SEC Unveils Proposed "Regulation of Crypto Assets" Framework to Govern Token Fundraising

By Xiao Bing On August 18, the U.S. Securities and Exchange Commission (SEC) released a 402-page proposed rule titled "Regulation Crypto Assets," laying out a new framework for token financing. The proposal introduces two registration-exempt offering routes and an investment-contract safe harbor designed for transactions involving crypto assets. If adopted, it would be the SEC's first set of permanent rules written specifically for crypto assets. The rollout drew attention for its timing. The SEC had scheduled a vote for August 14, canceled it shortly before it was to occur, then published the proposal four days later. The move also lands as Congress remains stalled: the Senate left Washington on August 7 without voting on the CLARITY Act, pushing a procedural vote to September 15. Two exemptions, mapped to two stages The proposed framework creates two exemption pathways tied to a project's development phase. 1) "Startup Exemption": Issuers could raise up to $5 million once, within a four-year window. The SEC would require public disclosure at the start and end of the fundraising period covering core information about the project, team, technology, and risks. Audited financial statements would not be required. 2) "Financing Exemption": Issuers could raise up to $75 million in any 12-month period. This route would carry higher compliance thresholds, including financial statements, ongoing reporting obligations, and adherence to antifraud and market-manipulation rules. Across both exemptions, the SEC emphasizes "principled narrative disclosure" rather than fixed tabular templates. The approach departs from the traditional IPO Form S-1 format, aiming instead to have projects present the information investors need based on their specific facts and risks. The centerpiece: a safe harbor for investment contracts The most consequential element is an investment-contract safe harbor intended to create a way for tokens to exit the securities framework. A core legal problem for U.S. crypto over the past eight years has been the view that if a token is an investment contract (and therefore a security) at issuance, it remains a security indefinitely. Under that logic, even if a network becomes decentralized and founders step away from day-to-day control, the token's securities status does not change, limiting exchange listings and potentially implicating securities-law compliance with each transfer. Under the SEC proposal, an issuer could pursue an "exit" from investment-contract status once it completes or permanently stops the "essential managerial efforts" promised in the investment contract and submits required documentation to the SEC. At that point, the token would no longer be treated as the subject of an investment contract and would fall outside the securities framework. SEC Chairman Paul Atkins described the proposal as "commonsense regulation: the minimum effective dose with maximum constructive freedom." The model would effectively establish a lifecycle in which tokens begin as securities during the fundraising and buildout phase, then "graduate" into non-securities assets after maturity, decentralization milestones, and removal of managerial dependence. The SEC would oversee the first phase, with the CFTC (or potentially no regulator) overseeing the second. No comparable "promotion" pathway exists under the Securities Act dating back to 1933: stocks remain securities from issuance to delisting, and bonds end at maturity without transforming into another asset class. The proposal would make tokens a rare instrument that could be "born as a security and die as a commodity." Decentralization becomes a compliance test A central practical question is who decides whether the "key management tasks" have been completed. The SEC's approach is to let issuers define their own commitments, subject to SEC review. Under joint interpretive guidance issued by the SEC and CFTC in March, issuers are expected to be held to the "key managerial efforts" they commit to in their investment contracts. In effect, decentralization claims would move from whitepaper rhetoric or courtroom argument into a documentation and verification exercise. If an issuer promises decentralized governance, it must show governance is decentralized; if it promises delivery of a core feature, it must demonstrate the feature has been delivered. For future token projects, that could mean defining "graduation criteria" from the outset: timelines for transferring governance rights, milestones for the team's exit from control, and technical standards demonstrating the network can operate independently. The decentralization roadmap would become a legal commitment. Regulatory urgency amid a stalled Congress The proposal also reflects mounting time pressure in Washington. The CLARITY Act remains stuck in the Senate after missing a vote before the August 7 recess, with a procedural vote postponed to September 15 and requiring 60 votes to advance. Polymarket odds of passage by 2026 have dropped from a February high of 82% to roughly 28%. Partisan disagreement continues over ethics provisions: Democrats are seeking limits on federal officials profiting from cryptocurrency businesses, while Republicans are focused on clarifying market structure. With 14 legislative days left before the midterm elections, the legislative window is narrow. Atkins said "legislation remains essential," yet the SEC opted to act through administrative rulemaking to create a standalone token-financing framework. If CLARITY ultimately passes, the systems could be aligned; if Congress continues to delay, the market would at least have a functional baseline. The SEC also explicitly framed the proposal as a shift away from the prior enforcement-led posture. Atkins said the rules are intended to "reduce the incentive for issuers to set up and operate overseas," signaling that the earlier enforcement-first approach pushed projects abroad. Next steps and industry reaction The SEC emphasized that this is a proposed rule, not a final one. After publication in the Federal Register, a 60-day public comment period will begin. The SEC must then evaluate feedback, revise the proposal, and hold another vote to adopt final rules. The process typically takes several months to more than a year. Industry reaction has been positive but measured. Cody Carbone, CEO of the Digital Chamber, said the SEC incorporated several recommendations from crypto companies into the drafting. The final outcome will depend on the comment process and the eventual vote by the SEC's three commissioners, all Republicans. A shift in the SEC's composition after the midterm elections could add uncertainty. Even so, the direction is clear: U.S. regulators are beginning to build a compliant route for token fundraising rather than treating it primarily as something to be blocked. The combination of legal fundraising exemptions and a potential "graduation" path out of securities status represents the most significant shift in U.S. crypto regulation to date.