Regulation Crypto Assets: Charting a new path for capital formation, disclosure, and decentralization

By Joshua Ashley Klayman, Jim Walker, Sam Boro, Gabe Khoury

The SEC’s proposed Regulation Crypto Assets, issued on August 18, 2026 (Release Nos. 33-11434; 34-106150; File No. S7-2026-27), marks a consequential shift in the agency’s approach to crypto asset capital formation. Rather than attempting to fit all crypto-related fundraising activity into frameworks designed for fundamentally different instruments and markets, Regulation Crypto Assets would create tailored Securities Act exemptions for certain investment contracts involving crypto assets, paired with a conditional path to certainty about when the related investment contract has been completed or permanently ceased.

The direction is clear: The SEC is seeking to build a more workable U.S. domestic framework for projects that raise capital while undertaking essential managerial efforts, without treating the underlying crypto asset as permanently tethered to a securities transaction. That distinction matters for issuers, investors, trading platforms, custodians, decentralized-finance participants, and the broader U.S. crypto asset ecosystem.

Below, we highlight key aspects of Regulation Crypto Assets and identify potential points for comments and exploration. The proposal is not final, and important questions will require close attention in the proposing release and public-comment process.

Regulation Crypto Assets’ central premise: Separate the investment contract from the underlying crypto asset

Regulation Crypto Assets builds on the SEC’s March 17, 2026, interpretive release (Release No. 33-11412) concerning the application of the federal securities laws to certain crypto assets and related transactions. Its organizing concept is that a crypto asset may be the subject of an investment contract without the asset itself being a security in all circumstances. Consistent with that view, the proposal would apply to a “covered investment contract,” which proposed Rule 100 would define as an investment contract to which a crypto asset is subject, where that crypto asset is not itself a security and no other asset (security or nonsecurity) is subject to the investment contract.

The scope is deliberately narrow. Because a covered investment contract may involve only a nonsecurity crypto asset, the proposal would not be available for tokenized equity, debt, or other crypto assets that are themselves securities. The release directs issuers of those instruments to registered offerings or existing exemptions such as Regulation A or Regulation D, and it asks whether the definition should be broadened.

Under the proposal, a “covered investment contract” would be eligible for tailored offering exemptions. Once an issuer has completed or permanently ceased the essential managerial efforts it represented or promised to undertake, the issuer could seek the benefit of a conditional safe harbor. If the conditions are satisfied, the investment contract would be deemed to have ceased to exist, and the underlying crypto asset would no longer be deemed subject to that investment contract for purposes of the Securities Act and Exchange Act definitions of “security.”

This approach focuses on the economic reality of the arrangement between issuer and purchaser, including the issuer’s continuing promised efforts, rather than imposing a permanent legal label on the crypto asset.

Two proposed capital-raising exemptions

Regulation Crypto Assets would offer two nonexclusive exemptions from Securities Act registration for offerings of covered investment contracts.

Startup exemption

The proposed startup exemption (proposed Rule 200) would permit an issuer to make offers, sales, and other distributions of covered investment contracts, up to an aggregate of $5 million, during a period of up to four years. The exemption could be used only once with respect to a given crypto asset (or a substantially similar crypto asset), including by the issuer’s affiliates.

The exemption is intended to provide what the release calls a “regulatory runway” for projects in their formative stage (projects that need capital and time to develop network or application functionality and to complete promised technical or operational work) and establish the conditions under which essential managerial efforts will end. Notably, the exemption would cover not only capital-raising sales but also other distributions of covered investment contracts, such as airdrops that fall outside the SEC’s March 2026 interpretive guidance and distributions related to staking, governance, and gas fees, all of which would count toward the $5 million limit. In exchange for relief from registration, an issuer would file a notice of reliance on new Form NOR at the outset, make principles-based narrative disclosures under proposed Rule 103 publicly available on a website (updated annually for material changes), and file a transition report on new Form TR no later than four years after the notice of reliance. Financial statements would not be required, the securities would not be restricted securities, and general solicitation and sales to retail investors would be permitted.

The startup exemption would not displace the federal securities laws’ antifraud and antimanipulation protections, and it would be subject to “bad actor” disqualification by cross-reference to Rule 262(a) of Regulation A. Under proposed Rule 104, which would apply to both exemptions, disqualification would be triggered only by events occurring after the rule’s effective date; earlier disqualifying events would not bar reliance on an exemption, but the issuer would have to disclose them in writing to each purchaser a reasonable time before sale.

Fundraising exemption

The proposed fundraising exemption would provide a larger, Regulation A-inspired capital-raising path. It would have two tiers, with offering limits that track those of Regulation A:

• Tier 1: Offerings of up to $20 million in a 12-month period, including no more than $6 million offered by selling securityholders that are affiliates of the issuer.
• Tier 2: Offerings of up to $75 million in a 12-month period, including no more than $22.5 million offered by selling securityholders that are affiliates of the issuer.

