SEC Unveils "Reg Crypto" Proposal to Create Dedicated Rules for Token Fundraising

The U.S. Securities and Exchange Commission on Aug. 18 released a proposed rule package called Regulation of Crypto Assets, or "Reg Crypto," aimed at establishing securities-law pathways tailored to crypto token offerings rather than forcing them into frameworks built for corporate stock. The proposal would, for the first time, outline how certain tokens could be sold to the U.S. public, including participation by nonaccredited investors without a registered offering. It also introduces a structured process—with defined timelines—for ending the investment-contract relationship that can surround a token during a project's buildout. Scope and exclusions Reg Crypto would apply only where the crypto asset itself is not a security, but the offering or sale forms part of an investment contract in which the issuer committed to build a product, network, or ecosystem. Tokenized stocks and bonds—and structures that tie tokens to equity or other securities—are explicitly excluded. A four-stage framework The SEC organizes the regime around a token's lifecycle: fundraising, disclosure, development, and exit. Fundraising - Startup exemption: a one-time fundraising safe harbor allowing up to $5 million over a maximum of four years, with public filings required at the start and end of the period. - Regulation A-based exemptions: offerings of up to $20 million or $75 million within 12 months, depending on tier. These routes require SEC qualification, ongoing reporting and financial statements. Tier 2 offerings require audited financials and a "substantial connection" to the U.S. across organization, management, and assets. Disclosure Issuers would have to publish token-specific information, including supply and release schedules, minting and burning mechanisms, governance design and smart-contract permissions, source code, and—critically—what the issuer is building and how far that work has progressed. Development For projects using the startup exemption, the proposal provides up to four years to complete the promised core build. Exit (termination of the investment contract) If the issuer completes or permanently stops the covered activities, makes no new commitments to continue them, and files a transition report, the investment contract would be deemed terminated. After that, the SEC would no longer treat the crypto asset as subject to that investment contract under the Securities Act and the Exchange Act. The SEC notes this safe-harbor exit mechanism would also be available to issuers that did not rely on the new fundraising exemptions—creating a potential off-ramp for tokens already trading with unresolved securities-law status. Estimated usage and market impact To gauge paperwork burden, the SEC assumes roughly 475 issuers per year would use the investment-contract safe harbor, and about 130 offerings per year would rely on the two new fundraising exemptions. That framing suggests the proposal is designed, at least initially, to clarify the legal status of existing tokens more than to spark an immediate surge of new U.S. token issuance. Tokens sold under the exemptions would not be treated as restricted securities and could be resold immediately unless the contract imposes limits. The proposal also seeks to preempt certain state registration and qualification rules for eligible primary offerings and some secondary transactions, as long as issuers keep meeting ongoing obligations. What it does not cover Reg Crypto does not address exchanges, brokers, dealers, or custody. The SEC also distinguishes it from a separate concept it has discussed relating to tokenized securities and onchain transactions. Process and support at the SEC Public comments will be accepted for 60 days after publication in the Federal Register. The SEC canceled a scheduled public meeting on Aug. 14 and released the proposal four days later. Chair Paul Atkins and Commissioners Hester Peirce and Mark Uyeda each issued statements backing the initiative. Even with a 60-day comment window, the timetable remains tight if the SEC aims to finalize the rule before 2027. Analysis and industry implications The proposal is widely viewed as a concrete move by the SEC under Atkins to advance regulatory clarity even as the Senate remains stalled on the CLARITY Act. It signals a shift toward disclosures designed around how tokens function, requiring information token purchasers care about—supply schedules, mint/burn rules, smart-contract permissions, source code, ecosystem structure, and ongoing build progress—rather than disclosures modeled on equity issuance. Another key feature is the proposal's explicit treatment of time. Unlike stocks, whose securities characteristics persist, Reg Crypto would allow an investment contract tied to a token to begin at issuance, bind issuer obligations during development, and then terminate on a publicly recorded date even if the token continues trading. The framework is built around enforceable lifecycle rules, not a single exemption. Adoption remains uncertain. Regulation D Rule 506 still offers unlimited fundraising with no SEC qualification and no ongoing public reporting, which may remain attractive. Reg Crypto's trade-off is more disclosure and reporting, but in return it would permit public sales to nonaccredited investors, allow immediate transferability, and override some state requirements. For teams that want tokens to circulate broadly rather than sit with venture funds, the lack of a federal holding period could be one of the most consequential provisions. The requirement that larger exemption users maintain a substantial U.S. connection may also limit uptake. Many token projects structured offshore foundations not only to avoid U.S. securities laws, but for governance, treasury management, and tax reasons. Without clearer U.S. tax treatment of token-sale proceeds and treasury allocations, forcing major operations and assets back into the U.S. could deter participation. The $5 million startup exemption does not impose the same U.S. registration linkage and may see stronger early-stage use despite the cap. If the frictions are resolved, the proposal could enable a more credible "token financing 2.0"—reviving capital formation directly from future users, with investor protections missing from the 2017 cycle. The structure combines tiered exemptions, token-native disclosures, defined public participation limits, and a clear endpoint for securities-law obligations. It could also spawn a service ecosystem similar to what developed around Regulation A+: securities counsel, audit firms, technical disclosure specialists, issuance platforms, and compliance providers supporting offering materials and transition reports. The SEC estimates a transition report under the independent safe harbor would require around 30 labor hours on average, including external professional costs—suggesting the exit process itself will often require outside help. Near term, the most meaningful effect may be the "exit" pathway rather than fresh fundraising: a route to clean up legacy tokens whose status has remained uncertain. For years, market participants have tried to infer when an investment contract ends from speeches, settlements, and litigation. The industry's hoped-for test—"full decentralization"—has never been clearly defined. Reg Crypto would replace that ambiguity with filings and clear dates. The proposal remains preliminary and could change through the comment process. Atkins also emphasized that legislation is still necessary to prevent future regulators from reversing any SEC-created framework. State regulators may challenge the breadth of federal preemption. Even so, Reg Crypto would mark a significant step toward clarity—while underscoring that only Congress can make that clarity durable.