understandable and tailored to the issuer and project. Generic risk factors would not be sufficient. Whitepapers could supplement disclosure but would not replace compliance with the prescribed framework.

The treatment of essential managerial efforts is particularly important. Statements concerning what the issuer will develop, commercialise or decentralise may establish the benchmark against which the continued existence of the investment contract is later assessed. Marketing and disclosure strategy must therefore be aligned from the outset.

6. Financial statements and continuing reporting

Both tiers would require financial statements. Tier 2 would generally impose audited financial-statement requirements, while Tier 1 would not automatically require financial-statement assurance unless audited statements were otherwise available or required.

After qualification, both Tier 1 and Tier 2 issuers would enter an ongoing reporting regime comprising:

• Form 1-KC: annual reporting;
• Form 1-SC: semiannual reporting covering the first six months of the fiscal year; and
• Form 1-UC: current reporting following specified material events.

Form 1-UC reports would generally be filed within four business days of a triggering event. Relevant events include fundamental business changes, bankruptcy or receivership, material modifications to securityholder rights, changes of control and specified accountant-related matters.

Reporting could be suspended in limited circumstances, including where a class has fewer than 300 holders of record and the issuer satisfies its reporting history and Form TR conditions. It could terminate where the covered investment contract ceases to exist.

7. Secondary sales and selling securityholders

The proposal would facilitate the issuance of unrestricted covered investment contracts, potentially supporting liquidity and token use. Nevertheless, transferability does not eliminate other regulatory questions. A trading platform or intermediary would still need to assess whether exchange, broker-dealer or other federal or state requirements apply.

The Fundraising Exemption would also permit certain selling securityholders to participate in qualified offerings. During the issuer’s first offering and specified offerings qualified within the following year, the portion attributable to selling securityholders generally could not exceed 30% of the aggregate offering price. Further limits would apply to affiliates.

Investors must be able to identify whether proceeds will fund the issuer or provide exit liquidity to founders, affiliates or early holders.

8. The proposed Investment Contract Safe Harbor

Proposed Rule 400 is arguably the proposal’s most consequential provision.

The safe harbor would apply where:

1. the issuer has completed or otherwise permanently ceased all essential managerial efforts it represented or promised it would perform;
2. the issuer is not making, and does not intend to make, new representations or promises to undertake essential managerial efforts concerning the crypto asset; and
3. the issuer files Form TR containing the prescribed certification and supporting analysis.

If the conditions are satisfied, the SEC would deem the covered investment contract to have ceased to exist and the subject crypto asset no longer to be subject to that investment contract for purposes of the definitions of “security” under the Securities Act and Securities Exchange Act of 1934.

The supporting analysis must allow a reasonable investor to understand the conclusion. If the certification is inaccurate, the SEC could determine that the safe harbor was never perfected and that registration, reporting and other obligations continued.

The safe harbor is non-exclusive. A crypto asset may fall outside an investment contract under the Howey analysis even without reliance on Rule 400. Conversely, the safe harbor would govern the SEC’s administration of federal securities laws but would not prevent a private litigant from asserting that the token remains subject to an investment contract or constitutes another security.

9. State-law pre-emption

Proposed Rule 500 would define “qualified purchaser” for the limited purpose of section 18(b)(3) of the Securities Act. The effect would be to pre-empt state securities registration and qualification requirements for qualifying primary offerings and specified secondary-market transactions.

States could retain authority over fraud, unlawful broker-dealer conduct, notice filings, fees and suspensions. The proposal would reduce duplicative qualification without creating immunity from state enforcement.

10. Antifraud, integration and bad-actor controls

Issuers relying on either exemption would remain subject to federal antifraud and antimanipulation provisions, including section 17 of the Securities Act and section 10 of the Exchange Act. Compliance with an offering exemption does not protect misleading whitepapers, false financial information, undisclosed conflicts or manipulative trading conduct.

Proposed Rule 104 would incorporate bad-actor disqualification principles. Relevant convictions, injunctions or regulatory orders affecting the issuer or specified directors, officers, promoters, beneficial owners and compensated solicitors could make the exemptions unavailable.

