Proposed Rule2026-17183
Regulation Crypto Assets
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 21, 2026
Effective
August 21, 2026
Issuing agencies
Securities and Exchange Commission
Abstract
The Securities and Exchange Commission ("Commission") is proposing new rules to create a tailored offering regime for certain investment contracts involving crypto assets. The proposed offering regime is intended to facilitate capital formation and accommodate innovation within the crypto asset markets while, at the same time, ensuring that investors are adequately protected and provided with the information they need to make informed investment decisions. The proposed rules would be set forth in a new regulation titled "Regulation Crypto Assets" and would include two exemptions from the registration requirements of section 5 of the Securities Act of 1933. The first exemption would permit offerings of up to $5 million during a four-year period. The second exemption would permit offerings of up to $75 million during each 12-month period. Under both exemptions, issuers would be required to make certain principles-based narrative disclosures available to their investors. In addition, issuers under the second exemption would be required to provide financial statements and would be subject to ongoing reporting requirements. Issuers that rely on these exemptions would remain subject to the antifraud and antimanipulation provisions of the Federal securities laws. The proposed rules also would include a conditional safe harbor from the term "investment contract" in the definitions of "security" in the Securities Act of 1933 and the Securities Exchange Act of 1934. If the conditions of that proposed safe harbor are satisfied, then a crypto asset would be deemed not to be subject to an investment contract for purposes of those definitions of "security."
Full Text
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<title>Federal Register, Volume 91 Issue 161 (Friday, August 21, 2026)</title>
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[Federal Register Volume 91, Number 161 (Friday, August 21, 2026)]
[Proposed Rules]
[Pages 54510-54655]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-17183]
[[Page 54509]]
Vol. 91
Friday,
No. 161
August 21, 2026
Part IV
Securities and Exchange Commission
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17 Part 200, 201, 228, et al.
Regulation Crypto Assets; Proposed Rule
Federal Register / Vol. 91, No. 161 / Friday, August 21, 2026 /
Proposed Rules
[[Page 54510]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 200, 201, 228, 230, 232, and 239
[Release Nos. 33-11434; 34-106150; File No. S7-2026-27]
RIN 3235-AN38
Regulation Crypto Assets
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
proposing new rules to create a tailored offering regime for certain
investment contracts involving crypto assets. The proposed offering
regime is intended to facilitate capital formation and accommodate
innovation within the crypto asset markets while, at the same time,
ensuring that investors are adequately protected and provided with the
information they need to make informed investment decisions. The
proposed rules would be set forth in a new regulation titled
``Regulation Crypto Assets'' and would include two exemptions from the
registration requirements of section 5 of the Securities Act of 1933.
The first exemption would permit offerings of up to $5 million during a
four-year period. The second exemption would permit offerings of up to
$75 million during each 12-month period. Under both exemptions, issuers
would be required to make certain principles-based narrative
disclosures available to their investors. In addition, issuers under
the second exemption would be required to provide financial statements
and would be subject to ongoing reporting requirements. Issuers that
rely on these exemptions would remain subject to the antifraud and
antimanipulation provisions of the Federal securities laws. The
proposed rules also would include a conditional safe harbor from the
term ``investment contract'' in the definitions of ``security'' in the
Securities Act of 1933 and the Securities Exchange Act of 1934. If the
conditions of that proposed safe harbor are satisfied, then a crypto
asset would be deemed not to be subject to an investment contract for
purposes of those definitions of ``security.''
DATES: This release was published in the Federal Register on August 21,
2026. Comments should be received on or before October 20, 2026.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://sec.gov/comments/s7-2026-27/regulation-crypto-assets">https://sec.gov/comments/s7-2026-27/regulation-crypto-assets</a>).
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#542621383179373b3939313a2027142731377a333b22"><span class="__cf_email__" data-cfemail="b3c1c6dfd69ed0dcdeded6ddc7c0f3c0d6d09dd4dcc5">[email protected]</span></a>. Please include
File Number S7-2026-27 on the subject line.
Paper Comments
<bullet> Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number S7-2026-27. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method of submission. The Commission will post all
submitted comments on its website (<a href="https://sec.gov/rules-regulations/public-comments/s7-2026-27">https://sec.gov/rules-regulations/public-comments/s7-2026-27</a>). Do not include personal identifiable
information in submissions; you should submit only information that you
wish to make available publicly. The Commission may redact in part or
withhold entirely from publication submitted material that is obscene
or subject to copyright protection.
Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at <a href="http://www.sec.gov">www.sec.gov</a> to receive notifications by email.
A summary of the proposal of not more than 100 words is posted on
the Commission's website (<a href="https://sec.gov/rules-regulations/2026/08/s7-2026-27">https://sec.gov/rules-regulations/2026/08/s7-2026-27</a>).
FOR FURTHER INFORMATION CONTACT: Patrick Faller, Special Counsel,
Office of Chief Counsel, at (202) 551-3500, John Fieldsend, Special
Counsel, Office of Rulemaking, at (202) 551-3430, or Irene Paik,
Attorney-Advisor, Office of Crypto Assets, at (202) 551-2076, Division
of Corporation Finance, U.S. Securities and Exchange Commission, 100 F
Street NE, Washington, DC 20549.
SUPPLEMENTARY INFORMATION: We are proposing amendments to or proposing
to add the following rules and forms: \1\
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\1\ The text of the forms listed in this table are located in
the appendices of this release.
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[GRAPHIC] [TIFF OMITTED] TP21AU26.039
Table of Contents
I. Introduction
A. The Commission's Regulatory Approach to Crypto Assets
1. Approach Before 2025
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\2\ 15 U.S.C. 77a et seq.
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2. Developments Beginning in 2025
B. Written Input Provided to the Crypto Task Force
1. Security Status
2. Scoping Out
3. Public Offerings
4. Safe Harbor From Registration
C. Summary of the Proposed Rules
II. Discussion of Proposed Rules
A. Regulation Crypto Assets and General Rules (Subpart A, Rules
100 Through 104)
1. Definitions (Rule 100)
2. General Provisions (Rule 101)
3. Inflation Adjustment for Offering Limits (Rule 102)
4. Disclosure Requirements (Rule 103)
5. Disqualification (Rule 104)
B. Startup Exemption (Subpart B, Rule 200)
1. Background
2. Proposed Rule
C. Fundraising Exemption (Subpart C, Rules 300 Through 307)
1. Background
2. Proposed Rules
D. Investment Contract Safe Harbor (Subpart D, Rule 400)
1. Background
2. Proposed Rules
E. Preemption of State Registration and Qualification
Requirements (Definition of ``Qualified Purchaser'' in Subpart E,
Rule 500)
1. Background
2. Proposed Rule
III. Other Matters
IV. Economic Analysis
A. Economic Baseline
1. Current Methods of Raising Up to $75 Million in Capital
2. Affected Issuers
3. Disclosures Provided by Current Issuers of Crypto Asset-
Related Offerings
4. Affected Financial Intermediaries
B. Economic Effects of Individual Provisions
1. Benefits and Costs of Proposed Regulation Crypto Assets
2. Benefits and Costs of the Proposed Startup Exemption
3. Benefits and Costs of the Proposed Fundraising Exemption
4. Benefits and Costs of the Proposed Investment Contract Safe
Harbor
5. Benefits and Costs of the Proposed Preemption of State
Registration and Qualification Requirements
C. Effects on Efficiency, Competition, and Capital Formation
1. Effects on Efficiency
2. Effects on Competition
3. Effects on Capital Formation
D. Reasonable Alternatives
E. Request for Comment
V. Paperwork Reduction Act
A. Background
B. Estimate of Issuers
1. Startup Exemption
2. Fundraising Exemption
3. Investment Contract Safe Harbor
C. Estimate of Issuer Burdens
1. Startup Exemption
2. Fundraising Exemption
3. Form TR
4. Form ID
D. Collections of Information Are Mandatory
E. Confidentiality
F. Retention Period of Recordkeeping Requirements
G. Request for Comment
VI. Present Values and Annualized Values of Monetized Benefits and
Costs
VII. Congressional Review Act
VIII. Initial Regulatory Flexibility Act Analysis
A. Reasons for, and Objectives of, the Proposed Action
B. Legal Basis
C. Small Entities Subject to the Proposed Rules
D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
E. Duplicative, Overlapping, or Conflicting Federal Rules
F. Significant Alternatives
G. Request for Comment
Statutory Authority
I. Introduction
We are proposing new rules to create a tailored offering regime for
certain investment contracts involving crypto assets.\3\ We refer to
those investment contracts throughout this release as ``covered
investment contracts.'' \4\ The proposed offering regime is intended to
facilitate capital formation and accommodate innovation within the
crypto asset markets while, at the same
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time, ensuring that investors are adequately protected and provided
with the information they need to make informed investment decisions.
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\3\ Under the proposed rules, the term ``crypto asset'' would be
defined to mean any digital representation of value that is recorded
on a cryptographically-secured distributed ledger. See proposed 17
CFR 228.100. The term ``distributed ledger'' generally refers to
databases that maintain information across a network of computers in
a decentralized or distributed manner. These networks commonly use
cryptographic protocols to ensure data integrity and consensus
mechanisms to ensure data congruity. Blockchains are one type of
distributed ledger, and they are often used to issue and transfer
ownership of crypto assets.
\4\ Under the proposed rules, the term ``covered investment
contract'' would be defined to mean a contract, transaction, or
scheme that constitutes an investment contract; provided that the
investment contract must meet the following requirements: (1) a
crypto asset is subject to the investment contract; (2) such crypto
asset is not a security; and (3) no asset other than such crypto
asset (including any security or non-security asset) is subject to
the investment contract. See id.
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Since the advent of Bitcoin in 2008,\5\ the crypto asset markets
have grown significantly.\6\ Although still only a fraction of the size
of the global debt and equity markets,\7\ the rapid rise in the market
capitalization of crypto assets is one of several indicators of the
growing importance of crypto assets to the global financial system.
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\5\ See Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic
Cash System (Oct. 31, 2008), available at <a href="https://bitcoin.org/bitcoin.pdf">https://bitcoin.org/bitcoin.pdf</a>.
\6\ See President's Working Group on Digital Asset Markets,
Strengthening American Leadership in Digital Financial Technology 16
(July 30, 2025), available at <a href="https://whitehouse.gov/wp-content/uploads/2025/07/Digital-Assets-Report-EO14178.pdf">https://whitehouse.gov/wp-content/uploads/2025/07/Digital-Assets-Report-EO14178.pdf</a> (``President's
Working Group Report'').
\7\ See Securities Industry and Financial Markets Association,
2025 Capital Markets Fact Book 8 (July 28, 2025), available at
<a href="https://sifma.org/wp-content/uploads/2024/07/2025-SIFMA-Capital-Markets-Factbook.pdf">https://sifma.org/wp-content/uploads/2024/07/2025-SIFMA-Capital-Markets-Factbook.pdf</a> (noting that in 2024, the global fixed income
markets outstanding was $145.1 trillion and the global equity market
capitalization was $126.7 trillion).
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Despite this growth, the Commission has not to date adapted its
rules to address the unique aspects of the crypto asset markets.
Instead, the Commission generally has looked to the test developed by
the Supreme Court of the United States in SEC v. W.J. Howey Co.\8\
(known as the ``Howey test'' \9\) to determine whether crypto assets,
and transactions involving such assets, fall within the purview of the
Federal securities laws. If the Federal securities laws applied, an
issuer was required to comply with existing requirements.
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\8\ 328 U.S. 293 (1946).
\9\ The Howey test is discussed in more detail in section I.A.1
below. See also 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) [91 FR 13714
(Mar. 23, 2026)] (``2026 Interpretation'').
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Although relying on familiar and well-established legal standards
in lieu of tailored rules has some merit, this approach has two primary
drawbacks in the context of crypto assets. First, it can be difficult
to apply the Howey test to crypto assets and transactions involving
crypto assets. Second, the Commission's existing rules are not fully
``fit-for-purpose'' with respect to covered investment contract
offerings. Both of these issues stem from the unique attributes of
crypto assets. For example, although crypto assets may be subject to
investment contracts (and, therefore, the Federal securities laws) when
first offered or sold, the crypto assets may subsequently cease to be
subject to investment contracts (at which point the Federal securities
laws no longer would apply).\10\ The Commission's existing rules
generally do not contemplate or facilitate this type of evolution.\11\
Further, many of the Commission's existing rules require issuers to
provide disclosures that may not be relevant to investors in covered
investment contract offerings. At the same time, those rules often do
not elicit other types of disclosures that are likely to be material to
such investors. In addition, the value of a crypto asset (and the
success of the related network or application) often depends on the
extent to which the crypto asset is widely held and used--that is, the
crypto asset's ``network effects.'' \12\ The Commission's existing
exemptions have features that may impede such network effects. For
example, securities issued pursuant to the Commission's existing
exemptions may be restricted securities \13\ or otherwise subject to
resale restrictions.\14\ Those exemptions also may limit the extent to
which an issuer may sell securities to retail investors,\15\ which
could result in concentrated (rather than widespread) holdings.
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\10\ See id.
\11\ The fundamental nature of most non-crypto asset financial
instruments does not change over time and, therefore, they either
are permanently within or outside the scope of the Federal
securities laws.
\12\ See 2026 Interpretation at n.52 (stating that the term
```network effects' refers to the phenomenon where the value, use,
and security of a crypto system increase as more users participate
and interact with the crypto system'').
\13\ See, e.g., 17 CFR 230.144(a)(3)(ii) (providing that the
term ``restricted securities'' incudes ``[s]ecurities acquired from
the issuer that are subject to the resale limitations of Sec.
230.502(d) under Regulation D'').
\14\ See, e.g., 17 CFR 227.501 (imposing a one-year restriction
on resales of securities issued pursuant to Regulation
Crowdfunding).
\15\ See, e.g., 17 CFR 230.506(c)(2)(i) (requiring that all
purchasers of securities sold in any offering under the exemption to
be ``accredited investors,'' as defined in 17 CFR 230.501(a)).
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Without fit-for-purpose rules, existing regulatory requirements,
many of which were adopted well before the proliferation of crypto
assets, could complicate an issuer's transaction planning and, in turn,
impede capital formation and innovation in the crypto asset markets.
