SEC Proposes Token Offering Rules With $75 Million Exemption

The Securities and Exchange Commission proposed Regulation Crypto Assets on Aug. 18, a framework that would let token issuers raise up to $75 million a year without registering the offering and, under a separate safe harbor, remove some tokens from the definition of a security altogether.

The proposal answers the question at the center of a decade of SEC crypto enforcement: when a token stops being a security. It arrives with the Digital Asset Market Clarity Act still short of a floor vote, making the rulemaking the more advanced of the two tracks.

Two Exemptions, Three Ceilings

The proposing release creates a startup exemption and a fundraising exemption, both covering what it calls "covered investment contracts" — investment contracts whose only subject is a crypto asset that is not itself a security. The release defines a crypto asset as "any digital representation of value that is recorded on a cryptographically-secured distributed ledger."

The startup exemption allows up to $5 million raised over a period of as long as four years, with public filings at the beginning and end of that period.

The fundraising exemption runs on two tiers: up to $20 million of covered investment contracts in a 12-month period under Tier 1, and up to $75 million under Tier 2.

Both tiers require financial statements, which for Tier 2 "would be required to be audited," and both carry ongoing reporting obligations that the fact sheet says are "modeled on analogous provisions in Regulation A, tailored to offerings of covered investment contracts."

Neither exemption is an exclusive election, so issuers can stack them against other exemptions and are pointed to the existing integration rules to work out how offerings combine. Availability is conditioned on the issuer and its insiders not being disqualified as bad actors under Regulation A's existing standard. Antifraud and antimanipulation liability applies throughout.

"The exemptions and safe harbor we are proposing today will not fit every model, and we want to hear your feedback," Commissioner Hester Peirce said in a statement titled "Filling the Regulatory Tank," a callback to the 2020 speech in which she first proposed a token safe harbor.

What Issuers Must Tell Buyers

The disclosure regime is principles-based rather than line-item, which is the concession to the fact that most of the Commission's existing disclosure rules were written for operating companies. The release flags an issuer's "ecosystem and governance mechanism," its "plans of development for a crypto network or allocation," and "source code security" as the kinds of subjects the narrative disclosures would cover, alongside risks, financial condition and management. Filings go to EDGAR.

Peirce asked commenters to address one thing the proposal does not do. "I would particularly welcome thoughts on facilitating the ability of crypto assets to serve a role akin to equity to enable token holders to share in the growth and value of the enterprise that builds a crypto network," she said.

Stop Managing, Stop Registering

The safe harbor applies once an issuer has completed or permanently ceased all essential managerial efforts it represented or promised under the covered investment contract, makes no new representations about such efforts, and files a public certification with supporting analysis. The crypto asset would then be "deemed by the Commission not to constitute or represent or to be subject to such investment contract."

Decentralization is not a condition. A centralized project that finishes what it promised can in principle certify out. The safe harbor complements the March 17 interpretation issued jointly by the SEC and the Commodity Futures Trading Commission, which set out how a crypto asset may cease to be subject to an investment contract.

The proposal adds a definition of "qualified purchaser" under the Securities Act so that state registration and qualification requirements fall away for offerings made under the regulation. Preemption extends to secondary market transactions by non-issuers, and it "would continue for the period during which the issuer continues to satisfy the information and filing and/or periodic reporting requirements of an exemption under Regulation Crypto Assets."

Lawyers Read The Fine Print

Gabriel Shapiro, a corporate securities attorney and founder of tokenization firm MetaLeX, read the release as landing close to what he had argued for, "with secondary transactions still being deemed part of the investment contract scheme, unless the investment contract has been fulfilled (with decentralization being one way to do that, if the point of the project was to create something decentralized…though importantly non-decentralized projects can theoretically qualify)."

He also read a behavioral consequence into the drafting. The Commission could have narrowed the doctrine by treating secondary sales as outside the investment contract scheme, or by requiring promises to be explicit, he wrote. "They went with the latter…so teams will be incentivized to promise/represent very little from now on…question is how limited they can be while still making the token attractive to buy."

A Vote With No Meeting

The Commission approved the proposal by seriatim vote, with commissioners voting individually outside a public meeting, an SEC spokesperson told Eleanor Terrett of Crypto in America. The SEC had scheduled an open meeting for Aug. 14 to consider the rules and cancelled it the day before.

There was no dissent, and with two of five seats vacant there was little room for one. Chairman Paul Atkins, Peirce and Commissioner Mark Uyeda are the only sitting commissioners, and all three issued supportive statements.

Uyeda spent most of his statement on the previous administration. "The Commission's approach to crypto in recent years — advancing untested legal theories through enforcement actions rather than rulemaking — deprived the public and market participants of the opportunity to have input into the development of workable rules," he wrote. "Those who tried to engage with the Commission in good faith found themselves facing subpoenas and litigation rather than answers."

The release is numbered 33-11434 under file S7-2026-27. Comments are due 60 days after publication in the Federal Register.

Bitcoin traded at $64,138, up 0.8% on the day, according to CoinGecko. Total crypto market capitalization stood at $2.29 trillion.