SEC proposes Regulation Crypto Assets: tailored pathways for covered investment contracts

The Proposal is part of the SEC’s agenda for crypto assets following the establishment of the SEC’s Crypto Task Force in early 2025 and builds on the SEC’s March 2026 interpretation of the federal securities laws for certain crypto assets. For further details, see our overview of such interpretation. 

In brief

Scope matters

The proposal exempts certain covered investment contracts from registration offerings—not all investment contracts. As explained in the SEC's 2026 interpretation, a non-security crypto asset can be offered and sold subject to an investment contract, which itself is a security. In that case, the initial offer and sale, and any subsequent secondary offers and sales of the investment contract and its underlying non-security crypto asset would continue to be subject to the applicable securities laws and regulations until the underlying asset is definitively dissociated with the investment contract.

The proposed exemptions would apply to the offering of the covered investment contract itself, not to the offering of the underlying non-security crypto asset. A crypto asset that is itself a security (and any associated investment contract) will not benefit from the proposed exemptions or safe harbor.

Two routes, different burdens

The one-time startup exemption would permit offerings of up to USD5 million over four years. The fundraising exemption would introduce two pathways: Tier 1 would permit offerings of up to USD20m over a period of 12 months and Tier 2 would permit offerings of up to USD75m over a period of 12 months. The Tier 1 and Tier 2 pathways would be part of the same proposed exemption and would have significant formal requirements, including with respect to the presentation of audited financial statements for Tier 2 offerings.

Transition is conditional

The proposed non-exclusive safe harbor from the term “investment contract” in the definitions of “security” in section 2(a)(1) of the Securities Act and section 3(a)(10) of the Exchange Act would require completion or permanent cessation of the issuer’s represented essential managerial efforts, no new promises, and a public Form TR (transition report) filing with supporting analysis.

Guardrails remain

Proposed exemptions would not eliminate federal anti-fraud or anti-manipulation liability.

Secondary market

Covered investment contracts offered and sold pursuant to one of the exemptions in the Proposal would not be restricted securities for purposes of the federal securities laws or otherwise subject to rule-based resale restrictions. The Proposal introduces clear pathways for the issuer but does not resolve market uncertainty with respect to how other market participants such as brokers, dealers, and exchanges should treat covered investment contracts.

Making sense of the terminology

The Proposal uses vocabulary that is critical to understand the regulatory pathway around the underlying crypto asset, the investment contract, its offering as a security, ongoing reporting obligations, and safe harbor reliance. A shared vocabulary helps issuers, investors, and advisers identify what is being offered, which requirements attach, and when the analysis may change over time.

Certain terms defined in the Proposal

Crypto asset

Any digital representation of value recorded on a cryptographically secured distributed ledger. A “distributed ledger” generally refers to databases that maintain information across a network of computers in a decentralized or distributed manner. The SEC's 2026 interpretation groups crypto assets by characteristics, uses and functions into five categories: digital commodities, digital collectibles, digital tools, stablecoins, and digital securities; some assets may have hybrid characteristics or fall outside these categories.

Covered investment contract

A contract, transaction, or scheme that constitutes an investment contract, provided that the investment contract meets all of the following requirements:

• The applicable crypto asset is subject to the investment contract.
• Such crypto asset is not a security.
• No asset other than such crypto asset (including any security or non-security asset) is subject to the investment contract.

For the purposes of proposed Regulation Crypto Assets, the “security” at issue is the covered investment contract and not the underlying crypto asset itself.

Covered transaction

Any offer, sale, or other distribution of a covered investment contract under the startup exemption, including capital raises, airdrops, distributions related to staking, governance, and other network incentive mechanisms.

Certain related concepts

Investment contract

As proposed, Regulation Crypto Asset would not define the term “investment contract,” which is a type of “security.” Instead, the Proposal refers to the often challenging and complex test in SEC v. W.J. Howey Co. and subsequent case law, which defines an “investment contract” as a contract, transaction or scheme in which a person invests money in a common enterprise and reasonably expects profits from the essential managerial efforts of others.

Essential managerial efforts

The represented or promised efforts that are significant to the success or failure of the project, which in the Proposal’s context would often include developing a functionality for the subject crypto asset or the associated crypto network or application, through a concrete plan with milestones, timing, personnel, funding, and other resources needed to meet such milestones.

