SEC Proposes New Regulatory Framework for Crypto Asset Offerings
On August 18, 2026, the U.S. Securities and Exchange Commission (the “SEC”) proposed a new regulatory framework, Regulation Crypto Assets, designed specifically for certain offerings involving crypto assets. The proposal represents a significant step in the SEC’s broader effort to replace the application of securities rules developed for traditional securities offerings with a more tailored framework for crypto-related capital formation.
Background
Regulation Crypto Assets builds on the SEC’s release “Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets” of March 17, 2026. In that release, the SEC distinguished between a crypto asset itself and the transaction or arrangement through which the crypto asset is offered and sold. A crypto asset that is not itself a security may nevertheless be offered or sold pursuant to an “investment contract” under the traditional Howey test for what is or is not a security.
The proposal focuses on these arrangements. A “covered investment contract” would generally mean an investment contract under which (i) a crypto asset is subject to the investment contract, (ii) that crypto asset is not itself a security, and (iii) no asset other than that crypto asset is subject to the investment contract. Accordingly, the proposal is not a general exemption for tokenized stocks, bonds or other “digital securities”; rather, it is intended principally for transactions involving non-security crypto assets that are nevertheless offered or distributed as part of an investment contract.
Key Takeaways
Startup Exemption: allows early-stage projects to raise up to $5 million over a maximum of 4 years without requiring audited financial statements.
Fundraising Exemption: modeled similarly to Regulation A, it offers Tier 1 (up to $20 million) and Tier 2 (up to $75 million) pathways for more mature projects seeking large-scale capital.
Investment Contract Safe Harbor: If an issuer completes or permanently ceases its promised essential managerial efforts, the investment contract is deemed terminated, and the underlying crypto asset is no longer subject to securities laws.
Preemption of State Law: By redefining “qualified purchasers,” the proposal preempts state blue sky registration requirements for exempt offerings, which is designed to significantly streamline secondary market liquidity.
Startup Exemption: Up to $5 Million During a Four-Year Period
The proposed Startup Exemption is intended primarily for early-stage crypto projects that are still developing the functionality, network or application associated with a crypto asset. An issuer relying on the proposed Startup Exemption could conduct covered transactions involving up to $5 million during a maximum four-year period without registering the offering under Section 5 of the Securities Act of 1933 (the “Startup Exemption”). The exemption generally could be used only once by the issuer and its affiliates with respect to the same or a substantially similar crypto asset.
Unlike many existing private offering exemptions, the Startup Exemption is designed to facilitate broad distribution of crypto assets. As proposed, covered investment contracts sold under the exemption would not be treated as restricted securities or otherwise subject to rule-based resale restrictions; general solicitation would be permitted; and the exemption would not limit participation to accredited investors or impose individual investment caps on retail investors. The SEC explained that these features are intended in part to facilitate the “network effects” that may be important to the development of crypto networks and applications.
The reduced regulatory burden does not mean that the offering would be disclosure-free. Before conducting a covered transaction, an issuer would be required to file a Form NOR (Notice of Reliance) with the SEC and make specified disclosures publicly available on a website free of charge. Those disclosures would address, among other matters, the issuer’s representations or promises regarding its essential managerial efforts, the relevant crypto asset and network or application, the terms of the offering, token supply and distribution, material risks and conflicts of interest. The issuer would generally be required to update its disclosures for material changes and ultimately file a transition report on Form TR.
Notably, unlike the proposed Fundraising Exemption discussed below, the Startup Exemption as currently proposed would not be limited to U.S.-organized entities. An eligible issuer could be an entity, an individual, or a group of individuals or entities. The SEC is, however, specifically requesting comment on whether U.S. incorporation, U.S. residency or other U.S.-nexus requirements should be added to the final rule.
This distinction could be particularly important for non-U.S. crypto sponsors considering access to U.S. investors.
Fundraising Exemption: A Regulation A-Style Framework for Offerings Up to $75 Million
For larger capital raises, the SEC proposes a second exemption modeled substantially on Regulation A but tailored specifically to covered investment contracts.
The proposed Fundraising Exemption would have two tiers. Tier 1 would permit offerings of up to $20 million in a 12-month period, including no more than $6 million offered by affiliated selling securityholders. Tier 2 would permit offerings of up to $75 million in a 12-month period, including up to $22.5 million offered by affiliated selling securityholders.
Unlike the Startup Exemption, an issuer seeking to rely on the Fundraising Exemption would need to file an offering statement on Form 1-CRYPTO through EDGAR and obtain SEC qualification before sales. The offering circular would include the crypto-specific narrative disclosures required under Regulation Crypto Assets, a discussion of the issuer’s financial condition and financial statements. The framework also would permit certain “testing-the-waters” communications.
The financial statement requirements would vary by tier. Tier 1 financial statements generally would not be required to be audited, although audited financial statements obtained for other purposes may need to be included. Tier 2 offerings would require audited financial statements, with the audit conducted in accordance with U.S. GAAS or PCAOB standards and subject to specified auditor independence requirements.
Both Tier 1 and Tier 2 issuers would be subject to ongoing reporting after qualification, including annual reports on Form 1-KC, semiannual reports on Form 1-SC, and specified current reports on Form 1-UC. Certain Form 1-UC events would be reportable within four business days. This is an important difference from Regulation A, under which ongoing reporting generally applies to Tier 2 but not Tier 1 issuers.