The integration doctrine would prevent issuers from dividing one financing plan among affiliates or exemptions to avoid applicable limits. Concurrent offerings under Regulation Crypto Assets, Regulation D or offshore pathways would require careful structuring.

11. Compliance costs and commercial implications

The proposed pathways are exemptions from full registration, but they are not inexpensive.

The SEC estimates an average compliance cost of approximately USD 48,641 per issuer for the Startup Exemption and approximately USD 973,145 for the Fundraising Exemption. It estimates Form 1-CRYPTO compliance at approximately USD 455,531, annual Form 1-KC compliance at USD 381,000, semiannual Form 1-SC compliance at approximately USD 119,405 and Form 1-UC compliance at approximately USD 3,175.

These are regulatory estimates, not fixed professional fees. Actual expenditure would depend on project maturity, structure, financial readiness, technical complexity, offering size and existing controls. Although the proposal may reduce uncertainty and expand public fundraising, its domestic eligibility, reporting burden and safe-harbour threshold may make it unsuitable for some projects.

12. What the proposal does not regulate

Regulation Crypto Assets is not a complete US crypto-licensing framework. It principally addresses offers and sales of covered investment contracts and the circumstances in which those contracts may cease through our regulatory compliance advisory services .

It does not automatically resolve:

• exchange, alternative trading system, broker or dealer registration;
• crypto custody requirements;
• money-services business or state money-transmitter obligations;
• stablecoin issuance and payment regulation;
• derivatives or commodities regulation;
• sanctions and financial-crime compliance;
• lending, staking or yield-product regulation; or
• consumer-protection requirements.

A project could comply with this offering regime and remain subject to separate SEC, CFTC, FinCEN, banking, sanctions, consumer-protection or state-law obligations.

13. Key actions for crypto businesses

Although the rules are not yet effective, businesses considering US token fundraising should begin evaluating the proposal’s implications. In particular our corporate structuring services for crypto and Web3 businesses should include:

1. classify the token separately from the contractual promises attached to its distribution;
2. identify and document every promised essential managerial effort;
3. align whitepapers, marketing, tokenomics and legal disclosures;
4. determine whether the Startup or Fundraising Exemption could apply;
5. assess US nexus and issuer eligibility requirements;
6. evaluate financial-statement and ongoing reporting readiness;
7. conduct bad-actor and related-person due diligence;
8. map a transition strategy before relying on the four-year Startup Exemption;
9. assess intermediary, AML, commodities and state-licensing requirements separately; and
10. consider submitting evidence-based comments during the consultation period.
    
    

14. How CRYPTOVERSE Legal can assist

CRYPTOVERSE Legal Consultancy advises cross-border legal support for crypto and Web3 expansion  & tokenisation businesses on regulatory classification, token-offering structuring, licensing strategy, regulatory business plans, disclosure frameworks and cross-border market entry.

For assistance assessing how the proposed US framework—or another jurisdiction’s virtual-asset regime—may affect your business model, contact CRYPTOVERSE Legal Consultancy through www.cryptoverselawyers.io.

Conclusion

Regulation Crypto Assets could reshape the SEC’s approach to crypto capital formation by recognising a regulatory lifecycle: a token may be distributed through an investment contract while purchasers depend on promised managerial efforts, then separate when those efforts are completed or permanently cease.

The exemptions could create clearer pathways for responsible issuers in exchange for substantial disclosure, governance, reporting and antifraud obligations. The safe harbor would provide transition certainty only where operational facts support the certification.

The proposal remains subject to public comment and may be revised before adoption. Crypto businesses should therefore monitor the rulemaking closely and avoid structuring offerings on the assumption that the proposed exemptions are currently available.

Legal disclaimer: This article is provided for general informational purposes only and does not constitute legal, regulatory, investment or tax advice. “Regulation Crypto Assets” is a proposed SEC rule and is not currently effective. The final rules, if adopted, may differ materially from the proposal. Readers should obtain advice from appropriately qualified US counsel before conducting any securities or crypto-asset offering or relying on an exemption.

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