Proposal overview

General provisions

Framework and overarching definitions (Rule 100)

Establishes common definitions for Regulation Crypto Assets, including “crypto asset,” “covered investment contract,” “covered transaction,” “subject crypto asset,” “associated crypto network,” “associated crypto application,” “related person,” “aggregate offering price,” and “aggregate sales.” The definitions are fundamental to delineate the proposed regulation’s scope and, unless otherwise provided, incorporate the meanings used in Rule 405, with references to “registrant” reading as references to the issuer of the securities being offered and sold pursuant to Regulation Crypto Assets.

General provisions (Rule 101)

Consistent with other offering exemptions, Regulation Crypto Assets would include various general principles that would apply to the regulation as a whole, including:

1. Non-exclusive election: an issuer would not be precluded from claiming the availability of any other exemption from registration or safe harbor.
2. Integration rules apply: an issuer cannot break what is intended to be a single offering into multiple offerings to avoid registration requirements.
3. Electronic filings through EDGAR: all filings under Regulation Crypto Assets would be required to be filed electronically through EDGAR.
4. No loss of exemption for minor failure to comply: failure to comply with a requirement would not necessarily result in the issuer losing the relevant exemption with respect to a specific purchaser as long as the issuer establishes that such requirement was not intended to protect the relevant investor, the deviation was irrelevant to the offer as a whole, and the issuer made a good faith attempt to comply.

Inflation adjustment mechanism (Rule 102)

Would require the SEC to adjust the startup exemption and fundraising exemption offering limits periodically, but no less than once every five years, based on changes in the Consumer Price Index for All Urban Consumers published by the Department of Labor’s Bureau of Labor Statistics. Routine inflation adjustments would be implemented on a predetermined basis without requiring the notice-and-comment rulemaking process, as is the case for other limits changes.

General disclosure principles (Rule 103)

A principles-based approach to the disclosure applicable to the offering exemptions: disclosure will need to be clear, concise, non-technical and tailored to the issuer, the covered investment contract, the subject crypto asset, and the associated network or application. The Proposal lists ten disclosure areas that the issuer must address:

1. The covered investment contract: a description of the material terms of the covered investment contract, including the issuer’s representations and promises to engage in essential managerial efforts under the covered investment contract and its progress with respect to such representations or promises. The Proposal refers to the SEC's 2026 interpretation for guidance to issuers with respect to the types of efforts that may be regarded as essential managerial efforts.
2. The offering: a description of the material terms of the offering, including the number and price of units, the offering period, purchaser qualifications or restrictions, material distribution arrangements, estimated net proceeds and expenses, intended use of proceeds, and the website at which whitepapers or other offering materials are publicly accessible.
3. The subject crypto asset: a description of the material characteristics of the subject crypto asset.
4. Management, related persons, and conflicts of interest: information about the issuer’s management and related parties, any conflicts of interest or related party transactions involving the issuer, and a description of the material terms of any transfer or resale restrictions with respect to the covered investment contract and subject crypto asset.
5. The associated crypto network/application and the plan of development: a description of the material aspects of the associated crypto network or associated crypto application and the issuer’s plan of development with respect to the associated crypto network or associated crypto application, including the issuer’s progress with respect to its development plan.
6. Security and source code: a description of the material aspects of the security, the subject crypto asset and the associated crypto network or associated crypto application and, to the extent the issuer has made it publicly available, the website address at which the source code is accessible.
7. Subject crypto asset economics and allocation: a description of the material aspects of the subject crypto asset’s economics and allocations, including the subject crypto asset’s supply, pricing, lockups, distribution methods, holdings by related persons, and release schedules; the associated crypto network or associated crypto application’s mechanisms for generating and destroying subject crypto assets; and methods to verify the subject crypto asset’s transaction history.
8. Governance: a description of the material aspects of the subject crypto asset’s and associated crypto network’s or associated crypto application’s governance mechanisms, smart contract governance mechanisms, and permissions.
9. Subject crypto asset ecosystem: a description of the material aspects of the subject crypto asset’s current and anticipated ecosystem (i.e., the system or network of contributors or participants that support and interact with the subject crypto asset and associated crypto network or associated crypto application), “onchain” and “offchain,” including information regarding the technology infrastructure, types of participants, and other parties and systems using the subject crypto asset and the associated crypto network or associated crypto application.
10. Risk factors: a description, in short, concise statements, of the material factors that make an investment in the offering speculative or risky, including risks related to the covered investment contract, the issuer, the subject crypto asset, and the associated crypto network or associated crypto application.

