Regulation Crypto Assets: What the Proposed Rule Means for Crypto Builders and Capital Formation

For years, Crypto builders and founders have faced a difficult predicament: How do you build when the regulatory framework, particularly in the U.S., lags behind technological innovation?

The SEC has proposed Regulation Crypto Assets, a framework that would fundamentally change how token issuers, developers, and founders raise capital in the U.S. 

While this is groundbreaking news for the crypto industry, none of the proposed rules are final. The SEC has opened a comment period of 60 days, and the rules could change significantly before adoption (if and when adoption occurs).

At a high level, the proposed framework will provide a clear set of rules for crypto projects to fundraise from U.S. retail investors and eligible tokens to transition to non-security crypto assets (often referred to in the current market as a digital commodities, similar to BTC or ETH).

Here, we break down in plain English what the proposed rule entails and what it practically means for builders looking to do fundraising and launch projects today. 

Remember, this analysis considers the rule in its current form which was released on August 18, 2026. While we know that the rules will likely change (or possibly not pass) during the comment period, we still think it’s important for builders to understand what may be coming down the pipeline so they can think about preparing today. 

This is our “first take” on these new rules and we’ll update our opinions as new developments occur. You are also welcome to write direct comments to the SEC during their comment period. Your voice matters. 

The Problem, the Status Quo and What the SEC Seeks to Solve with Reg Crypto

Today, a team that wants to sell tokens (or SAFTs, Token Warrants, etc.) to fund the development of their crypto project is trying to fit a square peg into a round hole. Although you can raise capital in the U.S. under existing securities exemptions (Reg D, Reg A/A+, or Reg CF), these exemptions were not designed for the crypto industry and decentralized crypto assets. They were designed for traditional securities. For startups, this usually means equity

If you leveraged an existing securities exemption, you were in effect transacting in a security. This is an issue because securities are largely restricted from being used by network participants, trading in DeFi or on standard crypto exchanges, or used as incentives for network activity like staking, etc. 

An entity that issued a token under the existing securities exemptions is forever responsible for ongoing compliance under U.S. securities regulations and accordingly liable for any violation of those regulations. In some cases, the network participants (token holders) themselves might even bear liability. 

This model doesn’t fit a decentralized network like Bitcoin, which has no known responsible organization, just as it is the case with many of the functional blockchain networks and applications today. 

The end result: most blockchain developers raised funds entirely outside of the U.S. These raises often involved convoluted offering documents and complex entity structures with the hope that they and their networks would not be subject to U.S. securities regimes. The overarching objective was to raise capital outside the U.S. and then somehow enter the U.S. market after all network development was completed. U.S. people and companies were largely excluded from both the entrepreneurial growth and the economic activity occurring on these permissionless networks.

Reg Crypto aims to solve this problem by providing a clear fundraising pathway in the U.S. (including retail) and a pathway for an offering to transition from a covered investment contract to a non-security crypto asset (often referred to in the current market as a digital commodity). 

1. Raising Capital: The Startup and Fundraising Exemptions

Regulation Crypto Assets would add two exemptions from standard SEC registration that are tailored to the digital asset industry, including the ability to raise capital from U.S. retail investors. These two exemptions can be combined with other existing exemptions, like Reg D. 

The proposed exemptions carry various reporting and filing requirements. However, these requirements are specifically designed for crypto assets. 

• The Startup Exemption: $5M across four years: For early-stage builders. This exemption is broad, low-cost, and easy to access, allowing a project to raise a cumulative $5M (including from retail investors) over four years. This pathway could be used for early-stage crowdfunding or later-stage pre-launch raises in order to incorporate retail participants on a small scale before launch. There is no offering statement requirement, no SEC review or qualification, no audited financials. 

To qualify for this exemption, you must: (1) file a Notice of Reliance (Form NOR) before your first sale, post the required disclosures publicly and free of charge, and keep them current; and (2) at the end of the four years (or upon completion of development), file a Transition Report (Form TR).

• The Fundraising Exemption: $20M or $75M in 12 months: This exemption allows for larger-scale fundraising but comes with greater obligations, oversight, and costs. The compliance and legal burden for this exemption likely puts it out of reach for most early-stage projects, but it may be appropriate for mature pre-launch projects. 