Furthermore, in response to these regulatory challenges, some issuers
may choose to conduct their crypto asset transactions offshore,
limiting investment options (and, therefore, the ability to diversify)
for U.S. investors or exposing them to additional risks from
participating in markets with less robust investor protections.
The Commission recently took steps to address these issues by
clarifying its views on the application of the Howey test to crypto
assets and transactions involving crypto assets.\16\ These proposed
rules are intended to complement those efforts. Similar to the
Commission's historical approach of creating bespoke frameworks for
certain other unique asset classes (such as asset-backed securities
\17\ and real estate investment trusts \18\), the proposed rules would
establish an offering framework specifically tailored to covered
investment contracts, thereby reducing compliance costs for issuers and
delays caused by regulatory uncertainty, while, at the same time,
ensuring that investors are adequately protected and well-informed.\19\
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\16\ See 2026 Interpretation.
\17\ See, e.g., Regulation AB, 17 CFR 229.1100 through 17 CFR
229.1125.
\18\ See, e.g., 17 CFR 239.18.
\19\ While the Commission's rules for asset-backed securities
and real estate investment trusts provide a framework for conducting
registered offerings, the proposed offering framework for covered
investment contracts would provide exemptions from registration and
a conditional safe harbor. This difference reflects the fact that
many crypto asset projects are intended to develop in such a way
that the related crypto assets subsequently will cease to be subject
to investment contracts. See section II.B.1 (discussing the need for
the proposed startup exemption). There may be other securities
involving crypto assets, such as digital securities, that are not
expected to undergo such evolution and that may be more suitable for
registration. We are not, at this time, proposing to amend our rules
and forms governing registered offerings to address these other
matters related to crypto assets.
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A. The Commission's Regulatory Approach to Crypto Assets
1. Approach Before 2025
Although the Commission and its staff began engaging with crypto
assets as early as 2013,\20\ the Commission first issued an analytical
framework for applying the Federal securities laws to crypto assets and
crypto asset-related transactions in 2017. At that time, there was an
increased interest in capital raising transactions involving crypto
assets often referred to as ``initial coin offerings'' or ``ICOs.''
\21\ One such ICO
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involved the issuance of crypto assets called ``DAO Tokens'' by an
unincorporated organization named ``The DAO.'' \22\ In July 2017, the
Commission issued the ``DAO Report,'' which was a report of an
investigation pursuant to section 21(a) of the Securities Exchange Act
of 1934 (``Exchange Act'') \23\ with respect to the ICO of DAO
Tokens.\24\ In the DAO Report, the Commission found that the ICO
constituted an offer and sale of securities subject to the Federal
securities laws because, pursuant to the Howey test, the DAO Tokens
were being offered and sold as ``investment contracts.'' \25\
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\20\ The first registration statement for the offer and sale of
a crypto asset exchange-traded product was filed with the Commission
in 2013. See Form S-1 Registration Statement filed with the
Commission on July 1, 2013, <a href="https://sec.gov/Archives/edgar/data/1579346/000119312513279830/d562329ds1.htm">https://sec.gov/Archives/edgar/data/1579346/000119312513279830/d562329ds1.htm</a>.
\21\ Generally, ICOs involve the issuance of crypto assets in
exchange for cash or other consideration intended to fund the
development of crypto asset networks and applications. ICOs often
proceed as follows: A developer (or a team of developers) publishes
a ``whitepaper'' that describes the technical specifications and
other relevant details of a crypto asset project. See infra note 156
for a discussion of the term ``whitepaper.'' At the time of the ICO,
development of the project is in the early stages or has not yet
begun and, therefore, the developer is seeking to raise capital to
fund development of the project. Based on the information provided
in the whitepaper, investors transfer cash or other consideration to
the developer in exchange for crypto assets (or the promise of a
future issuance of such assets, once the project is sufficiently
complete). The ICO participants (both the developers and investors)
contemplate that the project eventually will be completed, at which
time the investors may, among other things, transfer their crypto
assets (sometimes referred to as ``tokens'') or use them to access
certain features in the crypto asset network or application.
\22\ See Report of Investigation Pursuant to Section 21(a) of
the Securities Exchange Act of 1934: The DAO, Release No. 34-81207
(July 25, 2017) (``DAO Report'').
\23\ 15 U.S.C. 78a et seq.
\24\ See DAO Report.
\25\ See id. at 11-15. The definition of ``security'' in both
the Securities Act and the Exchange Act enumerates several
instrument types, including ``investment contract.'' See 15 U.S.C.
77b(a)(1); 15 U.S.C. 78c(a)(10). The definitions are ``virtually
identical'' in the Securities Act and Exchange Act and are treated
by the courts as identical in ``decisions dealing with the scope of
the term.'' Landreth Timber Co. v. Landreth, 471 U.S. 681, 686 n.1
(1985). Under the Howey test, the term ``investment contract'' means
any contract, transaction, or scheme whereby a person invests money
in a common enterprise and reasonably expects profits to be derived
from the essential managerial efforts of others. Howey, 328 U.S. at
298-99.
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In the years following the DAO Report, the Commission and its staff
continued to address ICOs (and crypto assets in general) on an ad hoc
basis.\26\ Consistent with the DAO Report, the Commission's general
approach was to apply the Howey test to determine whether a crypto
asset, in the context in which it was being offered and sold,
constituted or was subject to an investment contract. If the crypto
asset constituted or was subject to an investment contract, then the
issuer of the investment contract was expected to comply with the
existing Federal securities laws.
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\26\ See, e.g., Gladius Network LLC, Release No. 33-10608 (Feb.
20, 2019); Paragon Coin, Inc., Release No. 33-10574 (Nov. 16, 2018);
In re Munchee, Inc., Release No. 33-10445 (Dec. 11, 2017); Division
of Corporation Finance no-action letter to IMVU, Inc. (Nov. 19,
2020); Division of Corporation Finance no-action letter to Pocketful
of Quarters, Inc. (July 25, 2019); Division of Corporation Finance
no-action letter to TurnKey Jet, Inc. (Apr. 3, 2019).
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Some Commissioners and other commentators expressed concerns about
the Commission's approach to crypto assets during this period.\27\ Some
described that approach as ``regulation by enforcement,'' stating that
the Commission pursued enforcement actions against crypto asset issuers
for alleged violations of the Federal securities laws rather than
developing a tailored regulatory framework that accommodates crypto
asset innovation and entrepreneurship.\28\ Others stated that the
Commission's existing regulatory framework, which was designed with
traditional securities (e.g., stocks and bonds) in mind, is unfit for
application to covered investment contracts.\29\
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\27\ Similarly, during this period, the Commission received
several rulemaking petitions regarding its regulatory approach to
crypto assets and transactions involving crypto assets. See, e.g.,
Coinbase Global, Inc., Rulemaking petition requesting that the
Commission propose and adopt rules to govern the regulation of
securities that are offered and traded via digitally native methods,
including potential rules to identify which digital assets are
securities (July 21, 2022); J.W. Verret, Petition for Rulemaking to
request that the Commission issue an open call for comment from the
public regarding the need for flexibility in the application of the
federal securities laws to digital assets in order to initiate an
open-sourced redesign of regulations enforced pursuant to the
Securities Act of 1933, the Securities Exchange Act of 1934, the
Investment Advisers Act of 1940, and the Investment Company Act of
1940, and other laws enforced by the SEC (Jan. 22, 2022); Vincent
Molinari, Sustainable Holdings, PBC, Request the Commission provide
regulatory clarity with respect to the regulation of a new form of
digital assets--non-fungible tokens (Apr. 12, 2021); Vincent R.
Molinari, Templum Markets, LLC, Rulemaking petition on digital asset
mining (Revised) (Apr. 4, 2019); Vincent R. Molinari, Templum, Inc.,
Request for rulemaking to address how digital assets are regulated
once a trade occurs (Dec. 12, 2018); Vincent R. Molinari, Liquid M
Capital, LLC, Rulemaking petition related to issuance of initial
coin offerings that took place prior to the promulgation of related
guidance by the Commission (Jan. 26, 2018); Vincent Molinari, Ouisa
Capital, Rulemaking petition regarding the regulation of digital
assets and blockchain technology (Mar. 15, 2017). The Commission has
considered these petitions in connection with the proposed
amendments, and the proposed amendments address several aspects of
the petitions.
\28\ See, e.g., Commissioner Hester M. Peirce, Outdated: Remarks
before the Digital Assets at Duke Conference (Jan. 20, 2023),
available at <a href="https://sec.gov/newsroom/speeches-statements/peirce-remarks-duke-conference-012023">https://sec.gov/newsroom/speeches-statements/peirce-remarks-duke-conference-012023</a> (``Why not set forth a coherent legal
framework in a rule? After all, if we continued with our regulation-
by-enforcement approach at our current pace, we would approach 400
years before we got through the tokens that are allegedly
securities. By contrast, an SEC rule would have universal--albeit
not retroactive--coverage as soon as it took effect.'');
Commissioner Mark T. Uyeda, Remarks at the ``SEC Speaks'' Conference
2022 (Sept. 9, 2022), available at <a href="https://sec.gov/newsroom/speeches-statements/uyeda-speech-sec-speaks-090922">https://sec.gov/newsroom/speeches-statements/uyeda-speech-sec-speaks-090922</a>; Commissioner
Mark T. Uyeda, Remarks at the ``SEC Speaks'' Conference 2025 (May
19, 2025), available at <a href="https://sec.gov/newsroom/speeches-statements/uyeda-remarks-sec-speaks-051925">https://sec.gov/newsroom/speeches-statements/uyeda-remarks-sec-speaks-051925</a>.
\29\ See, e.g., Brady Dale, What SEC disclosure for crypto
assets could look like, Axios (Sept. 5, 2024), available at <a href="https://axios.com/2024/09/05/crypto-blockchain-sec-disclosure-regisrations-s1">https://axios.com/2024/09/05/crypto-blockchain-sec-disclosure-regisrations-s1</a>. Although commentators often referred to crypto assets that are
subject to an investment contract, they did not use the term
``covered investment contracts,'' as that is a new term that we are
proposing to define in Regulation Crypto Assets. Nonetheless, we
believe many of the views commentators expressed would apply equally
to covered investment contracts (as we propose to define that term).
For the sake of convenience and consistency, therefore, we use that
term throughout this release.
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2. Developments Beginning in 2025
a. Crypto Task Force and President's Working Group
In early 2025, the Commission's approach to crypto assets began to
shift. The Commission's Acting Chairman Mark T. Uyeda established a
Crypto Task Force.\30\ The Crypto Task Force's focus is to support the
Commission's efforts to draw clear regulatory lines, appropriately
distinguish securities from non-securities, craft tailored disclosure
frameworks, provide realistic paths to registration for both crypto
assets and market intermediaries, ensure that investors have the
information necessary to make investment decisions, and make sure that
enforcement resources are deployed judiciously.\31\ To this end, the
Crypto Task Force has hosted a series of roundtables,\32\ held meetings
with members of the public,\33\ and solicited and received written
input from members of the public.\34\ That written input is described
in more detail in section I.B below.
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\30\ See U.S. Securities and Exchange Commission, Crypto Task
Force, available at <a href="https://sec.gov/about/crypto-task-force">https://sec.gov/about/crypto-task-force</a>.
\31\ See id.
\32\ See U.S. Securities and Exchange Commission, Crypto Task
Force Roundtables, available at <a href="https://sec.gov/about/crypto-task-force/crypto-task-force-roundtables">https://sec.gov/about/crypto-task-force/crypto-task-force-roundtables</a>.
\33\ See U.S. Securities and Exchange Commission, Crypto Task
Force Meetings, available at <a href="https://sec.gov/about/crypto-task-force/crypto-task-force-meetings">https://sec.gov/about/crypto-task-force/crypto-task-force-meetings</a>.
\34\ See U.S. Securities and Exchange Commission, Crypto Task
Force Written Input, available at <a href="https://sec.gov/about/crypto-task-force/crypto-task-force-written-input">https://sec.gov/about/crypto-task-force/crypto-task-force-written-input</a>.
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In addition, as part of an effort to provide greater clarity on the
application of the Federal securities laws to crypto assets, the
Commission's Division of Corporation Finance issued a series of staff
statements beginning in February 2025. These statements provided the
Division's views regarding the application of the Federal securities
laws to various crypto asset-related matters, including meme coins,\35\
proof-
[[Page 54514]]
of-work mining activities,\36\ stablecoins,\37\ offerings and
registrations of securities in the crypto asset markets,\38\ protocol
staking activities,\39\ crypto asset exchange-traded products,\40\
liquid staking activities,\41\ and tokenized securities.\42\
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\35\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Staff Statement on Meme Coins (Feb. 27, 2025),
available at <a href="https://sec.gov/newsroom/speeches-statements/staff-statement-meme-coins">https://sec.gov/newsroom/speeches-statements/staff-statement-meme-coins</a>. This statement and any other staff statement
referenced in this release is not a rule, regulation, guidance, or
statement of the Commission, and the Commission has neither approved
nor disapproved its content. Staff statements have no legal force or
effect: they do not alter or amend applicable law, and they create
no new or additional obligations for any person.
\36\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Statement on Certain Proof-of-Work Mining
Activities (Mar. 20, 2025), available at <a href="https://sec.gov/newsroom/speeches-statements/statement-certain-proof-work-mining-activities-032025">https://sec.gov/newsroom/speeches-statements/statement-certain-proof-work-mining-activities-032025</a>.
\37\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Statement on Stablecoins (Apr. 4, 2025),
available at <a href="https://sec.gov/newsroom/speeches-statements/statement-stablecoins-040425">https://sec.gov/newsroom/speeches-statements/statement-stablecoins-040425</a>.
\38\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Offerings and Registrations of Securities in
the Crypto Asset Markets (Apr. 10, 2025) (``CF Disclosure
Statement''), available at <a href="https://sec.gov/newsroom/speeches-statements/cf-crypto-securities-041025">https://sec.gov/newsroom/speeches-statements/cf-crypto-securities-041025</a>.
\39\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Statement on Certain Protocol Staking
Activities (May 29, 2025), available at <a href="https://sec.gov/newsroom/speeches-statements/statement-certain-protocol-staking-activities-052925">https://sec.gov/newsroom/speeches-statements/statement-certain-protocol-staking-activities-052925</a>.