In addition to the general disclosure areas, the fundraising exemption would also require disclosure of financial statements, with audited financial statements being required for the Tier 2 exemption (applicable to larger offerings). 

Public statements (including whitepapers, websites, and official social media) would need to be consistent with the disclosure provided in connection with an offering and sale under Regulation Crypto Assets. Information that is not applicable or not known or reasonably available would not be required. 

Disqualification events and bad-actor ineligibility (Rule 104)

Neither exemption would be available if the issuer or specified covered persons were disqualified under Regulation A Rule 262(a), subject to a requirement to include in an offering circular or otherwise furnish to each purchaser, a reasonable time before sale, a written description of any matters that would have triggered disqualification but occurred before the new rule becomes effective.

Issuers should expect diligence and continuing monitoring of directors, officers, significant voting holders, promoters, affiliates, and solicitors, as the issuer could preserve reliance if it establishes that it did not know and, exercising reasonable care, could not have known of the matter.

Startup exemption (Rule 200): temporary runway for early-stage projects

The proposed startup exemption would be a one-time, non-exclusive exemption from the registration requirements of the Securities Act for the offering of up to USD5m in covered transactions over a period beginning after the issuer files new Form NOR (Notice of Reliance) and ending on the earlier of four years after such filing or the filing by the issuer of a transition report under new Form TR. The startup exemption is designed for early-stage capital raising and network-development distributions, including certain airdrops and staking, governance, gas-fee, testing or compensation distributions. 

An eligible issuer may be an entity, an individual or a group of individuals or entities (subject to disqualification provisions). The one-time-use rule would apply to the issuer and its affiliates for the same or substantially similar subject crypto asset. Covered investment contracts sold under the startup exemption would not be restricted securities and would not be subject to any regulatory holding period. The exemption involves no SEC review process, imposes no investor eligibility requirements and allows for general solicitation.

The USD5m cap is calculated by reference to the offering price of all covered transactions conducted under the exemption, which may include sales for cash or other sales or distributions made in exchange for services. 

Before offers or sales for the first covered transaction in reliance on the startup exemption, the issuer would need to file Form NOR on EDGAR and make Rule 103 information available free of charge on the website specified in Form NOR. The website information would need to remain publicly accessible, free of charge, for the duration of the issuer’s reliance on the exemption and must be amended within 30 calendar days after the end of each calendar year to reflect any material developments.

Form NOR must be amended as soon as practicable to correct a material mistake of fact or error or reflect a material change in the information previously provided and would include new certification requirements regarding the information provided and the issuer’s intent to fulfill, within four years after filing Form NOR, the essential managerial efforts the issuer represented or promised investors it would engage in under the covered investment contract.

Form TR would be due no later than four years after Form NOR and would end the issuer’s ability to continue to rely on the exemption. Filing of Form TR would also terminate the issuer’s obligation to make disclosure available on the specified website.

Unless otherwise clearly indicated therein, Form TR would not by itself establish that the covered investment contract had ceased to exist. In order to perfect the investment contract safe harbor, Form TR must specifically identify the relevant contract and asset, certify that the issuer has completed or permanently ceased all promised essential managerial efforts, and provide an analysis supporting that conclusion.

Fundraising exemption (Rule 300): scaled capital raising

The proposed fundraising exemption would be a non-exclusive, two-tier pathway modeled in part on Regulation A for larger offerings of covered investment contracts.

Tier 1 and Tier 2

Tier 1 would permit offerings of up to USD20m over a 12-month period, including up to USD6m by affiliated selling securityholders. 

Tier 2 would permit offerings of up to USD75m over a 12-month period, including up to USD22.5m by affiliated selling securityholders.

The exemption would permit specified continuous or delayed offerings of covered investment contracts by selling securityholders, pursuant to employee benefit plans, upon exercise of outstanding options, warrants or rights or conversion of other outstanding securities, or when pledged as collateral, as well as certain other continuous offerings subject to the proposed conditions.

