On Aug. 18, 2026, the U.S. Securities and Exchange Commission (SEC or Commission) issued a 402-page proposing release for Regulation Crypto Assets (Proposed Rules), which would establish a standalone offering framework for certain investment contracts involving crypto assets. The proposal is the SEC’s first formal effort to create an offering regime specifically tailored to covered investment contracts involving crypto assets. Until now, market participants have largely relied on previously issued no-action letters, interpretative releases, and written staff guidance relating to these assets to address crypto-related concerns under frameworks developed for traditional securities.
The Proposed Rules would establish two new exemptions from registration under the Securities Act of 1933, as amended (Securities Act) – a startup exemption and a larger fundraising exemption – together with crypto-specific disclosure requirements, a conditional investment contract safe harbor, and federal preemption of state securities registration and qualification requirements for offerings under Regulation Crypto Assets and certain secondary market transactions.
The Proposed Rules are the rulemaking follow-through to regulatory developments earlier this year (see our March 2026 GT Alert). On March 17, 2026, the SEC issued an interpretive release (March Release) addressing how the SEC v. W.J. Howey Co. investment contract analysis applies to crypto assets and how a non-security crypto asset may cease to be subject to an investment contract, in addition to establishing a taxonomy of various crypto assets that were deemed not to be securities. The Commodity Futures Trading Commission (CFTC) joined that interpretation. On the same day, SEC Chairman Paul S. Atkins previewed a potential framework called “Regulation Crypto Assets,” including startup and fundraising exemptions and an investment contract safe harbor. At the time, those concepts had not been formally proposed and remained conceptual and non-binding.
Five months later, the Commission has translated that framework into the Proposed Rules. As proposed, Regulation Crypto Assets would establish a potential regulatory lifecycle for certain crypto projects – from initial fundraising and network development through the point at which the investment contract may cease to exist and the underlying crypto asset may operate outside the investment-contract framework of the federal securities laws. Notably, the Proposed Rules do not address further the taxonomy outlined in the March Release, which is expected to be fully addressed in the pending CLARITY Act currently awaiting Congressional action before the end of 2026.
The Proposed Rules remain subject to a 60-day public comment period following publication in the Federal Register.
Scope of the Proposal: ‘Covered Investment Contracts’
The distinction between a crypto asset and the investment contract involving that crypto asset is fundamental to the proposed framework. Regulation Crypto Assets would apply to a newly defined “covered investment contract,” meaning a contract, transaction, or scheme involving a crypto asset that constitutes an investment contract (emphasizing, in particular, the issuer’s representations or promises to engage in “essential managerial efforts”), provided that: (i) a crypto asset is subject to the investment contract; (ii) such crypto asset is not itself a security; and (iii) no asset other than such crypto asset, whether a security or non-security, is subject to the investment contract. The proposed definition of “crypto asset,” in turn, generally covers a digital representation of value recorded on a cryptographically secured distributed ledger.
Whether a crypto asset is itself a security may be a threshold question in determining whether the proposed exemptions are available. In its March Release, the SEC explained that certain categories of crypto assets, including digital commodities, digital collectibles, and digital tools, generally are not themselves securities, even though they may be offered or sold pursuant to an investment contract. Those categories of non-security crypto assets may fall within the scope of Regulation Crypto Assets if the other requirements of a covered investment contract are satisfied. By contrast, crypto assets that independently constitute securities, such as tokenized stocks, bonds, and other digital representations of instruments that are themselves securities, would remain subject to the federal securities laws and outside the proposed exemptions.
The separation between a crypto asset and the investment contract involving that crypto asset reflects a central premise of the SEC’s March Release: a non-security crypto asset may be subject to an investment contract when initially offered or sold even though the crypto asset itself is not a security, and the investment contract and crypto asset may later separate such that the investment contract ceases to exist while the crypto asset continues to exist and trade. Regulation Crypto Assets is designed to accommodate that potential evolution in a way the existing exempt offering framework under the Securities Act generally does not.
Crypto-Specific Disclosure Framework; Essential Managerial Efforts
Proposed Rule 103 would establish a common, principles-based disclosure framework for both the startup and fundraising exemptions. Rather than applying disclosure requirements developed principally for traditional corporate securities, Rule 103 would require disclosure tailored to the issuer, the terms of the covered investment contract, the subject crypto asset, and the associated crypto network or application. Disclosure would be expected to reflect the project’s current stage of development, distinguish current conditions from future plans, and be consistent with material statements made through the issuer’s established public communications, including websites, official social media accounts, and whitepapers.
The required disclosures would address, among other matters, the terms of the covered investment contract and offering, including the purchaser’s obligations and any conditions to the covered investment contract; the issuer’s representations or promises to undertake essential managerial efforts and its progress with respect thereto; the subject crypto asset; management, related persons, and conflicts of interest; the associated network or application and its development plan; security and source code; crypto asset economics, supply and allocations; governance; the on-chain and off-chain ecosystem; and project-specific risk factors.