\40\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Crypto Asset Exchange-Traded Products (July 1,
2025), available at <a href="https://sec.gov/newsroom/speeches-statements/cf-crypto-asset-exchange-traded-products-070125">https://sec.gov/newsroom/speeches-statements/cf-crypto-asset-exchange-traded-products-070125</a>.
\41\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Statement on Certain Liquid Staking Activities
(Aug. 5, 2025), available at <a href="https://sec.gov/newsroom/speeches-statements/corpfin-certain-liquid-staking-activities-080525">https://sec.gov/newsroom/speeches-statements/corpfin-certain-liquid-staking-activities-080525</a>.
\42\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Division of Investment Management, and Division
of Trading and Markets, Statement on Tokenized Securities (Jan. 28,
2026), available at <a href="https://sec.gov/newsroom/speeches-statements/corp-fin-statement-tokenized-securities-012826?utm_medium=email&utm_source=govdelivery">https://sec.gov/newsroom/speeches-statements/corp-fin-statement-tokenized-securities-012826?utm_medium=email&utm_source=govdelivery</a>; see also U.S.
Securities and Exchange Commission, Division of Trading and Markets,
Frequently Asked Questions Relating to Crypto Asset Activities and
Distributed Ledger Technology (last reviewed or updated Feb. 19,
2026), available at <a href="https://sec.gov/rules-regulations/staff-guidance/trading-markets-frequently-asked-questions/frequently-asked-questions-relating-crypto-asset-activities-distributed-ledger-technology?utm_medium=email&utm_source=govdelivery">https://sec.gov/rules-regulations/staff-guidance/trading-markets-frequently-asked-questions/frequently-asked-questions-relating-crypto-asset-activities-distributed-ledger-technology?utm_medium=email&utm_source=govdelivery</a>.
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Further, President Donald J. Trump issued an executive order titled
``Strengthening American Leadership in Digital Financial Technology''
on January 23, 2025.\43\ This executive order, among other things,
established the President's Working Group on Digital Asset Markets
(``President's Working Group'')--composed of the Chairman of the
Commission and the heads of several other Federal departments
agencies--and directed the President's Working Group to ``propose a
Federal regulatory framework governing the issuance and operation of
digital assets.'' \44\
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\43\ Exec. Order No. 14178, Strengthening American Leadership in
Digital Financial Technology (Jan. 23, 2025) [90 FR 8647 (Jan. 31,
2025)] (``Exec. Order No. 14178'').
\44\ Id. at section 4(c)(i).
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On July 30, 2025, the President's Working Group issued a report
consisting of several regulatory recommendations.\45\ Some of those
recommendations were directed at the Commission, including that the
Commission should use its rulemaking and exemptive authority under the
Securities Act to:
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\45\ See President's Working Group Report at 141-59.
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<bullet> Establish a fit-for-purpose exemption from registration
under section 5 of the Securities Act for securities distributions
involving digital assets; \46\
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\46\ The term ``digital asset'' is defined in the executive
order as referring to ``any digital representation of value that is
recorded on a distributed ledger, including cryptocurrencies,
digital tokens, and stablecoins.'' Exec. Order No. 14178 at section
2(a).
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<bullet> Establish a time-limited safe harbor or exemption from
certain securities law requirements for transactions involving digital
assets that may be subject to an investment contract because they are
not yet fully functional or associated with a sufficiently
decentralized \47\ network to allow for progressive functionality or
decentralization; and
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\47\ See President's Working Group Report at 20 (``The term
`decentralized' typically refers to the use of blockchain
technologies to provide financial or nonfinancial services on a
peer-to-peer basis.'').
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<bullet> Establish a safe harbor for certain airdrops from
characterization as ``sales'' under section 2(a)(3) of the Securities
Act \48\ or an exemption from the corresponding registration
requirements under section 5 of the Securities Act.
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\48\ 15 U.S.C. 77b(a)(3).
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On July 31, 2025, following publication of the President's Working
Group Report, Commission Chairman Paul S. Atkins announced the launch
of ``Project Crypto''--a Commission-wide initiative to modernize the
Federal securities rules and regulations--and directed the Commission's
staff ``to swiftly develop proposals to implement the [President's
Working Group's] recommendations.'' \49\ Among other things, Chairman
Atkins directed the staff to ``work to develop clear guidelines that
market participants can use to determine whether a crypto asset is a
security or subject to an investment contract'' and ``for those crypto
asset transactions that are subject to the securities laws, . . . to
propose purpose-fit disclosures, exemptions, and safe harbors,
including for so-called `initial coin offerings,' `airdrops,' and
network rewards.'' \50\
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\49\ Chairman Paul S. Atkins, American Leadership in the Digital
Finance Revolution (July 31, 2025), available at <a href="https://sec.gov/newsroom/speeches-statements/atkins-digital-finance-revolution-073125">https://sec.gov/newsroom/speeches-statements/atkins-digital-finance-revolution-073125</a>.
\50\ Id.
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b. 2026 Interpretation
On March 17, 2026, the Commission issued a release titled
Application of the Federal Securities Laws to Certain Types of Crypto
Assets and Certain Transactions Involving Crypto Assets (``2026
Interpretation'').\51\ That release set forth an interpretation of the
definition of ``security'' as applied to crypto assets and transactions
involving crypto assets. Among other things, the 2026 Interpretation
classified crypto assets into categories and analyzed each category
under the definition of ``security.'' Specifically, the release
classified crypto assets into the following five categories based on
their characteristics, uses, and functions: (i) digital commodities;
(ii) digital collectibles; (iii) digital tools; (iv) stablecoins; and
(v) digital securities. The release provided the Commission's view that
digital securities are securities, stablecoins may or may not be
securities depending on their characteristics, and digital commodities,
digital collectibles, and digital tools are not themselves
securities.\52\
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\51\ See 2026 Interpretation.
\52\ See id. at 13717. The 2026 Interpretation also noted that
there may be crypto assets that do not fall within any of these five
categories, as well as crypto assets with hybrid characteristics
that may fall within more than one category.
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The 2026 Interpretation further explained that, as with any asset
that is not a security, a non-security crypto asset can be offered and
sold subject to an investment contract, which is a security.\53\ The
Commission acknowledged, however, the difficulty of applying the Howey
test to crypto assets and transactions involving crypto assets and
market participants' requests for guidance regarding the circumstances
under which the Commission will characterize crypto assets as
securities and transactions involving crypto assets as securities
transactions. To address those challenges and requests, and to provide
greater clarity regarding the treatment of crypto assets under the
Federal securities laws, the 2026 Interpretation addressed how non-
security crypto assets become subject to, and how they cease to be
subject to, an investment contract.
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\53\ Id.
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With respect to how non-security crypto assets become subject to an
[[Page 54515]]
investment contract, the 2026 Interpretation noted that how an issuer
markets and promotes a contract, transaction, or scheme is relevant to
assessing whether the issuer is offering or selling an investment
contract and thus a security.\54\ That is, a non-security crypto asset
becomes subject to an investment contract when an issuer offers it by
inducing an investment of money in a common enterprise with
representations or promises to undertake essential managerial efforts
from which a purchaser would reasonably expect to derive profits.
---------------------------------------------------------------------------
\54\ Id. at 13721.
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Under such circumstances, secondary market offers and sales of such
a non-security crypto asset would constitute securities transactions
that must be registered under the Securities Act or conducted pursuant
to an available exemption from registration. The associated investment
contract will continue to be transferred to subsequent purchasers of
the non-security crypto asset in secondary market transactions until
the non-security crypto asset separates from the issuer's
representations or promises, as discussed below. Market participants
should refer to the 2026 Interpretation for a more complete discussion
of the Commission's views as to the circumstances under which a non-
security crypto asset may become subject to an investment contract.
With respect to how a non-security crypto asset that was previously
offered and sold subject to an investment contract ceases to be subject
to such investment contract, the 2026 Interpretation stated that for
the non-security crypto asset to remain subject to the investment
contract, purchasers must continue to reasonably expect the issuer's
representations or promises to engage in essential managerial efforts
to remain connected to the non-security crypto asset.\55\ The 2026
Interpretation also stated that, when a purchaser of a non-security
crypto asset that had been subject to an investment contract could no
longer reasonably expect the issuer's representations or promises to
engage in essential managerial efforts to remain connected to the non-
security crypto asset, the non-security crypto asset separates from
such representations or promises, and thereafter the non-security
crypto asset is not subject to the Federal securities laws. The 2026
Interpretation set forth the Commission's view that a non-security
crypto asset would no longer be subject to an investment contract when:
(1) the issuer has fulfilled its representations or promises to engage
in essential managerial efforts, or (2) the purchaser would not
reasonably expect the issuer to be able to fulfill or to continue to
engage in the essential managerial efforts it represented or promised
it would undertake. Market participants should refer to the 2026
Interpretation for a more complete discussion of the Commission's views
as to the circumstances under which a non-security crypto asset may
separate from and cease to be subject to an investment contract.
---------------------------------------------------------------------------
\55\ See id. at 13722.
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The 2026 Interpretation also set forth the Commission's views
regarding the investment contract status of certain crypto asset
disseminations known as ``airdrops.'' The Commission noted that ``[a]n
`airdrop' is a means for crypto asset issuers to disseminate their
crypto assets in exchange for no or nominal consideration'' and
discussed some of the reasons why an issuer may conduct an airdrop.\56\
The Commission then provided its interpretation with respect to
airdrops of non-security crypto assets to recipients who do not provide
the issuer with money, goods, services, or other consideration in
exchange for the airdropped non-security crypto asset. Specifically,
the Commission stated that, in those circumstances, ``the non-security
crypto asset does not become subject to an investment contract because
the first element of the Howey test--requiring an investment of money--
is not met.'' \57\ Market participants should refer to the 2026
Interpretation for a more complete discussion of the Commission's views
regarding the investment contract status of airdrops.\58\
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\56\ Id. at 13730 (``Issuers use airdrops for a variety of
reasons, such as to generate interest in and expand ownership and
use of their crypto assets, reward early users or loyalty of users
of a crypto system, promote a software application, build a
community, decentralize governance authority with respect to an
open-source crypto system, or award high-scoring players of an
associated video game.'').
\57\ Id. at 13731.
\58\ See also infra note 200 and accompanying text for a
discussion of airdrops in the context of the startup exemption.
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B. Written Input Provided to the Crypto Task Force
The Crypto Task Force was established on January 21, 2025 to
``develop[] a comprehensive and clear regulatory framework for crypto
assets.'' \59\ One month later, Commissioner Hester M. Peirce published
a statement inviting input from the public on ``some of the questions
with which the Task Force is wrestling.'' \60\ Those questions were
categorized according to the following 10 topics: (1) Security Status;
(2) Scoping Out; (3) Public Offerings; (4) Safe Harbor from
Registration; (5) Trading; (6) Custody; (7) Crypto Lending; (8) Crypto
Exchange-Traded Products; (9) Tokenized Securities; and (10) Sandbox
and Related International Issues.\61\
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\59\ U.S. Securities and Exchange Commission, Crypto Task Force
Designation Letter from Acting Chairman Mark T. Uyeda (Feb. 4,
2025), available at <a href="https://sec.gov/files/crypto-task-force-designation-letter.pdf">https://sec.gov/files/crypto-task-force-designation-letter.pdf</a>.
\60\ Commissioner Hester M. Peirce, There Must Be Some Way Out
of Here (Feb. 21, 2025), available at <a href="https://sec.gov/newsroom/speeches-statements/peirce-statement-rfi-022125">https://sec.gov/newsroom/speeches-statements/peirce-statement-rfi-022125</a> (``Cmr. Peirce
Request for Input'').
\61\ Id.
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To date, the Crypto Task Force has received over 300 comment
letters.\62\ Commenters include issuers, investors, law firms and legal
professionals, audit and accounting professionals and firms, academics,
professional and investor associations and organizations, investment
companies and advisors, market intermediaries, service providers,
network foundations, foreign entities, other crypto asset market
participants, and other members of the public. Although we have
considered all the comments received, the most relevant comments for
purposes of this proposal were those that addressed the following four
topics: Security Status, Scoping Out, Public Offerings, and Safe Harbor
from Registration. We have summarized below some of the most
significant themes from the comments received on each of these topics.
As discussed in section I.A.2.b above, the Commission addressed many of
the points raised by the ``Security Status'' and ``Scoping Out''
comments in the 2026 Interpretation. Nonetheless, some of those
comments (e.g., those that express a concern about a current lack of
regulatory clarity) are relevant for the proposed rules.
---------------------------------------------------------------------------
\62\ The comment letters are available at <a href="https://sec.gov/about/crypto-task-force/crypto-task-force-written-input">https://sec.gov/about/crypto-task-force/crypto-task-force-written-input</a>. Unless otherwise
specified, all references in this release to comment letters are to
the written input submitted to the Crypto Task Force.
---------------------------------------------------------------------------
1. Security Status
With respect to the ``Security Status'' topic, Commissioner Peirce
noted that ``[m]arket participants have expressed a reasonable desire
to determine with ease whether . . . [a given crypto] asset is a
security or is being offered or sold as part of an investment
contract.'' \63\ She further observed that ``[m]arket participants have
expressed concern that the Howey test, as the Commission has applied
it, is a complex analysis that can be difficult to apply
[[Page 54516]]
consistently.'' \64\ To address those concerns, Commissioner Peirce
stated that the Crypto Task Force was seeking to ``make it easier for
investors, market participants, and the Commission to categorize crypto
assets and crypto asset transactions.'' \65\ The four questions in this
category sought to solicit input on this point.
---------------------------------------------------------------------------
\63\ Cmr. Peirce Request for Input.
\64\ Id.
\65\ Id.