Issuers would publicly file an offering statement on new Form 1-CRYPTO, which the SEC would need to qualify before any sales could be made, containing principles-based narrative disclosures, a discussion of financial condition, and financial statements. Tier 2 issuers would need to provide audited financial statements.

Two further points in the release are worth noting. The Commission expresses its view that covered investment contracts are not “equity securities” and therefore are not subject to registration under Section 12(g) of the Exchange Act, and it asks whether that view should be codified. The release also confirms that the proposal does not address exemptions from the Exchange Act definitions of “exchange,” “broker,” and “dealer,” which the Commission says it will continue to consider. Both points matter in practice. Section 12(g) registration was a standard element of the relief the SEC sought in its actions against unregistered token offerings, so the Commission’s stated view removes a significant overhang for issuers. Conversely, because the proposal offers no relief from the “exchange,” “broker,” or “dealer” definitions, reliance on Regulation Crypto Assets would provide no defense to a federal or state claim that a person involved in an offering or in secondary trading was acting as an unregistered intermediary.

Investment contract safe harbor: Arguably, Regulation Crypto Assets’ most significant feature

The proposal’s safe harbor would address a persistent and commercially important question: When does a crypto asset cease to be subject to an investment contract?

The proposed answer turns on the issuer’s essential managerial efforts. To qualify, an issuer would need to establish that it:

• Has completed or permanently ceased all essential managerial efforts that it represented or promised to undertake under the covered investment contract;
• Is not making, and does not intend to make, new representations or promises to undertake essential managerial efforts with respect to the underlying crypto asset; and
• Has filed with the SEC, on EDGAR, a transition report on new Form TR that identifies the covered investment contract and the crypto asset and contains a certification, with a supporting analysis, that the issuer satisfies the safe harbor’s substantive conditions.

  If those conditions are met, the SEC would deem the covered investment contract to have ceased to exist and the underlying crypto asset not to constitute, represent, or be subject to that investment contract for purposes of the relevant statutory definitions of “security.”

  Several features of the safe harbor deserve emphasis. It would codify the SEC’s March 2026 interpretive views on when an investment contract ceases to exist, and it would be available to any issuer that satisfies its conditions, whether or not the issuer used the startup or fundraising exemption. It acknowledges that the safe harbor would be nonexclusive: The Commission or a court may determine that a crypto asset falls outside the investment contract analysis under Howey even if the safe harbor is never invoked. And it would operate as a true safe harbor: The Commission could still challenge whether an issuer in fact satisfied the conditions, and the safe harbor would govern only the SEC’s own administration of the federal securities laws, as the safe harbor would not dictate the findings of a court addressing claims brought by private litigants. Indeed, the release candidly acknowledges that some issuers may hesitate to file a Form TR because they view it as a tacit admission that the asset was previously subject to an investment contract.

  For projects that aspire to functional decentralization or otherwise seek to transition from an issuer-led development model, this safe harbor could provide a far more structured pathway than previously available. It also raises practical governance questions. For example, a project will need a disciplined record of what it promised purchasers, which efforts were essential to those promises, when those efforts ended, who continues to exercise meaningful control, and whether future communications could be understood as new promises of essential managerial activity. Accordingly, the certification process may become a critical legal and operational milestone—not merely a disclosure exercise.

  State-law preemption could support more coherent national offerings and secondary markets

  The proposal (proposed Rule 500) would also define “qualified purchaser” for purposes of Section 18(b)(3) of the Securities Act in a manner intended to preempt state securities-law registration and qualification requirements for offers and sales made under Regulation Crypto Assets.

  That preemption would extend to secondary-market transactions by persons other than issuers, underwriters, and dealers, regardless of whether the particular covered investment contract was initially sold under Regulation Crypto Assets or another federal exemption, so long as the issuer has satisfied a Regulation Crypto Assets exemption with respect to that covered investment contract and remains subject to, and current with, that exemption’s disclosure, filing, and periodic-reporting obligations. Secondary-market preemption therefore would lapse if the issuer fell out of compliance and would end once those obligations end—for example, when a startup-exemption issuer files its Form TR. States would retain their antifraud authority and the ability to require notice filings and fees.

  This component may be especially consequential. Fragmented state-by-state registration and qualification requirements can complicate nationwide distribution and secondary-market liquidity. A federal pathway with clear conditions could reduce that friction, although it would not eliminate the need to assess federal and state antifraud rules, money-transmission and other financial-services laws, commodities regulation, sanctions, tax, bankruptcy, secured-transactions, and other legal considerations.

  Disclosure remains central

  The proposal does not suggest a retreat from investor protection. Instead, it seeks to tailor disclosure to the features and risks of crypto asset transactions.