These disclosures also would play an important role beyond the initial offering. In particular, an issuer’s description of the essential managerial efforts it has represented or promised to undertake would provide an important reference point in determining whether those efforts have later been completed or permanently ceased for purposes of the proposed Rule 400 investment contract safe harbor. Thus, commitments identified at the outset of a project might help define the point at which the investment contract may later end.
Startup Exemption – Up to $5 Million Over Four Years
Proposed Rule 200 would create a streamlined exemption intended to provide crypto projects with a limited regulatory runway to develop, test, and launch a network or application while undertaking the essential managerial efforts represented or promised to purchasers.
Key features include:
- $5 million aggregate limit. The aggregate offering price and gross proceeds from covered transactions generally may not exceed $5 million.
- Four-year maximum period. The exemption would begin after the issuer files its notice of reliance on new Form NOR and generally end upon the earlier of four years or the filing of a transition report (Form TR).
- Broad issuer eligibility. The issuer may be an entity, an individual, or a group of individuals or entities. Unlike the broader fundraising exemption discussed below, the issuer need not be a U.S.-organized legal entity.
- One-time use. The issuer and its affiliates generally might rely on the exemption only once with respect to the same or a substantially similar crypto asset.
- Retail participation and general solicitation. The exemption would permit participation by non-accredited investors without imposing an individual investment cap and would permit general solicitation.
- No rule-based resale restriction. Covered investment contracts issued pursuant to the exemption would not be treated as restricted securities or otherwise subject to a rule-based holding period, but would remain subject, of course, to any contractual holding period.
- Crypto-project distributions. The exemption is designed to accommodate not only conventional capital-raising transactions, but also certain distributions made as rewards or incentives in connection with the use, operation, governance, or security of a crypto network or application, including certain airdrops.
Before relying on the exemption, an issuer would file Form NOR with the SEC and provide the Rule 103 disclosures publicly available on a website identified in the form. Material errors or changes in Form NOR would require amendment, and the issuer would be required to update its public disclosures within 30 calendar days after the end of each calendar year if, as of year-end, there are material changes to the information previously disclosed. The issuer ultimately would file a Form TR no later than four years after filing Form NOR. Unlike the fundraising exemption, the startup exemption would not require SEC qualification of an offering statement or financial statement disclosure.
Fundraising Exemption – Up to $75 Million in 12 Months
The proposed fundraising exemption, set forth in Rules 300 through 307, would provide a larger capital-raising pathway for covered investment contracts. Modeled in part on Regulation A, the exemption would have two tiers, with Tier 2 generally subject to more extensive financial disclosure requirements than Tier 1, including audited financial statements.
- Tier 1: up to an aggregate of $20 million in a 12-month period, including no more than $6 million offered by selling securityholders who are affiliates of the issuer.
- Tier 2: up to an aggregate of $75 million in a 12-month period, including no more than $22.5 million offered by selling securityholders who are affiliates of the issuer.
Additional limits would apply to selling securityholders during the first year: in the issuer’s first offering and subsequent offerings qualified within one year, securities offered by selling securityholders may not exceed 30% of the aggregate offering price of the particular offering.
US Nexus and Issuer Eligibility
Unlike the startup exemption, the fundraising exemption generally would be available only to an entity organized under U.S. federal, state, territorial, or District of Columbia law. In addition:
- a majority of the issuer’s executive officers or directors would need to be U.S. citizens or residents;
- more than 50% of the issuer’s assets would need to be located in the United States; and
- the issuer’s business would need to be administered principally in the United States.
Certain development-stage companies without a specific business plan, investment companies and business development companies, issuers subject to specified recent orders under Section 12(j) of the Securities Exchange Act of 1934 (Exchange Act), and issuers delinquent in certain Exchange Act reporting obligations also would be ineligible. The Commission has requested comment on, among other things, whether limiting issuer eligibility as outlined above is appropriate or whether the exemption should be extended to foreign private issuers, consistent with the startup exemption.
Offering Process, Investor Limits, and Reporting
An issuer relying on the fundraising exemption would file a new Form 1-CRYPTO containing Rule 103 crypto-specific disclosures, financial information, and other offering information. The issuer may “test the waters” before qualification, including before non-public submission or public filing with the SEC, but no sale could occur until the SEC qualifies the offering statement.
Both Tier 1 and Tier 2 offerings may include non-accredited investors, subject to a 10% investment limit based generally on the greater of annual income or net worth for natural persons, or annual revenue or net assets for non-natural persons. Covered investment contracts sold under the exemption would not be subject to rule-based resale restrictions.
The fundraising exemption would impose significantly greater financial disclosure and reporting obligations than the startup exemption. Although both Tier 1 and Tier 2 offerings would be subject to ongoing annual, semiannual, and current reporting, Tier 2 offerings generally would require audited financial statements, whereas Tier 1 offerings generally would not. As a result, Tier 2 offerings would be subject to a more robust financial disclosure framework designed to support larger capital raises and enhanced investor protections, while Tier 1 would provide a comparatively streamlined compliance pathway for smaller offerings. Those reporting obligations are expected to terminate upon filing Form TR if the issuer satisfies Rule 400 or the covered investment contract otherwise ceases to exist.