---------------------------------------------------------------------------
Several commenters that addressed these questions stated that many
crypto assets are not themselves necessarily securities.\66\ For
example, one commenter stated that ``crypto assets should be viewed as
commodities that may be offered and sold as securities based on an
assessment of the facts and circumstances of a particular offering, but
do not intrinsically have the characteristics of securities.'' \67\ At
the same time, some commenters also acknowledged that some crypto
assets, including those referred to as ``digital securities,''
``tokenized securities,'' or something similar, are themselves
securities.\68\
---------------------------------------------------------------------------
\66\ See, e.g., letters from a16z, Comments on the SEC Crypto
Task Force's Questions Concerning the Security Status of Crypto
Assets (Mar. 13, 2025) (``a16z 1''); Lewis Rinaudo Cohen (Mar. 20,
2025) (``L. Cohen''); Nasdaq, Inc. (Apr. 25, 2025) (``Nasdaq'');
Perkins Coie LLP (Apr. 23, 2025) (``Perkins Coie 1''); Ripple Labs
Inc. (Mar. 21, 2025) (``Ripple 1''); Ripple Labs Inc. (Jan. 9, 2026)
(``Ripple 2''); The Digital Chamber (Apr. 28, 2025) (``TDC 1'').
\67\ Letter from Perkins Coie 1 (emphasis in original).
\68\ See, e.g., letters from Coinbase Global, Inc. (Mar. 19,
2025) (``Coinbase''); Nasdaq; Perkins Coie 1.
---------------------------------------------------------------------------
Several commenters described difficulty associated with the Howey
test and requested additional clarity from the Commission regarding the
application of that test to crypto assets and transactions involving
such assets.\69\ One commenter expressed the view that ``the [Howey]
test is subjective and has led to inconsistent and controvertible
results.'' \70\ According to the commenter, the Howey test's
``shortcomings are evidenced by the bevy of SEC enforcement actions
taken over the past few years, which arose from fierce disputes as to
whether digital assets of varying types constituted securities.'' \71\
Another commenter stated that the Howey test is unpredictable,
difficult to enforce, impractical to apply, and of uncertain
bounds.\72\
---------------------------------------------------------------------------
\69\ See, e.g., letters from Alternative Investment Management
Association (Mar. 25, 2025) (``AIMA''); a16z 1; Blockchain Research
Lab (Feb. 18, 2025); Figure Markets (Mar. 25, 2025) (``Figure
Markets''); Foley & Lardner LLP (Mar. 20, 2025) (``Foley &
Lardner''); Nasdaq. But see, e.g., letter from Lee Reiners,
Lecturing Fellow, Duke University (Mar. 21, 2025) (suggesting that
the Howey test provides a viable regulatory taxonomy for crypto
assets and transactions involving such assets).
\70\ Letter from Nasdaq.
\71\ Id.
\72\ See letter from a16z 1.
---------------------------------------------------------------------------
Further, some commenters suggested that the level of a crypto
network's decentralization is essential for determining whether a
crypto asset is the subject of an investment contract.\73\ According to
one commenter, ``[t]he degree of centralized control and the extent of
`ongoing efforts' could be used as factors to distinguish between a
commodity and a security.'' \74\ Another commenter stated that ``[a]
digital asset does not satisfy [the Howey] test when no one has
unilateral control over the protocol underlying the asset because,
under those circumstances, there is no `common enterprise' run by a
`manage[r]' or `promoter.' '' \75\ By contrast, one commenter stated
that `` `decentralization', while highly relevant for user confidence
and the overall success of the crypto asset sector, is not necessarily
the best bright-line standard for determining when securities law
applies to crypto asset transactions.'' \76\ Similarly, another
commenter stated that ``[b]ecause `decentralization' is not a binary
state, but a subjective and often fluid continuum involving code
contribution, node distribution, economic factors, and governance
participation and control, relying on it for legal classification
introduces intolerable uncertainty.'' \77\
---------------------------------------------------------------------------
\73\ See, e.g., letters from AIMA; a16z, Recommendations
Regarding a Safe Harbor for Certain Airdrops and Incentive-Based
Rewards of Network Tokens (Mar. 13, 2025) (``a16z 2''); Crypto
Council for Innovation (May 29, 2025) (``Crypto Council''); Jump
Crypto (May 1, 2025) (``Jump Crypto''); J.W. Verret (Feb. 23, 2025);
Perkins Coie 1.
\74\ Letter from AIMA.
\75\ Letter from Jump Crypto.
\76\ Letter from L. Cohen.
\77\ Letter from Ripple 2; see also letter from Teresa Goody
Guill[eacute]n (Jan, 26, 2026) (``Goody Guill[eacute]n'')
(``Decentralization is multifaceted and, in some cases, borders on
illusory; it is often conflated with distributed; and it does not
guarantee reduced risk or accountability. . . . The key question
should not be `is it decentralized' but whether residual risk is
reduced by design, and if not, how to address it.'').
---------------------------------------------------------------------------
Finally, several commenters recommended that the Commission clarify
the application of the Federal securities laws to certain technology
functions that are inherent to a crypto network.\78\ Examples of such
functions include mining, staking, and validating. One commenter
requested ``guidelines that distinguish between tokens used for network
operations and those structured as investment instruments. Tokens used
for staking, governance, or paying [transaction] fees enable blockchain
functionality rather than serving as investment vehicles.'' \79\
---------------------------------------------------------------------------
\78\ See, e.g., letters from AIMA; a16z 1; Cardano Foundation
(Apr. 22, 2025) (``Cardano''); Coinbase; Dragonchain (Mar. 10, 2025)
(``Dragonchain''); SIFMA (May 9, 2025) (``SIFMA 1''); TDC 1.
\79\ Letter from AIMA.
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2. Scoping Out
With respect to the ``Scoping Out'' topic, Commissioner Peirce
stated that ``[t]he Commission may be able to provide greater clarity
to investors and other market participants by identifying categories of
crypto assets (and transactions) that do not fall within its
authority.'' \80\ As such, the two questions on this topic solicited
input on whether ``the security status of certain categories of crypto
assets [should] be addressed'' and how to ``establish a workable
taxonomy while remaining merit- and technology-neutral.'' \81\
---------------------------------------------------------------------------
\80\ Cmr. Peirce Request for Input.
\81\ Id.
---------------------------------------------------------------------------
Commenters generally agreed that it would be helpful for the
Commission to clarify the security status of different types of crypto
assets and transactions involving crypto assets.\82\ Many of those
commenters suggested that, in determining security status, the
Commission look to the economic substance of a particular crypto asset
or associated network or application rather than the technological form
of such asset, network, or application.\83\ One commenter emphasized
``the importance of adopting a principles-based approach that is
merits-based, technology-neutral, focuses on the economic substance and
risks of specific digital assets (rather than their technological
form), and primarily considers an asset's function as the basis of
determining its status as a security.'' \84\ Another commenter
suggested not ``fixat[ing] on classification'' but ``regulating
residual risk across three axes: agency risk, derivative risk, and
market-integrity risk.'' \85\
---------------------------------------------------------------------------
\82\ See, e.g., letters from AIMA; Cardano; Edward Lee (Apr. 1,
2025); Ethena Labs, S.A. (June 11, 2025); Figure Markets; Foley &
Lardner; Josh Lawler (Mar. 17, 2025) (``J. Lawler''); National
Society of Compliance Professionals (Sept. 8, 2025); SIFMA 1;
Polsinelli PC (on behalf of The Digital Chamber) (June 27, 2025).
\83\ See, e.g., letters from AIMA; Cardano; SIFMA 1.
\84\ Letter from SIFMA 1.
\85\ Letter from Goody Guill[eacute]n.
---------------------------------------------------------------------------
3. Public Offerings
With respect to the ``Public Offerings'' topic, Commissioner Peirce
stated that ``[p]eople who have conducted or attempted to conduct
registered or qualified token offerings have expressed frustration
about the cost and feasibility of registration.'' \86\ Commissioner
Peirce
[[Page 54517]]
further noted that ``[t]okens and their issuers can differ
significantly in some aspects from traditional securities and their
issuers.'' \87\ Accordingly, Commissioner Peirce's statement solicited
input on several aspects of this topic, including whether the
Commission should develop tailored disclosure requirements for covered
investment contracts and whether Regulation A ``provide[s] a useful
vehicle to conduct offerings'' of covered investment contracts.\88\
---------------------------------------------------------------------------
\86\ Cmr. Peirce Request for Input.
\87\ Id.
\88\ Id. Although commenters often referred to crypto assets
that are subject to an investment contract when providing feedback
to the Crypto Task Force, they did not use the term ``covered
investment contracts,'' as that is a new term that we are proposing
to define in Regulation Crypto Assets. Nonetheless, we believe many
of the views commenters expressed would apply equally to covered
investment contracts (as we propose to define that term). For the
sake of convenience and consistency, therefore, we use that term
throughout this release, including when describing commenter input.
---------------------------------------------------------------------------
Several commenters suggested that the Commission's existing
offering regimes, including the related disclosure requirements, are
unfit for application to covered investment contracts and their
issuers.\89\ For example, some commenters expressed the view that the
Commission's current disclosure framework is not tailored to elicit the
types of information that are likely to be material to investment
decisions with respect to covered investment contracts.\90\ As such,
several commenters shared recommendations regarding the types of
information that the Commission should mandate if it were to adopt a
tailored disclosure regime with respect to crypto assets.\91\ The
information they recommended for disclosure includes the ecosystem and
governance mechanism with respect to a crypto asset, plans of
development for a crypto network or allocation, and source code
security.\92\
---------------------------------------------------------------------------
\89\ See, e.g., letters from a16z 2; a16z (May 1, 2025) (``a16z
3''); AIMA; Anderson P.C. (May 12, 2025) (``Anderson''); L. Cohen;
Coinbase; CoinList (July 9, 2025) (``CoinList''); Crowdfunding
Professional Association (June 13, 2025) (``CfPA''); Figure Markets;
Global Digital Assets and Cryptocurrency Association (May 16, 2025)
(``GDCA''); J. Lawler; Nasdaq; SIFMA (June 11, 2025) (``SIFMA 2'');
The Digital Chamber (June 26, 2025) (``TDC 2''). One commenter
conducted a survey of 2,000 self-identified crypto asset investors.
See letter from Broadridge Financial Solutions (Apr. 29, 2025)
(``Broadridge''). The results of that survey ``show that individuals
regard traditional types of disclosure information as important in
making and monitoring crypto investments,'' including ``information
on risks, financial overview, management, and governance.'' Id. The
commenter further noted that ``[b]y contrast, survey respondents
rated information on tokenomics, network/platform activity, and
perspective of the core team lower in importance.'' Id. (emphasis in
original). The commenter concluded, however, that these survey
results ``suggest[] that [the surveyed investors] are unaware of the
importance of other relevant information that is helpful in
evaluating and monitoring investments in these asset classes.'' Id.
As a result, the commenter stated that ``[t]ailored disclosures,
together with greater financial literacy education, can support
robust growth in the crypto asset markets, and protect investors by
affording them high levels of innovation and greater choice.'' Id.
\90\ See, e.g., letters from a16z 3; AIMA; Anderson; Broadridge;
CfPA; L. Cohen; Coinbase; GDCA; Nasdaq; TDC 2.
\91\ See, e.g., letters from a16z 3; Ava Labs Inc. (Sept. 3,
2025); CfPA; Coinbase; GDCA; Joon Kim (Mar. 6, 2025) (``J. Kim'');
Nasdaq; SIFMA 2.
\92\ See, e.g., letter from Coinbase.
---------------------------------------------------------------------------
In addition, several commenters generally supported Regulation A as
a potential starting point or model for a covered investment contract
offering framework.\93\ Some commenters, however, identified certain
features of Regulation A that either make it ill-suited or unavailable
for covered investment contract offerings. Commenters noted, for
example, that Regulation A is available only with respect to offerings
of equity securities, debt securities, and equity-related convertible
securities.\94\ Commenters also pointed to the difficulty of complying
with State securities laws with respect to securities purchased in
Regulation A offerings, including because the Federal securities laws
do not preempt State law with respect to secondary market transactions
in such securities.\95\
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\93\ See, e.g., letters from a16z 3; CfPA; DealMaker (May 30,
2025) (``DealMaker''); Figure Markets; CrowdCheck Law (Mar. 19,
2025) (``CrowdCheck Law''); Nasdaq; TDC 2.
\94\ See, e.g., letters from CrowdCheck Law; TDC 2. Eligible
securities under Regulation A are defined as ``[e]quity securities,
debt securities, and securities convertible or exchangeable to
equity interests, including any guarantees of such securities, but
not including asset-backed securities as such term is defined in
Item 1101(c) of Regulation AB.'' 17 CFR 230.261(c).
\95\ See, e.g., letters from CrowdCheck Law; DealMaker.
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4. Safe Harbor From Registration
Finally, the ``Safe Harbor from Registration'' topic solicited
input on several aspects of a potential ``time-limited exemption from
the registration requirements under the Securities Act for offers and
sales of crypto assets during the development of a blockchain project''
that Commissioner Peirce first suggested in 2020.\96\ Among other
things, this potential exemption would ``provide network developers
with a grace period within which, under certain conditions, they can
facilitate broad participation in and the development of a functional
or decentralized network.'' \97\ At the end of this grace period,
``token transactions may not be securities transactions if the network
had matured into a decentralized or functioning network that is not
dependent on a single person or group to carry out the essential
managerial or entrepreneurial efforts.'' \98\ Commissioner Peirce's
statement solicited input on several aspects of her suggested
exemption.
---------------------------------------------------------------------------
\96\ See Cmr. Peirce Request for Input (citing Commissioner
Hester M. Peirce, Token Safe Harbor Proposal 2.0 (Apr. 13, 2021)
(``Cmr. Peirce Proposal 2.0''), available at <a href="https://sec.gov/newsroom/speeches-statements/peirce-statement-token-safe-harbor-proposal-20">https://sec.gov/newsroom/speeches-statements/peirce-statement-token-safe-harbor-proposal-20</a>). Cmr. Peirce Proposal 2.0 is an updated version of the
token safe harbor proposal Commissioner Peirce originally suggested
in February 2020. 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 <a href="https://sec.gov/newsroom/speeches-statements/peirce-remarks-blockress-2020-02-06">https://sec.gov/newsroom/speeches-statements/peirce-remarks-blockress-2020-02-06</a>).
\97\ Cmr. Peirce Request for Input.
\98\ Id.
