SEC Unveils "Regulation Crypto Assets" Proposal: Token Offerings Under $5M Could Avoid Full Registration

On Aug. 18 (North America time), the U.S. Securities and Exchange Commission released a proposed rule titled "Regulation Crypto Assets," laying out a bespoke framework for contracts involving crypto assets. The proposal represents the SEC's most substantive regulatory move on crypto since Chair Paul Atkins took office, as the agency seeks a path forward while Congress's CLARITY Act remains stalled. Two proposed registration exemptions According to the SEC, the draft rule would create two exemptions from Securities Act Section 5 registration, alongside a conditional safe harbor. Issuers relying on either exemption would still be subject to federal antifraud and antimanipulation rules. 1) Startup exemption Early-stage projects could raise up to $5 million total over as long as four years without completing a full registration. Disclosures would be principles-based and narrative, designed to resemble a streamlined, notice-style filing rather than a traditional registration package. 2) Fundraising exemption Issuers could raise up to $75 million in any 12-month period. The structure broadly tracks Regulation A+, with two tiers that would require audited financial statements and ongoing reporting, in addition to narrative disclosures. Practical impact: A token issuer could select an exemption based on the size of the raise. Smaller, development-stage token sales could use the startup exemption with plain-language narrative disclosures and no audited financials. Larger raises up to $75 million annually would require audited statements and continued SEC reporting obligations similar to periodic disclosure. Investment contract safe harbor: "detaching" from securities status The proposal also introduces an investment contract safe harbor. Under it, once an issuer has completed or permanently ceased the "essential managerial efforts" it previously promised investors, the associated crypto asset would be treated as no longer meeting the definition of an "investment contract." In effect, the token could shed securities-like characteristics once investors can no longer reasonably expect the team to keep working to support value. If the conditions are met, transfers and trading would no longer be treated as securities transactions, potentially removing the need for securities registration and easing exchange listing and secondary market activity. The proposal also revises the definition of "qualified purchaser" in a way that would preempt certain state-level registration and qualification requirements for securities issued under Regulation Crypto Assets and related secondary market transactions. Narrow scope: "covered investment contract" To limit the rule's reach, the SEC defines a new term, "covered investment contract," requiring that: (1) the arrangement involves a specific cryptocurrency asset; (2) the cryptocurrency itself is not a security; and (3) the contract involves no assets other than that cryptocurrency asset, whether securities or non-securities. The SEC frames this as a guardrail so the exemptions and safe harbors apply to narrowly defined crypto issuance scenarios, not tokenized securities or broader securities offerings. Why now: CLARITY Act momentum fades The SEC ties the proposal to a broader set of federal actions over the past 18 months and to waning prospects for the CLARITY Act, long viewed as a potential comprehensive solution for the industry. The agency notes its historical reliance on the 1946 Supreme Court Howey test, arguing it fits poorly with crypto assets whose rights and characteristics can evolve over time. It also says existing disclosure regimes (including Regulation S-K and Form 1-A) often miss information crypto investors focus on, such as tokenomics, governance and code security. The proposal's Rule 103 is designed to address this through principles-based disclosure. The SEC's proposal arrives as the CLARITY Act has repeatedly stumbled in the Senate this year, amid disputes over stablecoin incentives and ethics concerns involving former President Trump's potential conflicts of interest tied to crypto holdings. Polymarket's contract pricing for "CLARITY Act becomes law within 2026" fell from nearly 82% in February to roughly 18%–21% by mid-August. Senate Majority Leader filed a cloture motion on Aug. 8 and set a procedural vote for Sept. 15, which would require 60 votes; given current Republican seats, about 10 Democratic senators would need to cross over. White House crypto policy advisor Patrick Witt said at the SALT conference that the government is giving Congress time but "will not wait indefinitely" and would move ahead through regulators if September fails to deliver legislative progress. The SEC positions Regulation Crypto Assets as an implementation of that approach, using existing rulemaking and exemptive authority to provide an interim framework. Key dates and next steps The rule is only a proposal and is not in effect. The SEC's timeline includes: - Aug. 18, 2026: Proposal released (File No. S7-20-26-27). - 60 days after publication: Public comment period open; submissions accepted via the SEC website or email. The deadline will be set after publication in the Federal Register. - After comments close: The SEC must review and respond to substantive feedback before deciding whether to adopt a final rule and in what form. There is no statutory deadline; similar rulemakings often take months to more than a year. - November 2026: Commissioner Hester Peirce is expected to depart the SEC, which could affect internal momentum. The SEC cautions that the U.S. regulatory environment for crypto asset issuance is likely to remain transitional for some time, with rulemaking and legislation progressing on parallel tracks and no clear near-term resolution.