Investment Contract Safe Harbor – Rule 400
Perhaps the Proposed Rules’ most consequential conceptual provision is Rule 400, which would create a non-exclusive safe harbor from the term “investment contract” in the definitions of “security” in Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Exchange Act.
Under the proposed safe harbor, a covered investment contract would be deemed to have ceased to exist, and the underlying crypto asset would be deemed no longer to constitute, represent, or be subject to that investment contract, if:
- the issuer has completed or otherwise permanently ceased all essential managerial efforts that it represented or promised it would engage in under the covered investment contract and is not making, and does not intend to make, any new representations or promises to engage in essential managerial efforts with respect to the crypto asset; and
- the issuer files a Form TR with the SEC.
Rule 400 would provide a rule-based mechanism for implementing a central concept from the March Release: an investment contract involving a crypto asset may cease to exist even though the underlying crypto asset continues to exist, function, and trade. The proposing release states that, once the safe harbor is satisfied, the Commission would take the position that the applicable reporting, registration, and other requirements of the federal securities laws no longer apply from that point forward. The Commission would, however, retain the ability to challenge whether the issuer in fact satisfied the safe harbor’s conditions.
The safe harbor would be non-exclusive. Failure to satisfy Rule 400 would not, by itself, establish that a covered investment contract continues to exist; an issuer or other market participant may continue to analyze the arrangement under Howey and the March Release independently of the safe harbor.
As proposed, Rule 400 applies only to the “investment contract” component of the Securities Act and Exchange Act definitions of “security.” The Commission requests comment on, among other things, whether the safe harbor should also extend to the Investment Company Act and Investment Advisers Act.
State Securities Law Preemption and Secondary Market Transactions
The proposal would preempt state securities registration and qualification requirements for covered investment contracts offered or sold under Regulation Crypto Assets by treating purchasers in those transactions as “qualified purchasers” under Section 18(b)(3) of the Securities Act. The preemption also would extend to certain secondary market transactions by persons other than an issuer, underwriter, or dealer, so long as the issuer has satisfied the applicable Regulation Crypto Assets exemption and remains current with its disclosure, filing, and periodic reporting obligations. State anti-fraud authority and other authority preserved under the Securities Act would remain intact.
The Commission views this preemption as important to facilitating secondary-market liquidity and broader distribution of crypto assets across jurisdictions. The proposing release notes that state-by-state registration and qualification requirements may impede unrestricted secondary trading and, in turn, the development of crypto networks that depend on widespread holding and use of the underlying asset.
Practical Implications for Crypto Projects and Market Participants
If adopted substantially as proposed, Regulation Crypto Assets has been designed to reshape how crypto projects raise capital, develop networks, and ultimately transition away from investment contract status in the United States.
The proposal raises several practical considerations for crypto projects and market participants:
- The choice between exemptions involves more than offering size. The startup exemption would provide a streamlined, four-year pathway capped at $5 million, while the fundraising exemption would permit substantially larger raises but, as proposed, imposes U.S. nexus requirements, SEC qualification, financial statements, investor limits, and ongoing reporting.
- The proposal is designed to facilitate broad distribution and liquidity. The Commission recognizes that conventional investor and resale restrictions may impede network effects. Proposals related to retail participation, the absence of rule-based resale restrictions, and proposed state-law preemption for qualifying secondary transactions are intended to facilitate wider distribution and use of the underlying crypto asset.
- Ongoing securities law structuring extends throughout the project lifecycle. Given that an issuer’s initial representations and promises concerning essential managerial efforts may later inform whether the investment contract has ceased to exist, project teams may need to review and define those commitments carefully at launch and track them through subsequent disclosures, development milestones, public statements, and the eventual Rule 400/Form TR analysis.
- Reliance on Rule 400 may require a strategic judgment. The safe harbor may provide greater regulatory certainty, but would require a public Form TR certification and supporting analysis. The Commission acknowledges that some issuers may instead rely directly on Howey and the March Release due to a concern that invoking the proposed safe harbor might be viewed as a tacit admission that an investment contract previously existed.
Conclusion
Regulation Crypto Assets would mark a significant shift in the SEC’s approach to crypto asset capital formation. The Commission’s March Release sought to clarify, among other things, when an arrangement involving a crypto asset may constitute an investment contract and when that investment contract may cease to exist. The Proposed Rules go considerably further by addressing how a project might operate and raise capital while an investment contract exists, how covered investment contracts may be distributed and traded during that period, and how the regulatory relationship could ultimately end.
If adopted, the framework may provide crypto projects with tailored pathways to U.S. capital formation while accommodating retail participation, broader distribution, secondary-market liquidity, and a potential transition away from investment contract status. Those pathways, however, would carry materially different eligibility, disclosure, filing, and reporting obligations, and would require issuers to consider securities-law compliance across the lifecycle of a crypto project.
Following the 60-day comment period, the SEC will have not only the benefit of feedback from industry and market participants but may potentially have an enacted CLARITY Act (if passed by Congress before the end of 2026 and signed into law by the president) from which to assess any needed revisions to or clarifications of the Proposed Rules.