SEC Proposes Reg Crypto, Establishing Legal Pathways for Certain Token Public Offerings and Investment Contract Exits

Odaily News Galaxy Research head stated on X platform that the U.S. Securities and Exchange Commission proposed the "Regulation Crypto Assets" (Reg Crypto) on August 18. The proposal aims to establish a legal pathway for certain tokens to be offered to the U.S. public, and sets up a mechanism for terminating investment contracts. The scope applies only to crypto assets that are not themselves securities but were previously issued or sold as part of an investment contract. Tokenized stocks, bonds, and arrangements bundling tokens with equity or other securities are not covered by the framework.

The proposal sets four stages: fundraising, disclosure, building, and exit. A one-time startup exemption allows issuers to raise up to $5 million over a maximum of 4 years; a higher-limit exemption modeled on Regulation A permits fundraising of $20 million or $75 million within 12 months. Such fundraising must undergo SEC qualification review and continuous disclosure, with unaccredited investors limited to investing no more than 10% of the higher of their annual income or net worth. Issuers must also disclose token supply and release schedules, minting and burning mechanisms, governance and smart contract permissions, source code, as well as project building commitments and progress.

Once an issuer completes or permanently ceases the relevant building obligations, makes no new building commitments, and submits a transition report, the associated investment contract will be deemed terminated, and the crypto asset will no longer be subject to securities laws under that investment contract. Issuers that did not utilize the aforementioned fundraising exemptions may also use this safe harbor. The SEC estimates that approximately 475 issuers per year would use the investment contract safe harbor, and about 130 issuers would use the two new exemptions. Qualifying issuances would not constitute restricted securities and could be immediately resold without contractual restrictions.

The proposal also excludes covered initial offerings and certain secondary transactions from state registration and qualification requirements, but does not address exchanges, brokers, dealers, custody, nor does it serve as a standalone innovative exemption for tokenized securities and on-chain transactions. The comment period is 60 days following publication in the Federal Register. SEC Chairman Paul Atkins and Commissioners Hester Peirce and Mark Uyeda all issued statements of support. The article was authored by Alex Thorn.