SEC floats "Reg Crypto" proposal to create a dedicated legal framework for token issuance

Odaily Planet Daily reported that Alex Thorn, research director at Galaxy, said the U.S. Securities and Exchange Commission (SEC) on Aug. 18 unveiled a proposed set of rules dubbed Regulation Crypto Assets, or "Reg Crypto." The proposal would mark the first U.S. securities framework tailored specifically to the issuance and sale of crypto assets, rather than relying primarily on traditional stock-market rules. Thorn said the proposal could reshape the U.S. crypto landscape in two main ways. It would allow eligible token projects to sell tokens legally to the public, including nonaccredited investors. It would also introduce a clear path for token-related investment contracts to formally end once specified conditions are met, addressing long-running uncertainty over whether many legacy tokens should still be treated as securities. Under the SEC's approach, Reg Crypto would apply to crypto assets that are not themselves securities but were issued or sold as part of an investment contract. The framework is organized around four stages: 1) Financing stage: Two new issuance exemptions are contemplated. A startup exemption would allow projects to raise up to $5 million over as long as four years. A larger exemption, modeled on Regulation A, would permit fundraising of $20 million to $75 million within a 12-month period. 2) Disclosure phase: Issuers would provide crypto-specific disclosures, including token supply, unlock schedules, mint-and-burn mechanisms, governance rights, smart-contract information, source code, and development progress. 3) Development phase: Project teams would complete core development commitments made to investors within the required timeframe. 4) Exit stage: After a project is completed or related build-out obligations end, and after filing a transition report, the investment contract tied to the tokens could be deemed terminated. The tokens would then no longer be subject to securities regulation under that investment contract. Thorn argued the core significance is the creation of a "token lifecycle" framework: tokens may begin as investment contracts due to development-related promises, but their securities attributes could be formally extinguished through a defined process as projects mature. The SEC estimates roughly 475 issuers each year could rely on the investment-contract safe harbor, while only about 130 projects are expected to use the new financing exemption. Thorn said that points to the proposal's near-term impact being the cleanup of regulatory uncertainty around existing tokens, rather than an immediate surge in new token offerings. Reg Crypto remains a proposal and may face headwinds from regulatory changes, state regulators, and congressional action. If adopted, it could set the stage for a "legal ICO 2.0" in the U.S., establishing a new baseline for project fundraising, token circulation, and investor protection.