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Many commenters generally supported a potential exemption along
these lines.\99\ One commenter stated that ``[a] thoughtfully
calibrated Safe Harbor--appropriately tailored to the realities, risks,
and opportunities of digital assets and blockchain technologies--will
provide important information to investors, eliminate information
asymmetries, and protect investors, token holders, builders, and
projects operating in this space while the long-term legislative and
regulatory policymaking processes play out.'' \100\ Some commenters
also suggested modifications to the potential exemption.\101\ For
example, one commenter proposed a revised exemption with multiple
modifications, including a clarification regarding the distinction
between the ``utility'' path to non-security status and the
[[Page 54518]]
``decentralization'' path.\102\ Another commenter suggested
modifications intended to better protect investors from projects that
remain subject to centralized control.\103\
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\99\ See, e.g., letters from Anderson; Coinbase; DeFi Education
Fund (Apr. 18, 2025) (``DeFi Education Fund''); Figure Markets;
Gabriel Shapiro (Mar. 14, 2025) (``G. Shapiro''); Hedera Hashgraph
LLC (June 3, 2025); J. Kim; Jump Crypto; L. Cohen; Plume Network LLC
(May 5, 2025); The Digital Chamber (May 21, 2025) (``TDC 3''). But
see, e.g., letter from CrowdCheck Law (``We believe that if an
exemption under Regulation A is available, there would be no need
for a safe harbor of the kind described.''). One commenter supported
the ``intent behind'' the potential exemption but stated ``we do not
support an exemption'' because the commenter ``believe[d] that
legislation is ultimately necessary to foster the growth of the
crypto asset industry, continued blockchain innovation and to ensure
investor protection.'' Letter from DealMaker; see also letter from
a16z 3 (supporting ``strongly'' the goal of the potential exemption
but stating that ``the Crypto Task Force can best achieve its
mandate by deferring this matter to Congress in the near term'').
The commenter also expressed concern that the potential exemption
could ``potentially encourage existing entrepreneurs who utilize
Regulation A and Regulation [Crowdfunding] to pivot to `token'
offerings that are entirely exempt from SEC registration and many of
the disclosure obligations that protect investors.'' Letter from
DealMaker.
\100\ Letter from DeFi Education Fund.
\101\ See, e.g., letters from a16z 3; DeFi Education Fund; G.
Shapiro.
\102\ Letter from G. Shapiro.
\103\ See letter from a16z 3.
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C. Summary of the Proposed Rules
In light of the concerns raised about the Commission's approach to
covered investment contracts before 2025 (as described in section
I.A.1), the regulatory developments beginning in 2025 (as described in
section I.A.2), and the public input that commenters provided to the
Crypto Task Force (as described in section I.B), we are proposing new
rules with respect to covered investment contracts.\104\
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\104\ See supra note 4 for the definition of ``covered
investment contract'' under the proposed rules.
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The proposed rules would be set forth in a new regulation titled
``Regulation Crypto Assets'' \105\ that would comprise the following
subparts:
---------------------------------------------------------------------------
\105\ See proposed 17 CFR part 228.
---------------------------------------------------------------------------
<bullet> Subpart A would contain general rules, many of which would
be applicable to all the other rules in the regulation.\106\ These
general rules are discussed in section II.A below.
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\106\ See proposed 17 CFR 228.100 through 104.
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<bullet> Subpart B would set forth an exemption from the
registration requirements of section 5 of the Securities Act \107\ for
certain offers, sales, and other distributions of covered investment
contracts during a period of up to four years (``startup
exemption'').\108\ As discussed in more detail in section II.B below,
the startup exemption would permit offerings of up to $5 million during
the four-year period.
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\107\ 15 U.S.C. 77e.
\108\ See proposed 17 CFR 228.200.
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<bullet> Subpart C would set forth an exemption from the
registration requirements of section 5 of the Securities Act that would
permit offerings of up to $75 million during each 12-month period
(``fundraising exemption'').\109\ The mechanics of the fundraising
exemption, discussed in more detail in section II.C below, would be
modeled, in large part, on Regulation A \110\ and would consist of two
tiers with distinct offering limits.
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\109\ See proposed 17 CFR 228.300 through 307.
\110\ See 17 CFR 230.251 through 263.
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<bullet> Subpart D would set forth a safe harbor from the term
``investment contract'' in the definitions of ``security'' in the
Securities Act \111\ and the Exchange Act \112\ (``investment contract
safe harbor'').\113\ As discussed in more detail in section II.D below,
if the conditions of the investment contract safe harbor are satisfied,
then a crypto asset would be deemed by the Commission not to be subject
to an investment contract for purposes of those definitions of
``security.''
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\111\ 15 U.S.C. 77b(a)(1).
\112\ 15 U.S.C. 78c(a)(10).
\113\ See proposed 17 CFR 228.400.
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<bullet> Subpart E would define ``qualified purchaser'' for
purposes of 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 issued pursuant to an exemption in Regulation Crypto Assets,
as well as certain secondary market transactions with respect to such
covered investment contracts. This proposed definition of ``qualified
purchaser'' is discussed in section II.E below.
We also are proposing new forms that issuers would file with the
Commission when relying on the exemptions and safe harbor in Regulation
Crypto Assets. In addition, we are proposing conforming amendments to
certain existing rules that would help implement the new rules in
Regulation Crypto Assets.
We invite and encourage interested parties to submit comments on
any aspect of the proposed rules. When commenting, please include the
reasoning in support of your position or recommendation and provide any
supporting documentation or data.
II. Discussion of Proposed Rules
A. Regulation Crypto Assets and General Rules (Subpart A, Rules 100
Through 104)
Under our proposal, the rules in Regulation Crypto Assets would be
set forth in part 228 of Title 17, Chapter II of the Code of Federal
Regulations (``CFR''). Consolidating all the rules into a single part
titled ``Regulation Crypto Assets'' may facilitate compliance with the
proposed rules, especially for those issuers that are less familiar
with our rules or may otherwise be unsure where the relevant rules are
located in the CFR.
Subpart A of Regulation Crypto Assets would include the following
proposed rules, each of which would be applicable to all or some of the
other rules in Regulation Crypto Assets:
<bullet> Proposed 17 CFR 228.100 (``Rule 100''), titled
``Definitions of terms used in Regulation Crypto Assets,'' would set
forth certain definitions that would apply to each of the proposed
rules in Regulation Crypto Assets as well as the related forms.
<bullet> Proposed 17 CFR 228.101 (``Rule 101''), titled ``General
provisions,'' would contain a series of provisions generally applicable
to Regulation Crypto Assets.
<bullet> Proposed 17 CFR 228.102 (``Rule 102''), titled ``Inflation
adjustment for offering limits,'' would establish a process whereby the
proposed offering limits would be adjusted for inflation on an ongoing,
predetermined basis without requiring the Commission to engage in
notice and comment rulemaking each time it makes those routine
adjustments.
<bullet> Proposed 17 CFR 228.103 (``Rule 103''), titled
``Disclosure requirements,'' would set forth principles-based
disclosure requirements that issuers would be required to satisfy under
the startup exemption and the fundraising exemption.
<bullet> Proposed 17 CFR 228.104 (``Rule 104''), titled
``Disqualification,'' would condition the availability of the startup
exemption and the fundraising exemption on the issuer and certain other
related persons and insiders not being disqualified as a ``bad actor,''
as set forth in 17 CFR 230.262(a) of Regulation A (``Rule 262(a)'').
These proposed rules are discussed below.
1. Definitions (Rule 100)
a. Background
Although defined terms are important in every new regulation, they
are particularly important for Regulation Crypto Assets for several
reasons. As a relatively novel and highly technological asset class, it
is important that terms related to crypto assets be defined clearly so
that they can be understood by all market participants, regardless of
their technological sophistication. Given the rapid pace of innovation
in the crypto asset markets, it also is important that the terms be
both accurate with respect to the current state of the technology and
sufficiently flexible to cover potential developments in the market to
avoid a need to continually revisit and update the definitions. In
addition, because the rules in Regulation Crypto Assets are intended to
be tailored to offerings with respect to a specific type of security
(i.e., covered investment contracts), it is important that they be
appropriately scoped to ensure that offerings of those securities, and
only those securities, are eligible to utilize these rules. Much of
that ``scoping'' would be accomplished through the proposed definitions
in Rule 100.
[[Page 54519]]
b. Proposed Rule
Proposed Rule 100 would set forth certain definitions that would
apply to each of the rules in Regulation Crypto Assets as well as the
related forms. The following terms would be defined in Rule 100:
<bullet> ``Aggregate offering price'' and ``aggregate sales'';
<bullet> ``Associated crypto application'';
<bullet> ``Associated crypto network'';
<bullet> ``Business day'';
<bullet> ``Covered investment contract'';
<bullet> ``Covered transaction'';
<bullet> ``Crypto asset'';
<bullet> ``Final offering circular'';
<bullet> ``Related person''; and
<bullet> ``Subject crypto asset.''
In addition, Rule 100 would provide that other than these
specifically defined terms (and unless otherwise provided), the terms
used in Regulation Crypto Assets (and in new forms, Form 1-CRYPTO, Form
1-KC, Form 1-SC, Form 1-UC, Form TR, and Form NOR, which would be
codified at 17 CFR 239.600 through 605) will have the same meanings as
in 17 CFR 230.405 (``Rule 405''), except that all references to
``registrant'' in those definitions will refer to the issuer of the
securities to be offered and sold under Regulation Crypto Assets.
The term ``aggregate offering price'' would be defined as the sum
of all cash and other consideration to be received for the covered
investment contracts being offered.\114\ The term ``aggregate sales''
would be defined as the gross proceeds for all securities sold pursuant
to other offering statements under Regulation Crypto Assets within the
12 months before the start of, and during, the current offering of
securities. When a mixture of cash and non-cash consideration is to be
received, the aggregate offering price or aggregate sales would be
based on the price at which the covered investment contracts are
offered for cash. Any portion of the aggregate offering price or
aggregate sales attributable to cash received in a foreign currency
must be translated into U.S. currency at a currency exchange rate in
effect on, or at a reasonable time before, the date of the sale of the
covered investment contracts.
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\114\ Proposed 17 CFR 228.100. The aggregate offering price or
aggregate sales would include, for example, permitted payment
stablecoins received for the covered investment contracts being
offered. Additionally, any fees paid by the investor in connection
with the offering that reduce the amount of consideration received
by the issuer would not count toward the offering limit.
Alternatively, fees incurred by the issuer that it pays with the
proceeds of the offering would not be deducted from the offering
amount for purposes of determining the aggregate offering price or
aggregate sales. These fees instead would constitute a use of
proceeds and should be described, as appropriate, in the issuer's
disclosures.
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If covered investment contracts are not offered for cash, the
aggregate offering price or aggregate sales would be based on the value
of the consideration as established by bona fide sales of that
consideration made within a reasonable time, or, in the absence of
sales, on the fair value as determined by an accepted standard.
Valuations of non-cash consideration would be required to be reasonable
at the time made. The proposed definitions generally are consistent
with the terms as defined in 17 CFR 230.501 (``Rule 501'') of
Regulation D and as used in 17 CFR 230.251 of Regulation A. The terms
are primarily used in Regulation Crypto Assets to set the offering
limits in the startup exemption and the fundraising exemption.
The term ``associated crypto application'' would be defined to
mean, with respect to a crypto asset, the smart contract or similar
executable software program that is deployed to an associated crypto
network and within which such crypto asset may be used for the
transmission or storage of value or for which the crypto asset
facilitates access or participation. This term is used throughout
Regulation Crypto Assets and is intended to capture the particular
application in which a given crypto asset can be used for various
functions.
The term ``associated crypto network'' would be defined to mean,
with respect to a crypto asset, the blockchain or similar distributed
ledger technology network on which such crypto asset is generated,
minted, or mined. This term is used throughout Regulation Crypto Assets
and is intended to capture the particular network to which a given
crypto asset is ``native'' and on which records regarding ownership of
and transactions in that crypto asset are recorded.
The term ``business day'' would be defined as any day except
Saturdays, Sundays, or Federal holidays. This proposed definition is
consistent with the definition of ``business day'' set forth in 17 CFR
230.261 of Regulation A. This term is used in several rules in
Regulation Crypto Assets, generally with respect to deadlines for
making certain filings with the Commission.
As noted above,\115\ the term ``covered investment contract'' would
be defined as a contract, transaction, or scheme that constitutes an
investment contract; provided that the investment contract must meet
the following requirements: (1) a crypto asset is subject to the
investment contract; (2) such crypto asset is not a security; and (3)
no asset other than such crypto asset (including any security or non-
security asset) is subject to the investment contract. This term is
used throughout Regulation Crypto Assets, as the startup exemption and
the fundraising exemption are available only for offers and sales of
covered investment contracts (i.e., issuers may not rely on those
exemptions with respect to offers and sales of other types of
securities \116\). Thus, to ensure that it has an appropriate scope,
the definition: (1) includes investment contracts that involve a crypto
asset,\117\ (2) excludes investment contracts that involve crypto
assets that are themselves securities (e.g., digital securities \118\),
and (3) excludes investment contracts that involve any asset other than
a non-security crypto asset.
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\115\ See supra note 4.
\116\ As discussed in note 19 above, the proposed exemptions are
tailored to covered investment contract offerings. To the extent an
issuer is seeking to conduct an offering of other types of
securities (including investment contracts that involve other types
of securities or non-security assets other than crypto assets), we
believe it would be more appropriate to use another offering
framework, such as a registered offering or an exempt offering under
Regulation A or Regulation D, that is likely better tailored to the
security being offered. For example, to the extent the security
being offered is an equity security, the existing disclosure
frameworks (which contain more issuer-focused disclosures) are more
likely to elicit material disclosures.
\117\ The term ``investment contract'' is not defined in Rule
100. Issuers and other market participants should refer to the 2026
Interpretation for guidance as to whether an investment contract
exists with respect to a crypto asset. See 2026 Interpretation at
13721. The term ``crypto asset'' is defined in Rule 100. See supra
note 3.
\118\ See supra note 52 and accompanying text.
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The term ``covered transaction'' would be defined as an offer,
sale, or other distribution of a covered investment contract in
reliance on the startup exemption, including, but not limited to: (1)
any public or private offering, including a distribution, of a covered
investment contract in one or a series of capital raising transactions;
or (2) any public or private offering, including a distribution and
transactions referred to as ``airdrops,'' \119\ of a covered investment
contract in one or a series of transactions in exchange for, in
recognition of, or as incentive for past or future use of an associated
crypto network or associated crypto application, or as a reward or
incentive for conducting activities primarily related to operating,
governing, or securing an associated crypto network or associated
crypto application.