Unlike the startup exemption, under the fundraising exemption an issuer would need to be a U.S.-organized entity, a majority of the issuer’s executive officers or directors would need to be U.S. citizens or residents, more than 50% of the issuer’s assets would need to be located in the United States, and the issuer’s business would need to be administered principally in the U.S. 

The exemption would allow sales to accredited and non-accredited investors, but non-accredited investors would be subject to investment limits equal to 10% of the greater of the investor’s annual income or net worth (or, for a non-natural person, the greater of revenue or net assets for the most recently completed fiscal year).

General solicitation and testing-the-waters communications would be permitted subject to certain proposed conditions, including, in the case of general solicitation, qualification from the SEC, and no intermediary would be mandatory. As is the case in the startup exemption, investment contracts sold pursuant to the fundraising exemption would not be restricted securities and as such not subject to resale restrictions or holding periods.

Before any sale pursuant to the exemption, the issuer must file an offering statement on new Form 1-CRYPTO and obtain SEC qualification. The issuer could submit draft offering statements confidentially for SEC staff review before public filing, but any non-public submission would have to be publicly filed on EDGAR at least 15-calendar days before qualification of the offering statement. While certain offers may be allowed after filing of the offering statement with the SEC and prior to qualification, general solicitations and sale would only be allowed after qualification from the SEC.

Form 1-CRYPTO would include:

• key information on the issuer and the offering
• an offering circular containing (i) principled-based non-financial disclosure, including the information required under Rule 103 and (ii) a narrative discussion of the issuer’s financial condition
• U.S. GAAP financial statements for the two most recent fiscal years—Tier 1 financial statements need not be audited, whereas Tier 2 financial statements must be audited under U.S. GAAS or PCAOB standards by an auditor that qualifies as independent under either AICPA or Regulation S-X
• exhibits, such as the issuer’s corporate documents, underwriting agreement, instruments defining rights of shareholders, voting trust agreements, and material contracts.

Issuers that have qualified an offering pursuant to the fundraising exemption (either Tier 1 or Tier 2) would be subject to ongoing periodic reporting requirements, including filing of annual, semiannual, and current reports on new Form 1-SC, Form 1-KC, and Form 1-UC.

The continuing information obligation is a central commercial distinction from the startup exemption and would need to be built into finance, legal, and governance processes. An issuer may choose to suspend its reporting obligations in certain scenarios, including if the relevant investment contract is held by less than 300 persons, no offering is ongoing, and the issuer is current in its reporting obligations.

As in the startup exemption, the issuer may terminate its reporting obligations by filing a Form TR either because it satisfied the investment contract safe harbor or on the grounds that the covered investment contract ceased to exist.

Investment contract safe harbor (Rule 400): when essential managerial efforts end

Rule 400 would provide a non-exclusive, conditional safe harbor from the term “investment contract” in the definition of “security” in the Securities Act and the Exchange Act. If the safe harbor’s conditions are satisfied, the covered investment contract would be deemed to have ceased to exist, and the crypto asset would be deemed not to be subject to that investment contract. The investment contract safe harbor would be available to any issuer, whether or not it had relied on the proposed new exemptions.

The safe harbor is conditioned upon the issuer representing that it had completed or otherwise permanently ceased all essential managerial efforts it represented or promised it would engage in under the covered investment contract and was not making, and did not intend to make, any new representations or promises to engage in essential managerial efforts with respect to the crypto asset.

Separately, under the SEC’s 2026 Interpretation, a covered investment contract may cease to exist if a purchaser would not reasonably expect the issuer to be able to fulfill or continue to engage in those efforts. The analysis would remain tied to the issuer’s actual representations, not a general market view of decentralization or SEC qualification.

Availability of the safe harbor would also be conditioned upon the issuer filing Form TR publicly on EDGAR, certifying that it has completed or otherwise permanently ceased all essential managerial efforts that it represented or promised it would engage in under the covered investment contract, and providing a sufficiently clear and detailed analysis supporting the certification.

Limits of the proposed relief

The proposed investment contract safe harbor would have no fixed deadline, objective decentralization test or general immunity. The SEC could challenge unsupported reliance, as could other market participants in which case it may be determined that the investment contract has not yet terminated despite any certification to the contrary by the issuer. The SEC acknowledges in the proposing release that, as in any other safe harbor, issuers may instead choose to rely on Howey, which would not require a public statement filed on Form TR.

