SEC Proposes Tailored Offering Regime for Crypto Assets

Purpose and Overview

The Regulation fulfills SEC Chairman Paul Atkins's promise to "swiftly develop proposals to implement" recommendations provided by the President's Working Group on Digital Asset Markets. It addresses two long-running concerns on applying existing securities regulations to the unique characteristics of crypto assets: (i) the difficulty of fairly applying the Howey test to evolving crypto assets that may begin as closely managed assets (more like securities) but become entirely decentralized (more like commodities) and (ii) both irrelevant and underinclusive disclosure obligations under existing regulations, as well as restrictions on distributions that undermine key network effects of crypto assets.

The Regulation provides general rules to define key terms, integrate with existing offering rules, specify electronic filings, provide a safe harbor for insignificant deviations, adjust the offering limits for inflation at least once every five years, and impose a bad actor disqualification provision aligned with Regulation A. The Regulation then establishes two offering exemptions: a "startup exemption" permitting one-time offerings of up to $5 million over four years, and a "fundraising exemption" modeled on Regulation A that would permit larger offerings of up to $75 million per 12-month period through a two-tier structure. Issuers relying on either exemption would remain subject to the anti-fraud and anti-manipulation provisions of the federal securities laws, including Section 17 of the Securities Act and Section 10 of the Securities Exchange Act of 1934 (the "Exchange Act").

The Regulation also includes an "investment contract safe harbor" that would deem a covered investment contract to have ceased to exist once specified conditions are met, providing an off-ramp from securities regulation. Finally, the Regulation would preempt state securities law registration and qualification requirements for both primary offerings and certain secondary market transactions by defining "qualified purchaser" under Section 18(b)(3) of the Securities Act.

Key Definitions 

The Regulation uses targeted definitions to tailor the rules to be fit-for-purpose and understandable for all market participants.

A "crypto asset" is defined as any digital representation of value recorded on a cryptographically-secured distributed ledger, a definition identical to the term "Digital Asset" in section 2(6) of the Guiding and Establishing National Innovation for U.S. Stablecoins Act (or GENIUS Act).

The central term "covered investment contract" means an investment contract where (i) a crypto asset is subject to such contract, (ii) the crypto asset is not itself a security, and (iii) no other asset is subject to such contract. This definition ensures the proposed exemptions apply only to investment contracts involving crypto assets not considered securities.

The term "subject crypto asset" refers to the crypto asset that is subject to a covered investment contract, reflecting the principle that the security at issue is the investment contract itself, not the underlying crypto asset.

The broad definition of "covered transaction" would encompass capital-raising transactions as well as airdrops, staking rewards, governance distributions, gas fees, and testing compensation.

The Startup Exemption

The startup exemption provides a one-time, non-exclusive exemption from registration under the Securities Act for "covered transactions" during a period of up to four years. Key features include:

• Offering limit: Up to $5 million in aggregate may be raised.
• Duration: The exemption lasts four years from filing a notice of reliance on new Form NOR.
• Issuer eligibility: The issuer may be an entity, individual, or group, but the exemption is limited to a one-time use per issuer (and its affiliates) for the same or substantially similar crypto asset.
• Disclosure: Issuers must make principles-based disclosures publicly accessible on a website specified in the notice of reliance and must keep them so available for the duration of the exemption. Issuers must amend such disclosures for material changes within 30 calendar days after the end of each calendar year.
• No restricted securities: Covered investment contracts offered or sold under this exemption would not be restricted securities, and general solicitation is permitted.
• Transition report: Issuers must file a transition report on new Form TR at or before the end of the four-year exemption period to disclose the status of the covered investment contract and whether the safe harbor conditions have been met. The filing of Form TR ends the startup exemption for the covered investment contract.

The Fundraising Exemption

The fundraising exemption in the Regulation provides a two-tier structure for larger offerings of covered investment contracts.

Tier 1 Fundraising Exemption. Under Tier 1, issuers would be permitted to offer and sell up to $20 million in covered investment contracts in a 12-month period. Out of the $20 million limit, issuer-affiliated selling securityholders may offer no more than $6 million in aggregate.

Offering statements under a Tier 1 exemption must include financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP"). But issuers are not required to provide additional assurance regarding the financial statements, such as an audit.

Tier 2 Fundraising Exemption. Under Tier 2, issuers may offer and sell up to $75 million in a 12-month period, and issuer-affiliated selling securityholders are limited to $22.5 million of the $75 million total.

In addition to being prepared according to U.S. GAAP, the financial statements in Tier 2 offerings must be audited by an independent auditor in accordance with either U.S. Generally Accepted Auditing Standards (or U.S. GAAS) or the standards of the Public Company Accounting Oversight Board (or PCAOB).

Secondary Sales. For limits under both tiers, amounts sold by the issuer and its affiliates are aggregated, and the $6 million and $22.5 million figures are sub-limits on the portion that may be offered by issuer-affiliated selling securityholders. Additional limitations apply to all selling securityholders during (i) the issuer's first offering under the fundraising exemption or (ii) any later offering qualified by the SEC within a year of the first offering's qualification. In these cases, the portion of the aggregate offering price attributable to the securities of selling securityholders must not exceed 30% of the aggregate offering price.