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\119\ See infra note 200 and accompanying text for a discussion
of airdrops in the context of the startup exemption.
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[[Page 54520]]
As the proposed definition suggests, the term ``covered
transaction'' is used only in the context of the startup exemption.
While that definition would include any offer, sale, or other
distribution of a covered investment contract in reliance on the
startup exemption, it also sets forth examples of certain types of
distributions.\120\ These examples are meant to be illustrative and are
not intended to suggest that these are the only or preferred types of
offers, sales, or distributions of covered investment contracts that
can be conducted under the startup exemption.
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\120\ See infra section II.B.2 for additional discussion of the
startup exemption and the ways in which it may be used.
---------------------------------------------------------------------------
As noted in section I above,\121\ the term ``crypto asset'' would
be defined as any digital representation of value that is recorded on a
cryptographically-secured distributed ledger.\122\ This term is used
throughout Regulation Crypto Assets and dictates the scope of the
proposed rules. For example, the investment contract safe harbor is
available only with respect to investment contracts involving crypto
assets (i.e., other types of assets may not rely on that safe harbor,
even if they are subject to an investment contract \123\).
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\121\ See supra note 3.
\122\ The foregoing definition of ``crypto asset'' is identical
to the definition of ``Digital Asset'' in section (2)(6) of the
Guiding and Establishing National Innovation for U.S. Stablecoins
Act, Public Law 119-27, 139 Stat. 419 (July 18, 2025).
\123\ Courts have determined that other types of non-securities,
such as real estate, have been offered and sold subject to
investment contracts. See, e.g., Howey, 328 U.S. at 293 (real
estate); Cont'l Mktg. Corp. v. SEC, 387 F.2d 466 (10th Cir. 1967),
cert. denied, 391 U.S. 905 (1968) (beavers); Miller v. Cent.
Chinchilla Grp., Inc., 494 F.2d 414 (8th Cir. 1974) (chinchillas);
Glen-Arden Commodities v. Costantino, 493 F.2d 1027 (2nd Cir. 1974)
(Scotch whisky warehouse receipts).
---------------------------------------------------------------------------
The term ``crypto asset'' is embedded in the definition of
``covered investment contract,'' and, as previously noted in this
section, the startup exemption and the fundraising exemption are
available only for offers and sales of covered investment contracts.
Thus, to ensure that Regulation Crypto Assets has an appropriately
limited scope, the definition would include only those assets for which
the relevant technology (i.e., cryptographically-secured distributed
ledger) is a necessary feature.
As noted below,\124\ ``final offering circular'' means, if the
issuer is not relying on proposed 17 CFR 228.302(b) (``Rule 302(b)''),
the more recent of: (1) the current offering circular contained in a
qualified offering statement; and (2) any offering circular filed
pursuant to proposed 17 CFR 228.302(f) (``Rule 302(f)'').\125\ If,
however, the issuer is relying on Rule 302(b), the final offering
circular is the more recent of: (1) the offering circular filed
pursuant to Rule 302(f)(1) or (3); and (2) any subsequent offering
circular filed pursuant to Rule 302(f). This term is consistent with
its definition in 17 CFR 230.261(e) of Regulation A and is used
throughout the fundraising exemption.\126\
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\124\ See infra section II.C.2.a.iii.
\125\ See proposed 17 CFR 228.302(f) (requiring, among other
things, an issuer to file an offering circular supplement disclosing
information previously omitted from the offering circular).
\126\ The terms ``offering statement'' and ``preliminary
offering circular'' also are defined in 17 CFR 230.261 for purposes
of Regulation A. Although those terms also are used in the
fundraising exemption, we believe they are sufficiently self-
explanatory such that it is unnecessary to define them for purposes
of the fundraising exemption.
---------------------------------------------------------------------------
The term ``related person'' would mean, with respect to an issuer:
founders, promoters, employees, affiliates, and any person that is a
director, officer, trustee, consultant, contractor, or advisor to the
issuer, in each case together with any immediate family member. This
term is used in proposed Rule 103 (``Disclosure requirements''). The
definition is intended to include any person that may be viewed as an
``insider'' of the issuer to ensure that investors are adequately
protected and informed (via the disclosure requirements in the proposed
rule) about those who are in the best position to influence the outcome
of the project.
Finally, the term ``subject crypto asset'' would be defined as a
crypto asset that is subject to a covered investment contract. This
definition is intended to reflect a key principle: for purposes of
Regulation Crypto Assets, the ``security'' at issue is the covered
investment contract (to which the subject crypto asset is subject)
rather than the crypto asset itself.\127\ Information regarding the
subject crypto asset, however, is likely to be material to an
investment decision in an offering of covered investment contracts.
Thus, the term ``subject crypto asset'' is referred to throughout Rule
103 (``Disclosure requirements'').
---------------------------------------------------------------------------
\127\ See 2026 Interpretation at 13717.
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Request for Comment
1. Should we adopt Rule 100 as proposed?
2. Are there any defined terms that we either should not adopt or
should change in the final rules? If so, please identify those defined
terms along with any recommended changes to the definitions.
3. Are there additional terms used in Regulation Crypto Assets that
we should define?
4. Does the proposed definition of ``associated crypto network''
appropriately capture the particular network to which a given crypto
asset is ``native'' and on which records regarding ownership and
transactions in that crypto asset are recorded?
5. Does the definition of ``covered investment contract'' scope in
the appropriate population of securities? If not, what scope would be
more appropriate?
6. The definition of ``covered investment contract'' would exclude
investment contracts that involve crypto assets that are securities or
any other type of asset other than a non-security crypto asset. Should
we instead adopt a definition of ``covered investment contract'' that
would permit investment contracts involving assets other than a non-
security crypto asset to constitute a ``covered investment contract''
so long as they also involve non-security crypto assets? \128\ If so,
should the portion of the covered investment contract that relates to
the other type of asset be able to rely on the proposed exemptions, or
should the issuer have to seek another exemption for that portion of
the covered investment contract?
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\128\ This could include, for example, a single investment
contract that contemplates the sale of both a crypto asset and a
share of the issuer's stock.
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7. Would permitting other types of assets to be considered part of
a ``covered investment contract'' have implications for the proposed
approach for determining the number or purchase price of covered
investment contracts and the required disclosures about the underlying
assets in Rule 103(b)? If the rules permitted other types of assets to
be considered part of a ``covered investment contract,'' should there
be a percentage limit on the portion of the covered investment contract
that relates to other types of assets and, if so, what would be an
appropriate percentage limit?
8. Are the definitions of ``crypto asset,'' ``associated crypto
application,'' and ``associated crypto network'' both technologically
accurate today and flexible enough to accommodate technological
developments in the future? Are there other definitions of these terms
that we should use? Given how fundamental the term ``crypto asset'' is
to this proposal, is there a more specific definition we should
consider? Is the definition too narrow or too broad?
9. Do the proposed definitions of ``aggregate offering price'' and
[[Page 54521]]
``aggregate sales'' reflect appropriate methodologies for determining
the offering limits under the startup exemption and the fundraising
exemption? If not, what would be a more appropriate methodology? Should
these definitions provide greater specificity about how to convert cash
received in a foreign currency? For example, should we prescribe a
specific date and/or method of conversion? Should the issuer be
required to disclose the manner in which it converted the cash received
in a foreign currency?
10. As noted previously in this section, if covered investment
contracts are not offered for cash, the aggregate offering price or
aggregate sales would be based on the value of the consideration as
established by bona fide sales of that consideration made within a
reasonable time, or, in the absence of sales, on the fair value as
determined by an accepted standard. Should we establish a required
standard for determining fair value under Regulation Crypto Assets? If
not, why not? If so, what should that standard be? Should the standard
be U.S. Generally Accepted Accounting Principles (``U.S. GAAP'')?
Should the rule provide a list of permitted standards?
11. Does the proposed definition of ``related person'' cover the
appropriate scope of persons that may be viewed as insiders of the
issuer and therefore should be subject to the relevant disclosure
requirements in proposed Rule 103?
2. General Provisions (Rule 101)
a. Background
Many of the Commission's existing offering exemptions--including
Regulation A, Regulation D, and Regulation Crowdfunding--contain
general provisions that apply to the regulations as a whole and have
various functions, including clarifying the scope of the regulations,
the applicable liability standards, and general requirements or
conditions to relying on the exemptions, among other things. Regulation
Crypto Assets would include several of these general provisions,
consistent with other offering exemptions. To facilitate compliance, we
are proposing to consolidate these general provisions in Rule 101.
b. Proposed Rule
Rule 101 would set forth the following provisions: Rule 101(a)
(``Non-exclusive''), Rule 101(b) (``Integration''), Rule 101(c)
(``Electronic filing''), Rule 101(d) (``Insignificant deviations''),
and Rule 101(e) (``Number of units and price per unit'').
Rule 101(a) would provide that attempted compliance with any
exemption or safe harbor in Regulation Crypto Assets would not act as
an exclusive election.\129\ That is, an issuer that elects to avail
itself of Regulation Crypto Assets would not be precluded from claiming
the availability of any other exemption from section 5 of the
Securities Act or a safe harbor for which it meets the requirements.
This provision is consistent with other non-exclusivity provisions in
our existing safe harbors and exemptions, including 17 CFR 230.144A and
17 CFR 230.500(c) of Regulation D. It is intended to clarify that the
startup exemption, the fundraising exemption, and the investment
contract safe harbor all are non-exclusive provisions and that an
issuer may rely on one or more of these provisions while also relying
on other exemptions or safe harbors in our rules (including existing
exemptions and safe harbors or others within Regulation Crypto
Assets).\130\
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\129\ Proposed 17 CFR 228.101(a).
\130\ An issuer's ability to rely on several exemptions or safe
harbors assumes that the requirements of each separate exemption or
safe harbor are satisfied. To the extent the issuer is relying on
several exemptions either at the same time or in close proximity,
the issuer also would have to ensure that it does not run afoul of
the integration doctrine. See Facilitating Capital Formation and
Expanding Investment Opportunities by Improving Access to Capital in
Private Markets, Release No. 33-10884 (Nov. 2, 2020) [86 FR 3496,
3499 (Jan. 14, 2021)] (``Facilitating Capital Formation Release'')
(``The integration doctrine seeks to prevent an issuer from
improperly avoiding registration by artificially dividing a single
offering into multiple offerings such that Securities Act exemptions
would apply to the multiple offerings that would not be available
for the combined offering.''). We discuss the integration doctrine
with respect to Regulation Crypto Assets below, in the context of
Rule 101(b).
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Rule 101(b) would provide that issuers should refer to 17 CFR
230.152 (``Rule 152'') to determine whether offers and sales should be
integrated.\131\ This rule mirrors other rules in our existing
exemptions, including 17 CFR 227.100(e) of Regulation Crowdfunding, 17
CFR 230.251(c) of Regulation A, and 17 CFR 230.502(a) of Regulation D.
As with those provisions, this proposed rule is intended to remind
issuers of the applicability of the integration doctrine and Rule 152
if they are contemplating an offering under one or more of the
exemptions in Regulation Crypto Assets as well as other offerings under
the Securities Act.\132\ We also are proposing conforming amendments to
Rules 152(c) and (d) to clarify when an offering under an exemption in
Regulation Crypto Assets has been deemed to have commenced and when it
has been deemed to have been terminated or completed, consistent with
Rule 152's treatment of existing exemptions (including offerings under
Regulation Crowdfunding, Regulation A, and Regulation D).
---------------------------------------------------------------------------
\131\ See proposed 17 CFR 228.101(b).
\132\ See Facilitating Capital Formation Release at 3517.
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Rule 101(c) would require documents filed or otherwise provided to
the Commission pursuant to Regulation Crypto Assets to be submitted in
electronic format by means of the Commission's Electronic Data
Gathering, Analysis, and Retrieval system (``EDGAR'') in accordance
with the electronic filing rules set forth in 17 CFR part 232
(``Regulation S-T'').\133\ This rule is consistent with 17 CFR
230.251(f) of Regulation A and is intended to ensure that issuers and
investors alike benefit from the efficiencies associated with
electronic filing on EDGAR.\134\ We also are proposing conforming
amendments to 17 CFR 232.101(a)(1) to reflect this mandatory electronic
filing requirement with respect to filings made under Regulation Crypto
Assets.\135\
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\133\ See proposed 17 CFR 228.101(c).
\134\ See, e.g., Amendments for Small and Additional Issues
Exemptions Under the Securities Act (Regulation A), Release No. 33-
9741 (Mar. 25, 2015) [80 FR 21806, 21822 (Apr. 20, 2015)] (``2015
Regulation A Release'') (``We believe the approach to electronic
filing adopted today will be both practical and useful for issuers
of Regulation A securities, investors in such securities, and other
market participants. Issuers will be able to maintain better control
over their filing process, reduce the printing costs associated with
filings, obtain immediate confirmation of acceptance of an offering
statement, and ultimately save time in the qualification process.
Investors will gain real-time access to the information contained in
Regulation A filings.'').
\135\ See proposed 17 CFR 232.101(a)(1)(xxxix).
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Rule 101(d) would provide that failure to comply with a term,
condition, or requirement of Regulation Crypto Assets would not result
in the loss of any exemption under Regulation Crypto Assets for any
offer or sale to a particular individual or entity, if the person
relying on the exemption establishes that: (i) the failure to comply
did not pertain to a term, condition, or requirement directly intended
to protect that particular individual or entity; (ii) the failure to
comply was insignificant with respect to the offering as a whole; \136\
and (iii) a good-faith and
[[Page 54522]]
reasonable attempt was made to comply with all applicable terms,
conditions, and requirements of Regulation Crypto Assets.\137\ This
rule is generally consistent with other rules in our existing
exemptions, including 17 CFR 227.502 of Regulation Crowdfunding, 17 CFR
230.260 of Regulation A, and 17 CFR 230.508 of Regulation D. As with
those provisions, this proposed rule is intended to allow for certain
insignificant deviations that can occur in the offering process without
causing the issuer to lose the exemption and incur the related
consequences.\138\
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\136\ Whether a deviation from the Regulation Crypto Assets
requirements would be insignificant to the offering would depend on
the facts and circumstances of the offering and the deviation. See,
e.g., Crowdfunding, Release No. 33-9974 (Oct. 30, 2015) [80 FR
71387, 71475 (Nov. 16, 2015)] (``Crowdfunding Adopting Release'').
