Authors
Introduction
The Securities and Exchange Commission (SEC) announced the long-awaited proposal for the treatment of certain crypto assets, “Regulation Crypto Assets,” on August 18, 2026.1 This is the agency’s clearest signal to date that it intends to build a securities regulatory framework for digital assets. The proposal creates two new offering exemptions and a conditional safe harbor for certain covered investment contracts, collectively providing crypto asset issuers with a defined framework for capital formation and, critically, a defined off-ramp.
The proposal builds on the SEC’s March 2026 interpretive release issued jointly with the Commodity Futures Trading Commission (CFTC).2 SEC Chairman Paul Atkins has characterized the exercise as addressing a “square peg in a round hole” problem: rules adopted in the 1930s applied without adaptation to an asset class that emerged in the twenty-first century. The practical consequence was that issuers and market participants moved offshore, leaving investors without the protections the federal securities laws were designed to provide.3
Regulation Crypto Assets would not create a general classification regime for crypto assets. It instead focuses on a “covered investment contract,” an investment contract involving a crypto asset that is not itself a security and in which no other asset is subject to the investment contract. In other words, the security is the investment contract relationship. The underlying token is the “subject crypto asset.” Digital securities would fall outside that definition, as would arrangements in which the same investment contract also covers equity, debt, or another asset. That limitation may matter for legacy projects. A historical structure combining token rights with equity, convertible instruments, or warrants under a single arrangement could fall outside it if the same investment contract encompasses those additional assets, and a prospective restructuring would not retroactively change the character of the original transaction.
Proposed rules
Startup exemption
The startup exemption would provide a non-exclusive exemption from Securities Act registration requirements. It would permit issuers to conduct offerings of “covered investment contracts” of up to $5 million during a period of up to four years. Issuers relying on this exemption would be required to make public filings at the beginning and end of the exemption period and provide principles-based narrative disclosures to investors throughout. The exemption is intended to provide issuers with temporary relief while they work toward completing the essential managerial efforts set out in their representations or promises to investors.
Several features may matter more in practice than the $5 million ceiling. The exemption may be used only once by the issuer and its affiliates for the same or a substantially similar crypto asset, and the issuer may be an entity, an individual, or a group. “Covered transactions” also reach beyond cash fundraising. Certain airdrops, developer and testing compensation, staking and governance incentives, and other network distributions may count toward the limit, so a project relying on the exemption will need a token issuance ledger, a written valuation methodology for noncash consideration, and affiliate aggregation controls.
Form NOR must be filed before the first covered transaction, and the startup exemption contains no solicitation-of-interest framework, so pre-Form NOR communications that constitute offers may fall outside the exemption. Covered investment contracts would not be restricted securities. Both exemptions are subject to bad actor disqualification.
Fundraising exemption
Modeled in part on Regulation A, the fundraising exemption would provide a non-exclusive, two-tier structure.
Tier 1: Issuers would be permitted to conduct offerings of up to $20 million during each 12-month period.
Tier 2: Issuers could raise up to $75 million during each 12-month period. Issuers under this exemption must publicly file offering materials containing the same principles-based narrative disclosures required under the startup exemption, along with a discussion of financial condition and financial statements, which must be audited for Tier 2 offerings.
Ongoing reporting requirements, similar to those in Regulation A but tailored to covered investment contracts, would also apply.
A few features may matter more in practice than the headline offering limits. The fundraising exemption would be limited to U.S.-organized issuers satisfying specified U.S. management, asset, and administration tests. Non-accredited investors would be subject to investment limits, affiliated selling securityholders would be subject to separate caps, and both tiers would carry ongoing reporting obligations.
Investment contract safe harbor
The investment contract safe harbor would provide a conditional exit ramp in the form of a non-exclusive safe harbor from the term “investment contract” in the Securities Act and Exchange Act definitions of “security.” If an issuer has completed or permanently ceased all essential managerial efforts that it represented or promised it would engage in under a covered investment contract and is not making and does not intend to make any new representations or promises to engage in essential managerial efforts with respect to the crypto asset, and has made a public filing certifying this and including supporting analysis, the covered investment contract would be deemed to have ceased to exist and the crypto asset would be deemed no longer subject to it. This mechanism builds directly on the March 2026 interpretation, which addressed when a non-security crypto asset becomes subject to, and later ceases to be subject to, an investment contract.
Three features deserve emphasis. First, the safe harbor would be available to issuers that used either new exemption and to issuers that did not, so the off-ramp would not require a new Regulation Crypto Assets offering. Second, it would operate prospectively and would not cure prior unregistered offers and sales, misstatements, or omissions. Third, continuing development would not necessarily defeat it. Once the promised efforts have been completed and the network or application is functional, services to secure, maintain, improve, or enhance it, or to facilitate network effects, would not constitute essential managerial efforts. The question is not whether the sponsor disappears. It is whether the essential managerial efforts the issuer represented or promised it would undertake have ended.
Importantly, the safe harbor would govern the SEC’s administration of the federal securities laws. It would not bind private parties, and the SEC could still challenge whether the conditions were satisfied. As proposed, it also does not reach the definitions of “security” in the Investment Company Act or the Investment Advisers Act. The SEC has requested comment on whether it should.
Legacy projects should pair any safe harbor analysis with a historical exposure review. A transition report may strengthen a project’s prospective regulatory position while creating a public record concerning the issuer’s prior relationship to the token. Whether that trade-off is favorable will depend on the age and nature of the original distribution and on remaining federal, state, contractual, and antifraud exposure.
