SEC floats "Reg Crypto" to govern token offerings and allow some tokens to shed securities status

The U.S. Securities and Exchange Commission on Aug. 18 unveiled a proposal dubbed Regulation Crypto Assets (Reg Crypto), outlining a new compliance pathway for certain token offerings and a mechanism that could allow some tokens to exit "investment contract" status once issuers complete specified development milestones and filings. Galaxy head of firmwide research Alex Thorn said the proposal could offer a regulated route for token issuance in the U.S. and that, if the SEC moves quickly, the framework could be in place before 2027, subject to public comments and potential congressional action. Under the proposal, Reg Crypto would apply to crypto assets that are not securities in themselves, but that were sold via investment contracts tied to promised development work. The SEC would create two offering exemptions: a startup track permitting up to $5 million raised over four years, and a larger track allowing $20 million or $75 million over a 12-month period depending on the tier. Both would require SEC filings and prescribed disclosures, with Tier 2 offerings additionally requiring audited financial statements. Disclosures would cover token supply and release schedules, minting and burning features, governance arrangements, and smart contract permissioning, alongside project descriptions and progress updates. The framework would also open participation to certain non-accredited investors, with purchase limits linked to annual income or net worth. Reg Crypto also proposes a path for "token exits": once an issuer finishes the development work it promised, the related investment contract could cease to exist after meeting conditions and completing required filings. The safe harbor could also apply to tokens issued years earlier even if they did not rely on the new fundraising exemptions, which Thorn said could help address assets with unresolved securities-law status. The SEC estimates roughly 475 issuers per year could rely on the safe harbor and about 130 offerings could use the two fundraising exemptions. Tokens covered by the framework could become immediately transferable, and the proposal would preempt certain state registration requirements. The proposal does not address exchanges, brokers, dealers, custody, or tokenized securities. Public comments will be due 60 days after publication in the Federal Register. The SEC had canceled an Aug. 14 open meeting ahead of releasing Reg Crypto four days later. Chair Paul Atkins and Commissioners Hester Peirce and Mark Uyeda issued supportive statements.