As noted below, proposed Rule 101(d) is modeled after similar
provisions in existing exemptions, and those provisions specify
certain deviations that would be significant. See, e.g., 17 CFR
230.260 (providing that, for purposes of Regulation A, ``any failure
to comply with Rule 251(a), (b), and (d)(1) and (3) . . . shall be
deemed to be significant to the offering as a whole''). We are not
specifying such significant deviations in Rule 101(d) because we
believe it is appropriate to assess each particular deviation based
on its particular facts and circumstances.
\137\ See proposed 17 CFR 228.101(d)(1). The rule also would
provide that a transaction made in reliance upon an exemption under
Regulation Crypto Assets must comply with all applicable terms,
conditions, and requirements of the exemption. See proposed 17 CFR
228.101(d)(2). Where an exemption is established only through
reliance upon Rule 101(d)(1), the failure to comply is nonetheless
actionable by the Commission under section 20 of the Securities Act.
See id. Finally, the rule would provide that Rule 101(d)(1) does not
preclude the Commission from bringing an enforcement action seeking
any appropriate relief or a proceeding under proposed 17 CFR 228.306
for an issuer's failure to comply with all applicable terms,
conditions, and requirements of Regulation Crypto Assets. See
proposed 17 CFR 228.101(d)(3).
\138\ See, e.g., Crowdfunding Adopting Release at 71474.
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Finally, Rule 101(e) would specify how to determine the number of
units of covered investment contracts and the price per unit of a
covered investment contract. That rule would provide that, for purposes
of determining the number of units of covered investment contracts as
required by any rule or form in Regulation Crypto Assets, one unit of a
covered investment contract would be equivalent to one unit of the
subject crypto asset. Similarly, the price per unit of a covered
investment contract as required by any rule or form in Regulation
Crypto Assets should be determined by reference to the price per unit
of the subject crypto asset. The rule also would set forth, as an
instruction, an illustrative example stating that if an issuer sells a
covered investment contract to an investor for $100, and the covered
investment contract contemplates that the issuer will distribute 10
units of the subject crypto asset to the investor, then at the time of
the sale of the covered investment contract, the investor is deemed to
have purchased 10 units of the covered investment contract at a price
of $10 per unit of covered investment contract. We believe that
specifying how to measure the number of units of covered investment
contracts and determine the price per unit of a covered investment
contract would facilitate compliance and provide clarity for market
participants.
Request for Comment
12. Should we adopt Rule 101 as proposed?
13. The provisions in proposed Rule 101 would be similar to the
general provisions in several of our existing offering exemptions. Are
there any provisions in Rule 101 that we either should not adopt or
that we should change in the final rules? If so, please identify those
provisions along with any recommended changes to the provisions or an
explanation as to why those provisions should not be adopted.
14. Are there any other general provisions that should apply to
Regulation Crypto Assets? Should any of the proposed general provisions
not apply to one or more of the proposed exemptions or the safe harbor
in Regulation Crypto Assets?
15. Should we adopt Rule 101(a) as proposed? Alternatively, should
any of the proposed exemptions or the safe harbor in Regulation Crypto
Assets act as an exclusive election?
16. Would Rule 101(b) be helpful to remind issuers of the
applicability of the integration doctrine and Rule 152? For example,
would Rule 101(b)'s reference to Rule 152 provide clarity regarding
when offers and sales conducted pursuant to the exemptions in
Regulation Crypto Assets will be integrated?
17. Does Rule 101(c)'s reference to the requirements of Regulation
S-T help to clarify issuers' electronic filing obligations?
18. Should Rule 101(d) deem the failure to comply with any
particular rule in Regulation Crypto Assets to be significant to the
offering as a whole? If so, which rules should be identified in Rule
101(d)?
19. Should we specify how to measure the number of units of covered
investment contracts and determine the price per unit of a covered
investment contract as proposed in Rule 101(e)? Is the proposed method
of determining the number of units of covered investment contracts
appropriate? If not, what would be a better method? Should the price
per unit of a covered investment contract be determined by reference to
the price per subject crypto asset, as proposed? If not, how should the
price per unit be determined?
3. Inflation Adjustment for Offering Limits (Rule 102)
a. Background
As discussed in more detail in sections II.B and II.C, the startup
exemption and the fundraising exemption each contain offering limits.
Those limits are expressed in dollar amounts and reflect our
preliminary determination about amounts that would be appropriate to
meet issuers' capital raising needs while maintaining adequate investor
protections. Those amounts are based on the specific purposes of each
exemption as well as current economic and market conditions. We
recognize, however, that over time, the efficacy of those dollar limits
could be diluted as a result of the effects of inflation. We are
proposing Rule 102 to address this possibility by setting up a
streamlined process for future inflation adjustments.
b. Proposed Rule
Under Rule 102, the Commission would periodically, but not less
than once every five years,\139\ adjust the offering amount limitations
in the startup exemption and the fundraising exemption to reflect any
changes in the Consumer Price Index for All Urban Consumers published
by the Bureau of Labor Statistics of the Department of Labor.\140\ This
proposed rule is intended to establish a process whereby the proposed
offering limits would be adjusted on an ongoing, predetermined basis to
maintain their current effectiveness without requiring the Commission
to engage in notice-and-comment rulemaking each time it makes those
routine adjustments. We would expect to implement the adjustment via a
direct-to-final rulemaking. If the Commission desired to make other
adjustments to the offering limits, such as lowering the limits or
raising them
[[Page 54523]]
beyond the effects of inflation, it could do so at any time through
notice-and-comment rulemaking.
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\139\ For consistency with Titles I and III of the Jumpstart Our
Business Startups Act (``JOBS Act''), Public Law 112-106, 126 Stat.
306 (2012), we are proposing that the Commission adjust the offering
amount limitations every five years in manner consistent with the
adjustment for emerging growth companies, see 15 U.S.C. 77b(a)
(Securities Act section 2(a)(19)) and 15 U.S.C. 78c(a) (Exchange Act
section 3(a)(80)), and Regulation Crowdfunding companies, see 15
U.S.C. 77d(a)(6) (Securities Act section 4(a)(6)) and 15 U.S.C. 77d-
1(h)(1) (Securities Act section 4A(h)(1)). See also Inflation
Adjustment under Titles I and III of the JOBS Act, Release No. 33-
11098 (Sept. 9, 2022) [87 FR 57394 (Sept. 20, 2022)].
\140\ See proposed 17 CFR 228.102. The Consumer Price Index for
All Urban Consumers is the statistical metric developed by the
Bureau of Labor Statistics of the Department of Labor to monitor the
change in the price of a set list of products. This index represents
changes in prices of all goods and services purchased for
consumption by urban households. See ``Consumer Price Index,''
available at <a href="https://bls.gov/cpi">https://bls.gov/cpi</a>.
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Request for Comment
20. Should we adopt Rule 102 as proposed?
21. Are there any portions of Rule 102 that we either should not
adopt or that we should change in the final rules? If so, please
identify those portions of the rule along with any recommended changes.
22. Would it be more appropriate for the Commission to consider ad
hoc adjustments to the offering limits through notice-and-comment
rulemaking rather than establishing an ongoing, predetermined basis for
making such adjustments?
23. Is the proposed frequency of the Commission's adjustments under
this rule (periodically, but no less than once every five years)
appropriate? Should these adjustments occur more or less frequently?
24. Should the Commission adjust the offering limits to reflect
factors other than, or in addition to, changes in the Consumer Price
Index for All Urban Consumers? If so, what other factors would be
appropriate to consider?
25. Is the proposed rule's reference to ``changes in the Consumer
Price Index for All Urban Consumers published by the Bureau of Labor
Statistics of the Department of Labor'' an appropriate measure for
inflation? If not, what other measure(s) should we use?
4. Disclosure Requirements (Rule 103)
a. Background
A prominent theme in submissions to the Crypto Task Force as well
as other public commentary is that the Commission's existing disclosure
requirements do not elicit the types of information that are likely to
be material to investors in covered investment contracts.\141\ This
includes the disclosure requirements in 17 CFR part 229 (``Regulation
S-K'') \142\ and Form 1-A.\143\ In the past, the Commission has adopted
Regulation S-K subparts tailored to specific types of issuers and
transactions, such as Regulation M-A (mergers and acquisitions),\144\
Regulation AB (asset-backed securities),\145\ subpart 1200 (oil and gas
producing activities),\146\ subpart 1300 (mining operations),\147\
subpart 1400 (banks and savings and loans),\148\ and subpart 1600
(Special Purpose Acquisition Companies).\149\ To date, however, the
Commission has not considered amendments to disclosure requirements
specifically applicable to offerings of covered investment contracts.
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\141\ See, e.g., letters from a16z 2; a16z 3; AIMA; Anderson;
Broadridge; L. Cohen; Coinbase; CoinList; Zack Dane (Feb. 23, 2025)
(``Z. Dane''); Figure Markets; CrowdCheck Law; J. Kim; OpenZeppelin
(Apr. 16, 2025) (``OpenZeppelin''); G. Shapiro; SIFMA 2; TDC 2;
tZero Group, Inc. (Mar. 5, 2025) (``tZero''); see also LeXpunK,
Regulation X Proposal: An Exempt Offering Framework for Token
Issuances (Apr. 25, 2022) (``LeXpunK Regulation X Proposal''),
available at <a href="https://github.com/LeXpunK-Army/Reg-X-Proposal-An-Exempt-Offering-Framework-for-Token-Issuances/blob/main/Lexpunk%20Reg%20X%20Proposal%20FINAL%20">https://github.com/LeXpunK-Army/Reg-X-Proposal-An-Exempt-Offering-Framework-for-Token-Issuances/blob/main/Lexpunk%20Reg%20X%20Proposal%20FINAL%20</a>(4.25).pdf; Justin Slaughter,
Katie Biber, and Rodrigo Seira, The Current SEC Disclosure Framework
Is Unfit for Crypto (Apr. 20, 2023), available at <a href="https://paradigm.xyz/2023/04/secs-path-to-registration-part-iii">https://paradigm.xyz/2023/04/secs-path-to-registration-part-iii</a>.
\142\ Regulation S-K was created as part of the integrated
disclosure initiative to be the repository for the non-financial
statement disclosure to be included in Securities Act registration
statements and Exchange Act periodic reports. See Adoption of
Integrated Disclosure System, Release No. 33-6383 (Mar. 3, 1982) [47
FR 11380 (Mar. 16, 1982)]; see also U.S. Securities and Exchange
Commission, Report on Review of Disclosure Requirements in
Regulation S-K (Dec. 2013), available at <a href="https://sec.gov/news/studies/2013/reg-sk-disclosure-requirements-review.pdf">https://sec.gov/news/studies/2013/reg-sk-disclosure-requirements-review.pdf</a>.
\143\ Form 1-A sets forth the form and content requirements
included in Regulation A offering statements. See Form 1-A,
Regulation A Offering Statement Under the Securities Act of 1933,
available at <a href="https://sec.gov/files/form1a.pdf">https://sec.gov/files/form1a.pdf</a>.
\144\ See 17 CFR 229.1000 through 17 CFR 229.1016.
\145\ See 17 CFR 229.1100 through 17 CFR 229.1125.
\146\ See 17 CFR 229.1200 through 17 CFR 229.1208.
\147\ See 17 CFR 229.1300 through 17 CFR 229.1305.
\148\ See 17 CFR 229.1400 through 17 CFR 229.1406.
\149\ See 17 CFR 229.1600 through 17 CFR 229.1610.
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Several commenters expressed concern that the Commission's existing
disclosure requirements are ``inflexible,'' requiring disclosure on
topics that are not applicable or relevant to offerings of covered
investment contracts.\150\ Commenters also stated that existing
disclosure frameworks do not elicit disclosure on a number of topics
that are relevant to investors in covered investment contract
offerings, including the technical, governance, and economic
characteristics of crypto assets; description of the project; crypto
asset allocations, liquidity, and tradability; crypto asset and network
security; and unique technological, market, and redemption risks.\151\
In sum, the existing disclosure frameworks, when applied to covered
investment contract offerings, may compel issuers to incur the costs of
providing ultimately immaterial disclosures while, at the same time,
failing to provide investors consistently with the types of information
most important to their investment decisions. To address these
concerns, we are proposing disclosure principles that are intended to
be tailored to covered investment contract offerings and provide
investors in these offerings with the information they need to make
informed investment decisions.
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\150\ See supra section I.B.3; see also letter from a16z 3
(stating that ``line item disclosures called for by the relevant
forms and by Regulation S-K and Regulation S-X may not always be
material to purchasers of crypto assets'' and ``Regulation A's
disclosure framework is modeled on traditional corporate equity
offerings and is not well suited to address the unique features of
certain crypto assets'').
\151\ See, e.g., letters from a16z 3 (stating that flexible,
principles-based disclosure ``would result in more concise,
actionable disclosures that better promote informed decision-making
and investor protection''); CfPA; GDCA; OpenZeppelin (recommending
disclosure of third-party security audits and the methodology used
in those audits); SIFMA 2; TDC 2.
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In developing the proposed disclosure requirements in Rule 103, we
have considered a broad range of sources. The proposed requirements
were informed, in part, by the Division of Corporation Finance's April
2025 statement titled, ``Offerings and Registrations of Securities in
the Crypto Asset Markets,'' which ``reflect[ed] [the staff's]
observations regarding disclosures provided in response to existing
disclosure requirements.'' \152\ We also considered recommendations in
academic research, public commentary, and crypto asset safe harbor
proposals from market participants.\153\ Finally, a number of
commenters, in their written input to the Crypto Task Force, included
detailed discussion of evolving disclosure best practices and
recommendations for disclosure tailored to issuers and offerings of
covered investment contracts.\154\
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\152\ See CF Disclosure Statement, supra note 38.