  The principles-based disclosure approach could be constructive if it produces information that investors can actually use. Proposed Rule 103 would require disclosure of, among other things, the material terms of the covered investment contract, including the issuer’s promised essential managerial efforts and its progress toward them; the terms of the offering; the crypto asset itself; the associated network or application and the issuer’s plan of development, management, related persons, and conflicts of interest; the security of the asset and network, including where the source code is publicly available; the asset’s economics and allocations (supply, pricing, lockups, related-person holdings, and release schedules); governance mechanisms and permissions; the on-chain and off-chain ecosystem; and the material risks of the investment.

  The proposal also raises an important drafting discipline for issuers. A project’s public statements, technical documentation, token-sale materials, social-media communications, and investor presentations must align. Overbroad or open-ended statements about future development, value creation, ecosystem support, liquidity, or ongoing stewardship may complicate a later determination that essential managerial efforts have permanently ended.

  Practical considerations for market participants

  Projects considering these exemptions should begin preparing now, rather than waiting for a final rule. At a minimum, they should consider the following:

• Map the promised efforts. Identify every material representation or commitment made to prospective purchasers and assess which efforts may be “essential managerial efforts.”
• Develop an evidence-based transition plan. Establish measurable milestones for completing or permanently ending essential issuer-led activities.
• Strengthen disclosure controls. Create a process for reviewing public statements across legal, technical, finance, communications, and leadership functions.
• Evaluate governance and control. Analyze how governance rights, token holdings, treasury authority, protocol upgrade powers, validator concentration, and continuing development arrangements could affect the safe-harbor analysis.
• Plan for reporting and financial statements. Projects contemplating the fundraising exemption should assess their readiness for public filings, financial reporting, and, for Tier 2, audited financial statements.
• Address the full regulatory perimeter. Securities-law analysis is essential, but it is not the only relevant analysis. Depending on the asset and activity, commodities, derivatives, broker-dealer, exchange, alternative trading system, custody, payments, sanctions, anti-money laundering, tax, insolvency, and commercial-law issues may also apply. This is particularly important where a participant that believes it will benefit from the safe harbor has also identified potential exchange or broker-dealer exposure, since regulation of this activity is expressly not addressed in the proposed rule.
• Consider secured-transactions implications. Token issuers, lenders, custodians, and investors should assess how control, custody, transfer restrictions, and Articles 8, 9, and 12 of the Uniform Commercial Code may affect collateral arrangements and enforcement rights.

Congress remains key to achieving future-proofed market structure rules

SEC Chairman Paul S. Atkins emphasized that SEC rulemaking cannot substitute for comprehensive legislation. In his statement accompanying the proposal, he described legislation as indispensable to creating “future-proofed” rules that are durable enough not to be unwound by a future regulator.

That observation is key. Regulation Crypto Assets could offer meaningful near-term clarity with respect to Commission enforcement under existing law, but broader market-structure questions—such as regulatory jurisdiction, trading-market oversight, customer protections, intermediary obligations, and treatment of decentralized systems—remain central to Congress’s work.

For now, the proposal provides an important signal: The SEC is prepared to recognize that responsible capital formation in crypto asset markets requires rules that account for the technology, the transaction structure, and the lifecycle of a project.

Commissioner Hester M. Peirce issued a separate statement describing the proposal as “an important step toward putting clear, sensible, enforceable rules in place for crypto offerings.” She cautioned that the exemptions and safe harbor will not fit every business model and invited feedback during the 60-day comment period, singling out in particular the question of how to let crypto assets play an equity-like role so that token holders can share in the growth and value of the enterprise that builds a network. She also framed the proposal as one part of a broader initiative in which legislation remains the centerpiece.

What’s next?

The public comment period will remain open for 60 days after publication of the proposed release in the Federal Register. Comments may be submitted through the SEC’s internet comment form or by email to rule-comments@sec.gov and should reference File Number S7-2026-27. Our team is ready to assist market participants who wish to submit comments. Interested market participants should consider commenting on, among other matters:

• The definition and scope of “covered investment contract”
• The meaning of “essential managerial efforts” and the evidence required to demonstrate that they have ended
• The appropriate disclosure and reporting requirements for each exemption
• The startup exemption’s four-year duration, $5 million cap, and one-time-use condition, as well as the treatment of airdrops and other non-capital-raising distributions
• The operation and duration of state-law preemption
• The treatment of secondary-market transactions
• The interaction of the proposal with other federal and state regulatory regimes

Regulation Crypto Assets is only a proposal. But it represents a notable attempt to move beyond the false choice between applying legacy rules without adaptation and leaving investors without meaningful protections. Its ultimate effectiveness will depend on the details, including how clearly the SEC defines the path from a covered investment contract to a crypto asset no longer subject to one.