State law preemption
The proposed rules would define “qualified purchaser” under the Securities Act in a manner that would preempt state securities law registration and qualification requirements for offers and sales of covered investment contracts made pursuant to Regulation Crypto Assets. For secondary market transactions by persons other than issuers, underwriters, or dealers, state law preemption would continue for as long as the issuer satisfies the applicable information and reporting requirements.
The preemption of state securities laws would reduce the state-by-state compliance burden and uncertainty that has historically complicated crypto asset offerings. This aligns the crypto regime with preemption frameworks already available for certain Regulation A offerings and Rule 506 offerings under Regulation D. Two qualifications matter. Preemption would reach state registration and qualification requirements rather than state law generally, and it would be dynamic, depending on the issuer remaining current with the applicable requirements. For fungible covered investment contracts, the proposed secondary market preemption could also extend beyond units initially sold under Regulation Crypto Assets, provided the issuer has complied with the regulation in respect of the same covered investment contract and remains current. Absent cessation of the investment contract or a transition to another pathway, a startup exemption issuer reaching the end of the four-year period with the covered investment contract still outstanding would no longer have disclosure obligations and lose the associated preemption for secondary transactions, without the ability to restart the exemption.
Next steps and implications for market participants
Regulation Crypto Assets marks the SEC’s most significant attempt to date to craft bespoke rules for digital asset markets within the existing statutory framework. The unanimous support of all three commissioners suggests that the SEC’s posture toward crypto asset regulation has fundamentally shifted as it determines how to address crypto-specific capital formation.
The tiered exemption structure is intended to provide a clearer path to capital raising. Early-stage projects could utilize the startup exemption’s $5 million ceiling to fund initial development, then graduate to the fundraising exemption’s more substantial thresholds as the network matures and more detailed financial reporting becomes feasible. That sequence would not be automatic. An issuer would still need to address integration under Rule 152, the startup exemption’s one-time use restriction, aggregate offering calculations, and the fundraising exemption’s qualification and eligibility conditions.
Designing for the off-ramp
Because the safe harbor turns on the issuer’s own representations, the work begins at launch rather than at exit. The proposal would require disclosure of the promised essential managerial efforts and progress in completing them, consistent with the issuer’s whitepaper, website, social media channels, and other promotional materials. A project expecting to rely on the safe harbor should build that record deliberately by:
- Identifying the essential managerial efforts separately from ordinary ongoing development
- Making those commitments finite and objectively testable wherever possible
- Defining what functionality means for the specific network or application
- Distinguishing launch and development commitments from subsequent maintenance and enhancement
- Controlling changes to the roadmap through a documented approval process
- Reconciling the whitepaper, website, social media, and formal disclosure, and archiving each version
Marketing governance becomes securities law governance. For teams accustomed to treating roadmap communications as a growth function, that is a meaningful operational change.
What Form TR means for trading platforms and other intermediaries
The investment contract safe harbor provides a defined mechanism by which a covered investment contract can cease to exist and the underlying crypto asset can cease to be subject to it. If the issuer satisfies Rule 400’s conditions, that determination could materially support a listing, custody, or investment analysis. On its own, however, it does not supply the certainty that such a decision requires.
Exchanges, custodians, market makers, and institutional holders face a different question: what to do with someone else’s Form TR. The filing is an issuer certification supported by the issuer’s own analysis. No SEC review is required, and the SEC may later conclude that the certification was wrong.
A Form TR is therefore evidence, not clearance. Before treating one as sufficient support for a listing, custody, or investment decision, compare the issuer’s analysis against the original whitepaper and offering materials, the managerial commitments made at issuance, subsequent roadmap and promotional statements, the evidence that those managerial efforts or commitments had been fulfilled or had permanently ceased, and any new commitments that could recreate issuer-dependent expectations. Intermediaries may also wish to address the issuer’s regulatory status contractually, through representations regarding Form TR or exemption status, appropriate continuing covenants, and notice of any SEC challenge or change in the assumed position.
In addition, the proposal does not create parallel exemptions from broker, dealer, or exchange status, and the SEC has said that those questions are outside this rulemaking and may be considered separately. We expect that the comments will address some of these gaps and that the SEC will provide additional clarity when adopting the final rules. Until then, platforms, custodians, and other intermediaries would still need separate analyses of their Exchange Act, custody, clearing, commodities, anti-money laundering, sanctions, and state law obligations.
It is also unclear what the impact will be on market participants if the CLARITY Act is not enacted, although CFTC Chairman Michael Selig has indicated that the CFTC is ready to act quickly on creating rules for the cryptocurrency market if it is not enacted this year.4 The CLARITY Act and other pending congressional market structure legislation could also alter, supplement, or supersede portions of this framework.
The SEC has opened a 60-day public comment period following publication in the Federal Register on August 21, 2026, and comments are due October 20, 2026. We expect a significant number of comments on the proposed rules from industry and financial market participants. Market participants should consider not only whether the proposed exemptions could provide a useful capital-raising pathway, but also how their existing disclosures, development commitments, and secondary market arrangements would affect their ability to use the proposed off-ramp. Comments may be submitted through this form.
1. The proposed rules are available by clicking this file.
2. See Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, Release No. 33-11412 (Mar. 17, 2026). See our piece on the March interpretation.
3. See SEC Proposes New Regulation Crypto Assets.
4. Remarks by Chairman Selig at the Innovation Advisory Committee Conference.
Client Alert 2026-180