SEC qualification can be burdensome and time-consuming. This exemption is largely modeled on Regulation A/A+, allowing you to pick between two tiers that set your fundraising ceiling: 

• Tier 1 (up to $20 million, with unaudited financial statements); or 
• Tier 2 (up to $75 million, with audited financial statements).

Under both tiers, you must: (1) file an offering statement (Form 1-CRYPTO) and wait for the SEC to qualify it before you can sell; and (2) report on an ongoing basis once qualified, annually (Form 1-KC), semiannually (Form 1-SC), and upon triggering events such as a change of control (Form 1-UC).

What this means for builders: You no longer need to execute complex offshore gymnastics just to perform a compliant early-stage token sale. In fact, you must be a U.S. issuer to take advantage of the Fundraising Exemption. Foreign issuers cannot leverage the Fundraising Exemption; only the Startup Exemption is available to non-U.S. issuers. You can also raise capital directly from U.S. retail investors, with some limitations.

Here are some additional details that decide which path fits your project and some open questions.

• Where you are incorporated decides your options. The Fundraising Exemption is open only to U.S. issuers. To qualify as a U.S. issuer, you must be organized here, the majority of your officers and directors must be U.S. citizens or residents, more than half your entity’s assets must be located in the U.S., and the business must be run principally from the U.S. The offshore foundation structures many projects have historically used would not qualify for this exemption. If you plan to leverage the Fundraising Exemption, you should plan to build in the U.S. The Startup Exemption carries no U.S.-nexus requirement as proposed, though the SEC is asking in its request for comment whether it should add one.
• Airdrops and contributor tokens count against your $5M. Under the Startup Exemption, distributions made in exchange for using, operating, governing or securing the network count toward the $5 million cap, and tokens paid for development, testing or promotion work can count as well. You will need to model your community and contributor allocations against the ceiling before you rely on it. How tokens will be valued at various points in time and how tokens and other non-cash considerations contribute to this cap remain unresolved questions under the proposed rule. This will likely be a key area in the 60 day comment period. 
• Retail can participate. This is a potentially historic shift for the U.S. For the first time, projects would be able to sell tokens to retail (unaccredited) investors prior to launch. Under the Fundraising Exemption, retail participation comes with a clear condition: retail investors cannot invest more than 10 percent of the greater of their annual income or net worth. Under the Startup Exemption, there is no individual dollar limit on retail purchasers as proposed.
• The qualification period may take time. Under the Fundraising Exemption you can file and gauge interest, but you cannot sell until the SEC qualifies your offering statement. The Startup Exemption has no review step, which is its real advantage for a first raise.
• You can mix and match exemptions. As with existing exemptions,you are not restricted to leveraging a single exemption. You can combine them, which means you could conduct a raise from accredited investors under Reg D and also leverage the Startup Exemption to raise from retail. How all of these exemptions intertwine in practice will be an important area to watch if this component of the proposed rule remains intact.

2. Disclosure That Finally Speaks Crypto

The disclosure model for these exemptions is tailored specifically for crypto assets, rather than traditional securities. This was a practical necessity, and a long-requested change from the industry, as there was no real viable path to compliance under prior exemptions like Reg A/A+. Equity securities are not crypto assets. The proposed rule adopts the disclosure model industry commenters have long requested. You write your own facts, in plain language, guided by the SEC’s disclosure categories in the rule. However, the disclosure requirements still vary based on the exemptions used. 