Applicability and Implementation. Unlike the startup exemption, the fundraising exemption is available only to U.S.-organized entities that (i) have a majority of executive officers or directors who are U.S. citizens or residents, (ii) have more than 50% of their assets in the United States, and (iii) have their business administered principally in the United States. To qualify for the exemption, issuers must be current on all required SEC reports during the two years before the offering statement is filed. The issuer also cannot be (i) a development stage company without a specific business plan or purpose (or whose plan is to merge with or acquire an unidentified company), (ii) an investment company registered or required to be registered under the Investment Company Act of 1940 or a business development company, or (iii) subject to any SEC order under Section 12(j) of the Exchange Act within five years before the filing of the offering statement, subject to a carve-out for orders entered before the rule's effective date.

Issuers would file offering statements on a new Form 1-CRYPTO, a three-part form. Part I requires (i) information about the issuer and (ii) summary information regarding the particular offering and other current or proposed offerings (e.g., the price and number of securities and estimated net proceeds to the issuer). Part II sets out the information required in the offering circular, including general narrative disclosure, financial statements, risk factors, and discussion of financial condition. Part III contains signatures, exhibit index, and exhibits. Issuers may submit draft offering statements for non-public staff review, provided the offering statement is publicly filed at least 15 calendar days before qualification, and the offering statement must be affirmatively qualified by the Division of Corporation Finance before sales commence (although non-binding solicitations of interest and similar pre-qualification "testing-the-waters" communications are permitted).

For both Tier 1 and Tier 2, the fundraising exemption would impose investment limitations on non-accredited investors, capping purchases at 10% of the greater of the purchaser's annual income or net worth. Unlike Regulation A, both Tier 1 and Tier 2 issuers would be subject to ongoing reporting obligations, including annual reports on Form 1-KC, semiannual reports on Form 1-SC, and current reports on Form 1-UC. As with the startup exemption, covered investment contracts issued under the fundraising exemption would not be restricted securities, allowing immediate resale and helping to facilitate network effects central to crypto asset projects.

Tailored Disclosure Requirements

Both exemptions impose principles-based disclosure requirements. Issuers must describe the material terms of the covered investment contract, including the issuer's representations or promises to engage in essential managerial efforts and its progress with respect to those efforts, as well as the material terms of the offering itself (number of units, price, duration, use of proceeds, and purchaser qualifications). The disclosure framework also requires descriptions of the subject crypto asset, the issuer's management and related persons (including any conflicts of interest and insider transfer or resale restrictions), and the associated crypto network or application along with the issuer's plan of development.

Issuers' disclosures must also include the security of the subject crypto asset and associated network (with a link to publicly available source code, where applicable), the subject crypto asset's economics and allocations (covering supply, pricing, lockups, distribution methods, and related person holdings), governance mechanisms, and the subject crypto asset's ecosystem of contributors and participants. Issuers must provide concise, non-boilerplate risk factor disclosure specific to the covered investment contract, the issuer, the subject crypto asset, and the associated network or application. Disclosures must be clear and concise, without excessive technical jargon, and must be consistent with the issuer's public statements and promotional materials.

While this disclosure framework allows issuers to tailor their disclosure to their unique facts and circumstances, issuers should be cognizant that such disclosures remain subject to the anti-fraud provisions of U.S. federal and state securities laws, which require accuracy and completeness with respect to all material information.

The Investment Contract Safe Harbor

The Regulation follows the SEC's March 2026 interpretative release regarding when a covered investment contract ceases to exist. The safe harbor is satisfied when both:

• The issuer has completed or permanently ceased all essential managerial efforts it represented or promised under the covered investment contract and the issuer is not making (and does not intend to make) new promises to engage in essential managerial efforts; and
• The issuer files a transition report on Form TR certifying satisfaction of the safe harbor conditions and providing a supporting analysis.

Once the safe harbor is satisfied, the crypto asset is deemed no longer subject to an investment contract, and the reporting, registration, and other requirements of the federal securities laws no longer apply. The safe harbor is available to any issuer that satisfies its conditions, regardless of whether the issuer previously relied on the startup or fundraising exemption.

Preemption of State Securities Laws

The Regulation defines "qualified purchaser" under Section 18(b)(3) of the Securities Act such that state securities law registration and qualification requirements are preempted for both primary offerings conducted under Regulation Crypto Assets and secondary market transactions in covered investment contracts. Secondary market preemption would continue so long as the issuer remains subject to, and current with, the applicable exemption's disclosure and reporting obligations. This preemption applies to offerings under both tiers of the fundraising exemption and to offerings under the startup exemption.

Practical Implications for Crypto Market Participants

For developing crypto projects, the Regulation would provide the first comprehensive framework for conducting token offerings in the United States without registration. Early-stage projects could use the startup exemption to distribute tokens through airdrops, staking rewards, and small capital raises while developing their networks. More mature projects could turn to the fundraising exemption for larger funding rounds.

The absence of resale restrictions and preemption of registration and qualification requirements under state blue sky laws are designed to facilitate the network effects that some crypto projects rely on. The investment contract safe harbor provides a defined off-ramp from securities regulation for projects that fulfill their development commitments. The SEC has created a framework tailored to the unique characteristics of digital assets: the exemptions provide flexibility for evolving crypto assets moving from centralization to decentralization, and the disclosures focus on relevant investor interests.