As proposed, the investment contract safe harbor would not apply to the definition of “security” under either the Investment Company Act, which could raise uncertainty as to the need to register the issuer itself under the Investment Company Act, or the Investment Advisers Act, increasing ambiguity for investment advisers that wish to provide advice with respect to covered investment contracts.

Qualified purchaser and state-law preemption (Rule 500)

Covered investment contracts sold under either proposed exemption would be “covered securities” as a result of the proposed new definition of “qualified purchaser” under Section 18(b)(3) of the Securities Act, such that state securities law registration and qualification requirements would be preempted with respect to offers and sales of covered investment contracts under the Proposal’s exemptions.

Secondary transactions by any person other than an issuer, underwriter, or dealer of covered investment contracts that were initially sold by the issuer either pursuant to an exemption in Regulation Crypto Assets or another exemption under the Federal securities laws could receive the same treatment if the issuer satisfies a Regulation Crypto Assets exemption for the covered investment contract and remains subject to and current with the applicable disclosure, filing and/or periodic reporting obligations.

States would retain anti-fraud and broker-dealer enforcement authority and could require notice filings, copies of SEC filings, sales reports, consents to service and fees, and could suspend offers or sales for failure to make required filings or pay required fees. The Proposal would preempt only registration and qualification, not all state securities regulation or cross-border requirements. The Proposal would also not alter the definition of “qualified purchaser” under the Investment Company Act. 

Proposal at a glance

Practical implications and next steps

Secondary market uncertainty remains

Although the Proposal establishes a comprehensive framework for primary offerings of covered investment contracts with underlying non-security crypto assets, it does not resolve the regulatory status of intermediaries that trade or facilitate trading in such covered investment contracts on the secondary market.

Until the issuer of a covered investment contract files a Form TR (certifying that all essential managerial efforts have concluded—i.e., there is no longer an investment contract that would trigger the Securities Act and the Exchange Act), exchanges, brokers, and dealers that transact in such covered investment contracts may remain subject to federal securities law registration requirements.

The Proposal does not create an exemption from those requirements for such intermediaries, as suggested by Commissioner Peirce in 2020.¹ The SEC acknowledged this gap in the proposing release, stating in a footnote that it “will continue to consider whether further action with respect to covered investment contracts beyond the proposed rules in this release is warranted.” 

Moreover, even after an issuer files its Form TR, the Proposal does not provide clear reliance protection to third parties trading or intermediating in the underlying crypto asset: the SEC can dispute the issuer’s certification at any time, and the proposing release confirms that non-Commission parties also may assert that the underlying crypto asset remains subject to an investment contract.

Because the legal status of a fungible crypto asset may trace to its initial issuance (and multiple units of the same crypto asset may have been distributed under different exemptions), intermediaries face the additional challenge that, as the Commission’s own request for comment acknowledges, it may be difficult for secondary market participants to distinguish between covered investment contracts based on the manner in which they were originally offered or sold.

The Commission posed this fungibility issue in its request for comment in question 140, but implied that the solution would be to limit the preemption of secondary market transactions to the resale of covered investment contracts that were initially issued pursuant to an exemption under the Proposal. 

Absent further rulemaking addressing secondary-market intermediary relief, market participants should anticipate continued uncertainty regarding the conditions under which crypto assets can trade outside the federal securities law framework and the extent to which secondary-market platforms can list or facilitate transactions in the underlying crypto assets originally offered and sold under the Proposal’s exemptions.

Investment Company Act and Investment Advisers Act

The Proposal’s investment contract safe harbor under Rule 400 would deem a covered investment contract to have ceased to exist for purposes of the Securities Act and Exchange Act definitions of “security”, but the safe harbor does not extend to the nearly identical definitions of “security” under Section 2(a)(36) of the Investment Company Act or Section 202(a)(18) of the Investment Advisers Act.

As a result, even where an issuer has successfully filed a Form TR transition report and the underlying crypto asset is no longer treated as a security for purposes of the Securities Act and the Exchange Act, there is no corresponding safe harbor addressing that crypto asset’s status under the Investment Company Act or Investment Advisers Act. 