• How the disclosures work for each exemption.Under the Startup Exemption you publish the required information for disclosure, free of charge, at the web address listed on your Form NOR, and keep it current. Under the Fundraising Exemption the same information goes into your offering statement on Form 1-CRYPTO. Whitepapers still matter. You must disclose where your whitepaper can be accessed for free, and your disclosures must remain consistent across your whitepaper, website, and social media accounts.
• Standard disclosures. There are many required disclosures that were generally accepted as  part of a standard crypto offering. These should be familiar to you, if you have raised capital for a crypto project. The terms of the investment contract/offering and your progress on the managerial efforts you promised. The offering and the asset itself. Descriptions and overview of the management. The network and your plan of development. The security of the crypto asset and the network, and where your source code lives. Token economics and allocations, including supply, lockups, release schedules, mint and burn mechanics, and holdings by related persons. Governance and permissions. The ecosystem. 
• New Disclosures: financial statements. Audited or unaudited financial statements, required under the Fundraising Exemption, are not typically disclosed by crypto projects today. Under Tier 1 ($20M ceiling), you must provide two years of corporate financial statements, although they can be unaudited. Under Tier 2 ($75M ceiling), those financial statements must be fully audited by an independent CPA. Preparing GAAP-compliant financial statements and completing a formal corporate audit will likely take several months of preparation before a project can even submit Form 1-CRYPTO to the SEC.
• Qualification. If you are following the Fundraising Exemption, you’ll be required to qualify your offering with the SEC. This does not mean the SEC approves of the offering, just that it has reviewed the filings and disclosures and allows you to proceed. This process can take several months of work. Over time, this process will become established and more routine but at the outset expect a long-run up as both the SEC and service providers (lawyers, accountants, etc.) adapt to the new rules. 
• Your public communications become part of the filing. Disclosure has to line up with your website, your official social accounts and your promotional materials. A roadmap tweet that overstates what has been shipped is now a disclosure problem, not just a community one. You are directly liable for the promises that you make, the same way you would be in a securities offering.
• Pay specific attention to the proposed development timeline and managerial efforts. You should only state exactly what will be built and developed. Nothing more, nothing less. The transition out of an investment contract depends on the cessation of your work on the project and completion of the “essential managerial efforts” that you promised during fundraising.  

3. A Defined “Exit Path” Out of Investment Contract Status (The Safe Harbor)

The single biggest question for crypto founders has always been: Once our network is live and functioning, how do we stop being classified as an investment contract?

Regulation Crypto Assets introduces a conditional safe harbor:

• Ending the Securities Status: Once an issuer completes, or permanently ceases, the "essential managerial efforts" promised in its offering documents, and does not intend to make new ones, the crypto asset is deemed no longer subject to that investment contract. That is the first of only two conditions.
• You file and certify. The second condition is a transition report on Form TR. It asks for a certification that you have met the first condition and the analysis behind it, written clearly enough that a reasonable investor can follow how you got there. The SEC does not bless the conclusion. You reach it, you sign it, and it becomes public. 

Some additional notes on the Safe Harbor

• There is no decentralization test. Unlike various prior versions of CLARITY or prior proposals like Rule 195, there is no explicit decentralization test. The safe harbor turns on whether the work you promised is finished or permanently abandoned. Programmatic functionality and community governance matter only as evidence that you are no longer the one doing that work. A network can be highly decentralized and still sit inside a live investment contract if the team keeps promising to deliver new functionality, network upgrades, etc.
• You can use it even if you never used either exemption. The safe harbor is available on its own, and it is non-exclusive, so it does not foreclose arguing the contract ended for other reasons. In other words, this is not a required filing. You can choose not to file a Form TR and still claim you are not subject to an investment contract. This is particularly applicable for projects that have launched previously before the exemptions and Safe Harbor existed. 
• It does not provide a free pass. It ends one investment contract. It does not erase past conduct, it does not switch off the antifraud rules, and it does not by itself make every venue a lawful place to trade the crypto asset.

What this means for builders: There is finally a clear pathway to a transition out of investment contract status from a security to a non-security crypto asset (a digital commodity). The exit is real, but you should consider your own words as  the guiding principle.

• Your promises are the checklist. Everything you say you will build becomes the list you have to finish or formally abandon. A vague roadmap is easy to publish and hard to close out.
• You own the timing. The SEC does not gate the Form TR filing nor is it required to review it. You decide when the promised work is done, and if that analysis is called into question later, that is what the Commission will read during an enforcement proceeding or other legal challenge.
• The exit will be cleaner if you are planning it from the start. What you write about essential managerial efforts in your disclosure is the same text you will point to when you certify they are finished. Draft the promises with the exit in mind.

Key Takeaways for founders that want to make the transition

1. Document your roadmaps clearly: Because the safe harbor relies on whether you’ve completed your promised "essential managerial efforts," your public roadmap and whitepaper become primary legal documents.
2. Standardize your whitepapers: Prepare to publish clear, audit-backed technical documentation, tokenomics breakdowns, and treasury allocations early in your development cycle.
3. Plan your exit from essential managerial efforts: Sequence the work you promised so that you can honestly say it is finished, or stopped for good, and be ready to show your reasoning on Form TR. Then keep it that way. This status is not something you earn once, which is an important deviation from a taxonomy approach that sorts tokens into fixed categories. Promise new development later and you are back inside an investment contract.

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