Retail investors would be permitted to participate. However, unless a purchaser is an accredited investor, the aggregate purchase price generally could not exceed 10% of the greater of the purchaser’s annual income or net worth for an individual, or 10% of the greater of annual revenue or net assets for a non- natural person. Issuers generally would be permitted to rely on purchaser representations unless they know that the representation is untrue.
The Fundraising Exemption is considerably narrower than the Startup Exemption with respect to issuer eligibility. As proposed, an issuer must be an entity organized under U.S. law. In addition, a majority of its executive officers or directors must be U.S. citizens or residents, more than 50% of its assets must be located in the United States, and its business must be administered principally in the United States. Certain blank-check companies, investment companies and issuers subject to specified SEC orders would be ineligible.
Accordingly, many offshore crypto projects—including projects that establish a U.S. subsidiary but retain management, assets and operations primarily outside the United States—may not qualify for the Fundraising Exemption without restructuring their operations. Non-U.S. issuers should therefore evaluate the proposed eligibility standards carefully before treating Regulation Crypto Assets as a potential U.S. fundraising pathway.
Investment Contract Safe Harbor: When Does the Securities Law “Wrapper” End?
Under the proposed safe harbor, an investment contract ceases to exist if the issuer has completed or otherwise permanently ceased all essential managerial efforts that it represented or promised it would undertake and is not making, and does not intend to make, new representations or promises to undertake essential managerial efforts with respect to the crypto asset. The issuer also would be required to file a Form TR, including a certification and an analysis supporting its determination.
If the conditions are satisfied, the SEC would take the position that the reporting, registration and other requirements arising from the investment contract no longer apply from that point forward.
The significance of this mechanism is that it provides a potential regulatory “off-ramp.” A project could initially raise capital in a transaction subject to the federal securities laws while the project team undertakes promised development activities, but the underlying crypto asset could later trade outside the securities-law framework once those promised essential managerial efforts have been completed or permanently ceased.
The safe harbor would not be mandatory or exclusive. Failure to qualify for Rule 400 would not necessarily mean that the crypto asset continues to be subject to an investment contract; market participants could still analyze the asset and transaction under Howey and the SEC’s March 2026 interpretation. Conversely, filing a Form TR would not prevent the SEC from challenging an issuer’s conclusion if the safe harbor conditions were not actually satisfied.
For issuers, this places increased importance on how development commitments, milestones and other representations are drafted at the outset of an offering. Promises made in white papers, offering materials, websites, social media communications and other investor-facing materials may become important evidence when determining whether the issuer has completed the “essential managerial efforts” underlying the investment contract.
Proposed Federal Preemption of Certain State Securities Requirements
Regulation Crypto Assets also proposes significant relief from state “Blue Sky” registration and qualification requirements.
Proposed Rule 500 would generally treat purchasers in offerings conducted pursuant to Regulation Crypto Assets as “qualified purchasers” for purposes of Section 18 of the Securities Act of 1933. As a result, securities offered under both the Startup Exemption and the Fundraising Exemption would generally be treated as covered securities and would benefit from federal preemption of state registration and qualification requirements.
The proposed preemption could also extend to qualifying secondary-market transactions while the issuer remains subject to, and current with, the applicable disclosure and reporting obligations under Regulation Crypto Assets. States would nevertheless retain authority to enforce their antifraud laws.
For crypto projects seeking broad distribution and secondary-market liquidity across the United States, this feature could substantially reduce the complexity associated with complying with different state registration regimes.
Implications for Market Participants
Companies, founders and investors active in the crypto sector should begin evaluating the proposal now, particularly where a U.S. capital raise, token distribution or secondary-market strategy is under consideration.
Among other matters, project sponsors should consider whether their existing or contemplated token arrangements would constitute “covered investment contracts”; carefully identify and document representations or promises that could be viewed as essential managerial efforts; evaluate whether the Startup or Fundraising Exemption could provide a more practical alternative to Regulation D, Regulation Crowdfunding, Regulation A or a registered offering; and assess whether their organizational structure and geographic footprint would satisfy the U.S.-nexus requirements applicable to the Fundraising Exemption.
Projects that may ultimately seek to rely on the Rule 400 safe harbor should also consider establishing procedures to track the development milestones and managerial efforts disclosed to investors. The ability to demonstrate, with a clear factual record, that those efforts have been completed or permanently ceased may become important in supporting a future determination that the investment contract has ended.
However, it should be noted that market participants should not begin structuring current transactions on the assumption that the proposal will be adopted in its current form. The SEC has requested comment on numerous substantive issues—including offering limits, issuer eligibility, investor limitations, disclosure requirements, state-law preemption and the conditions for the investment contract safe harbor—and the final rules may differ materially from the proposal. Comments on the proposal are due October 20, 2026. Market participants that could be materially affected by the proposed issuer eligibility requirements, offering limits, disclosure obligations, investor limitations, safe harbor conditions or state-law preemption provisions may wish to consider participating in the comment process.
If you have any questions, please contact Anand Saha (asaha@cronelawgroup.com), Liang Shih (lshih@cronelawgroup.com), Hongye (Eve) Mao (hmao@cronelawgroup.com), Daisy Dai (DDai@cronelawgroup.com) or your usual Crone contact.