This gap may be significant for entities that hold substantial amounts of crypto assets; absent further clarification, large holdings could raise Investment Company Act status questions, potentially requiring registration or reliance on available exemptions from that statute. Similarly, the Proposal’s silence on the Investment Advisers Act definition of “security” leaves open questions for entities providing advisory services in connection with crypto assets as to whether and when those crypto assets fall outside that definition. 

The Commission has solicited comment in question 135 on whether Rule 400 should be expanded to include the Investment Company Act and Investment Advisers Act definitions, but in the Proposal’s current form, these questions remain unresolved. Market participants in asset management, treasury, and advisory roles should monitor the comment process closely, as the final rule’s treatment of this issue could materially affect compliance planning.

What about offerings larger than USD75m?

The Proposal’s fundraising exemption under the Tier 2 pathway permits offerings of up to USD75m in covered investment contracts over a 12-month period, tracking Regulation A’s Tier 2, but the Proposal does not provide any pathway for offerings that exceed that threshold. The Commission noted that issuers with capital-raising needs beyond USD75m may rely on current exemptions from registration under the Securities Act, such as Section 4(a)(2), Regulation D, Regulation Crowdfunding, Regulation A, and the intrastate exemptions in Section 3(a)(11) (as well as the related safe harbor in Rule 147) and Rule 147A. 

However, those alternatives do not provide the tailored disclosure framework, unrestricted securities, or state-law preemption that the Proposal would offer for offerings of covered investment contracts within its limits. Certain letters to the Commission recommended a higher limit (e.g., USD150m) to better align with capital-intensive infrastructure and protocol development projects, but the Commission did not propose a higher figure in this release, arguing that it may have implications for investor protections given that the proposed disclosure under the Proposal is similar to that in Regulation A, which allows issuers to raise up to USD75m. 

To the extent issuers seek to raise in excess of USD75m, they may attempt to combine the startup exemption with the fundraising exemption or pair either with other exemptions under the Securities Act, such as a Regulation D offering, subject to the integration doctrine and the attendant limitations on investor eligibility and resale that characterize those other exemptions. 

The Commission has recognized generally that features of existing exemptions (including restrictions on resale and limitations to accredited investors) may impede the broad distribution needed to achieve network effects for crypto assets. Issuers contemplating offerings above USD75m should be prepared for a more complex structuring analysis and, depending on final rulemaking, may face a regulatory environment that affords fewer of the tailored benefits (particularly unrestricted securities and state-law preemption) that the Proposal would provide for smaller offerings.

Issuers and boards

If adopted, pathway selection would turn on capital needs, timing, domestic nexus, disclosure capacity, and audit readiness. Issuers should inventory representations about development, functionality, adoption, and essential managerial efforts, reconcile them across offering materials, whitepapers, websites, and official social media, and give the board clear ownership of disclosure controls and transition planning.

Market participants and advisers

Intermediaries, platforms, custodians, investors, and advisers should distinguish the covered investment contract from the underlying crypto asset. They should not assume that unrestricted securities, state preemption or the safe harbor resolve trading-venue, broker-dealer, custody, investment adviser, investment company, AML, sanctions, tax or cross-border issues. Diligence should focus on issuer filings, public statements, exemption status, and continuing compliance.

Comment process

Comments are due by October 20, 2026. Until a final rule becomes effective, issuers cannot rely on the proposed exemptions, safe harbor, and preemption.

Footnotes

1 In discussing her proposed digital assets safe harbor in 2020, Commissioner Peirce stated: “Getting into the specifics of the proposal, the safe harbor would provide network developers with a three-year grace period within which they could facilitate participation in and the development of a functional or decentralized network, exempted from the registration provisions of the federal securities laws, so long as the conditions are met. This objective is accomplished by exempting (1) the offer and sale of tokens from the provisions of the Securities Act of 1933, other than the antifraud provisions, (2) the tokens from registration under the Securities Exchange Act of 1934, and (3) persons engaged in certain token transactions from the definitions of “exchange,” “broker,” and “dealer” under the 1934 Act.” See Commissioner Hester M. Peirce, Running on Empty: A Proposal to Fill the Gap Between Regulation and Decentralization (Feb. 6, 2020) (“Commissioner Peirce, Running on Empty”), available at https://www.sec.gov/newsroom/speeches-statements/peirce-remarks-blockress-2020-02-06).