\153\ See Chris Brummer, Trevor I. Kiviat, and Jai Massari, What
Should Be Disclosed in an Initial Coin Offering?, in Brummer, ed.,
Cryptoassets: Legal, Regul., and Monetary Persps. (2019); Chris
Brummer, Disclosure, Dapps, and DeFi, 5 Stan. J. Blockchain L. &
Pol'y 137 (2022); Chris Brummer, A Developer Theory of Disclosure
(Spring 2025) available at <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5137972">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5137972</a>; LeXPunK Regulation X Proposal, supra
note 141.
\154\ See, e.g., letters from a16z 3; AIMA; CfPA; Coinbase;
GDCA; SIFMA 2; TDC 2.
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Some common themes emerged from those external perspectives.
Notably, there appeared to be some consensus regarding the key
categories of information that should be required under a tailored
disclosure regime, including information about the following: (1) the
covered investment contract offering; (2) management, related persons,
and other ``material
[[Page 54524]]
participants''; (3) the associated crypto network or associated crypto
application, including the plan of development and the intended
architecture, network protocols and functionality, and security and
source code; (4) the subject crypto asset, including total supply,
distribution, and lockup information; (5) the governance of the
associated crypto network or associated crypto application; (6) the
subject crypto asset's economics and its ``ecosystem''; and (7) the
material risks relating to the covered investment contract, the subject
crypto asset, and associated crypto network or application. Proposed
Rule 103 is intended to reflect these key categories as well as
additional issuer-, security-, and offering-level information that we
believe is necessary to help ensure investors in a covered investment
contract offering are appropriately informed.
b. Proposed Rule
Based on the above considerations, Rule 103 would set forth
principles-based disclosure requirements with respect to offerings of
covered investment contracts. We believe these disclosure requirements
would: (1) elicit material information for investors in these
offerings, (2) result in disclosures that are appropriately tailored to
reflect covered investment contract issuers' particular facts and
circumstances, (3) help investors compare covered investment contracts
and covered investment contract offerings, and (4) generally reduce
disclosure costs and compliance burdens (as compared to covered
investment contract issuers' costs and burdens when trying to comply
with existing disclosure requirements).
Rule 103(a) would set forth general disclosure principles that
issuers should follow when responding to the disclosure requirements in
Rule 103(b). Rule 103(a) would state that information provided under
Regulation Crypto Assets should be tailored to the issuer, the subject
crypto asset, and the associated crypto network or associated crypto
application and should be presented in clear, concise, and
understandable language, without overly relying on technical
terminology or jargon.\155\ When preparing this information, each
issuer would be required to tailor its disclosure based on its own
facts and circumstances. Information provided would also be required to
address the current stage of development of the issuer, the subject
crypto asset, and the associated crypto network or associated crypto
application and should clearly delineate any forward-looking or future
plans of development. Information provided would be required to be
consistent with the issuer's public statements in its established
public communication channels (such as its website or official social
media accounts) and promotional materials (such as whitepapers \156\)
relating to material aspects of the issuer, the subject crypto asset,
and the associated crypto network or associated crypto application.
Finally, disclosure would not be required to be provided where a
particular disclosure requirement is not applicable, or responsive
information is unknown or not reasonably available.
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\155\ See proposed 17 CFR 228.103(a).
\156\ The term ``whitepaper'' generally refers to a document
that describes the technical aspects of a crypto asset project
(i.e., a crypto asset and the associated crypto network or
associated crypto application) along with other relevant details.
See President's Working Group Report at 31 (``Projects often
disclose how their token issuance process occurs in their
whitepaper, which describes technical aspects of the project,
contractual rights of the token holders, and other pertinent
details.'').
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Rule 103(b) would set forth the disclosure requirements that
issuers would be required to comply with when relying on the startup
exemption or the fundraising exemption.\157\ These disclosure
requirements would cover non-financial, narrative information relating
to the key aspects of a covered investment contract offering. The
disclosure requirements would be organized into the following topics:
(1) covered investment contract; (2) offering; (3) subject crypto
asset; (4) management, related persons, and conflicts of interest; (5)
associated crypto network/application; plan of development; (6)
security; source code; (7) subject crypto asset economics and
allocation; (8) governance; (9) subject crypto asset ecosystem; and
(10) risk factors.\158\ Each of those topics is discussed in more
detail below.
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\157\ See proposed 17 CFR 228.103(b).
\158\ Information regarding the issuer will be included in Form
NOR for issuers relying on the startup exemption and in Part II of
Form 1-CRYPTO for issuers relying on the fundraising exemption.
Descriptions of proposed Form NOR and proposed Form 1-CRYPTO would
be codified at 17 CFR 239.605 and 17 CFR 239.600, respectively. See
infra section II.B for a more detailed discussion of the startup
exemption and Form NOR. See infra section II.C for a more detailed
discussion of the fundraising exemption and Form 1-CRYPTO.
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In addition, as noted previously in this section, the disclosure
requirements in Rule 103(b) would be principles-based requirements.
That is, the rule would require the issuer to describe the material
aspects of the applicable topic without specifying detailed information
that must be provided.\159\ This principles-based approach is intended
to give issuers the flexibility to tailor the disclosure to their
particular facts and circumstances (and avoid compelling disclosure of
irrelevant information) while still eliciting material information for
investors. It also is intended to provide sufficient flexibility so
that the proposed rules can accommodate potential future developments
in the crypto asset markets and thereby avoid the need for the
Commission to continually revisit and update the disclosure
requirements.
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\159\ In contrast to some of the other subparagraphs, Rules
103(b)(1) and (2) would enumerate certain information that an issuer
must describe with respect to the covered investment contract and
the offering. These enumerated items represent key details that we
believe are necessary for investors to make informed investment
decisions about the covered investment contract and the offering.
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We recognize that some market participants may prefer a different
approach with respect to the proposed disclosure requirements. For
example, some investors may prefer more prescriptive disclosure
requirements that give issuers less flexibility but elicit more
consistent and comparable disclosures. In addition, notwithstanding the
flexibility provided by the principles-based approach, some issuers may
prefer that we set forth detailed disclosure requirements to help them
more easily determine what information they must provide. Although we
believe our proposed requirements strike the appropriate balance, we
seek comment on potential alternative approaches, including replacing
the principles-based approach with more prescriptive disclosure
requirements or, alternatively, supplementing the principles-based
requirements with non-exclusive examples of disclosure that may be
responsive.
i. Paragraph (b)(1)--Covered Investment Contract
Rule 103(b)(1) would require the issuer to provide a description of
the material terms of the covered investment contract, including the
issuer's representations or promises to engage in essential managerial
efforts under the covered investment contract and its progress with
respect to such representations or promises, a purchaser's obligations
under the covered investment contract, any conditions to the covered
investment contract, and any other material terms. Because the covered
investment contract would be the security being offered under these
exemptions, it is important for issuers to provide
[[Page 54525]]
investors with information about the material terms of that security.
In addition, because the existence of the covered investment
contract depends on the issuer's representations or promises to engage
in essential managerial efforts,\160\ we believe that requiring
disclosure of these representations or promises may help investors and
other market participants determine the circumstances under which the
covered investment contract may cease to exist. Furthermore, requiring
the issuer to provide disclosure regarding its progress with respect to
such representations or promises will help investors and other market
participants assess, on an ongoing basis, the likelihood that the
issuer will satisfy those representations or promises. We also expect
issuers may refer to this disclosure in determining whether they have
satisfied the conditions of the investment contract safe harbor,
including pursuant to their transition report obligations under the
startup exemption and the fundraising exemption.
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\160\ See 2026 Interpretation at 13721-22.
---------------------------------------------------------------------------
In the 2026 Interpretation, the Commission provided guidance
regarding the types of efforts that may be regarded as essential
managerial efforts. For example, the Commission noted that
representations or promises by an issuer conveyed to purchasers to
develop and achieve functionality for a non-security crypto asset and/
or develop an associated crypto network or associated crypto
application together with a business plan containing detailed
milestones, a timeline, information about personnel, sources of funding
and other resources needed to meet those milestones, and an explanation
of how holders of the non-security crypto asset will profit from those
efforts, likely would create a reasonable expectation of profits
because they speak directly to those essential managerial efforts that
affect the failure or success of the project.\161\ In contrast, the
Commission stated that representations or promises that are vague or
contain no semblance of an actionable business plan, such as those
lacking milestones, funding, or other plans for needed resources,
likely would not create a reasonable expectation of profits.\162\
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\161\ See id. at 13721-22.
\162\ See id.
---------------------------------------------------------------------------
We further note that an issuer may make other representations or
promises to take certain actions that would not constitute essential
managerial efforts. For example, once an issuer has satisfied its
representations or promises to engage in essential managerial efforts
under the covered investment contract, the associated crypto network or
associated crypto application may be functional. Once such network or
application is functional, it is our view that services to secure,
maintain, improve, or enhance such a network or application or its
functionality, or to facilitate network effects, whether through
sponsoring or funding development projects or other similar activities,
would not constitute essential managerial efforts. As a result, any
representations or promises (whether by the issuer or another party) to
provide or continue to provide or arrange for the provision of such
services after the network or application is functional would not
satisfy the Howey test. In this regard, rather than deriving its value
from the essential managerial efforts of the issuer, the relevant
crypto asset should derive its value from the programmatic operation of
the associated crypto network or associated crypto application, as well
as the market's supply and demand dynamics with respect to such crypto
asset. Moreover, after the associated crypto network or associated
crypto application is functional, and the crypto asset can be used in
accordance with the programmatic utility of such network or
application, such services (whether provided or coordinated by the
issuer or another party) would no longer be among the undeniably
significant ones because they would not affect the failure or success
of the associated crypto network or associated crypto application.
Rather, the activities of and contributions made by many parties
(including, for example, the issuer, other developers, validators and/
or miners, liquidity providers, users, and holders of the crypto asset)
would affect the failure or success of the associated crypto network or
associated crypto application after such network or application is
functional. Prior to functionality, however, such services are provided
or coordinated by the issuer and likely constitute essential managerial
efforts.
ii. Paragraph (b)(2)--Offering
Rule 103(b)(2) would require the issuer to provide a description of
the material terms of the offering, including:
<bullet> The number of units of covered investment contracts to be
offered, the purchase price per unit (or how the purchase price per
unit will be determined),\163\ the duration of the offering period, and
any qualifications for or restrictions on purchasers in the offering;
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\163\ See proposed 17 CFR 228.101(e) (specifying how to
determine the number of units of covered investment contracts and
the price per unit of a covered investment contract).
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<bullet> Any material agreements in furtherance of the distribution
of covered investment contracts in the offering;
<bullet> The estimated net offering sale proceeds and expenses to
be paid with the offering proceeds;
<bullet> The intended use of proceeds from any sales in the
offering; and
<bullet> The website address at which any whitepapers or other
offering materials that the issuer prepared or distributed, either
publicly or to prospective purchasers in connection with the offering,
are publicly accessible, free of charge.\164\
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\164\ See proposed 17 CFR 228.103(b)(2).
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As noted in section II.A.4.a above, we believe this is fundamental
information regarding the offering that should be provided to investors
to support their ability to make a well-informed investment decision.
iii. Paragraph (b)(3)--Subject Crypto Asset
Rule 103(b)(3) would require the issuer to provide a description of
the name and the material aspects of the subject crypto asset.\165\ We
expect that the value of the covered investment contract that is being
offered and sold often will depend, in large part, on investors'
perception of the subject crypto asset. Thus, the proposed rule seeks
to elicit material information regarding the subject crypto asset so
that an investor can make an informed investment decision with respect
to the covered investment contract.
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\165\ See proposed 17 CFR 228.103(b)(3).
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iv. Paragraph (b)(4)--Management, Related Persons, and Conflicts of
Interest
Rule 103(b)(4) would require the issuer to provide a description
of: (i) the material aspects of the issuer's management and related
persons; (ii) the material aspects of any conflicts of interest or
related person transactions involving the issuer; and (iii) whether
related persons are subject to any transfer or resale restriction(s)
with respect to the covered investment contract or subject crypto asset
and, if so, the material terms of such restriction(s).\166\ As noted in
section II.A.4.a above, information about management, related persons,
and other ``material participants'' is one of the key categories of
information that several commenters stated would be important for a
disclosure framework tailored to
[[Page 54526]]
covered investment contracts. We agree that a covered investment
contract issuer should provide information to investors regarding these
persons because they are in the best position to influence the outcome
of the project. As such, information about these persons' expertise and
professional background, as well as arrangements that may affect their
incentives with respect to the project, is likely to be material to
investors. The proposed rule is intended to elicit information about
those persons in a principles-based manner.
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\166\ See proposed 17 CFR 228.103(b)(4).
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In addition, covered investment contracts sold pursuant to one of
the exemptions in Regulation Crypto Assets would not be restricted
securities for purposes of the Federal securities laws. Absent a
contractual or other applicable holding period or restriction,
therefore, purchasers of covered investment contracts issued under the
proposed exemptions would be able to sell those securities immediately
upon acquisition. Several commenters expressed concerns about
information asymmetries and misaligned incentives between issuer
``insiders'' and other investors, especially during the period after
which the issuer has offered and sold covered investment contracts but
before the issuer has fulfilled its representations or promises to
engage in essential managerial efforts under the covered investment
contract.\167\ These commenters recommended that any exemption include
limitations on insider sales of covered investment contracts in order
to ensure investors are appropriately protected and insiders'
incentives remain aligned with other investors.\168\
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\167\ See, e.g., letters from a16z 2; a16z 3 (``While an initial
development team retains control of a network token and its
underlying network, tokenholders are at the greatest risk of harm
stemming from information asymmetries about a project, and the trust
dependencies of such network token may be similar to that of an
ordinary security.''); Coinbase.
\168\ See, e.g., letters from a16z 3; Coinbase (recommending
``[o]ther potential considerations that would apply conditions to
[an] exemption or safe harbor,'' including ``[a] limitation on token
sales by the development team and related parties for their own
account until the network or protocol has become sufficiently
decentralized. Such a limitation would help ensure the issuer,
development team and related persons have continued economic
incentive to complete the project.'').
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We recognize that investor protection risks related to information
asymmetries and misaligned incentives between insiders and investors
may be heightened with respect to covered investment contract offerings
due to the unique nature of the representations or promises in these
offerings.\169\ The proposed disclosure requirement regarding related
person resale or transfer restrictions is intended to address these
concerns by giving investors the information they need to determine
whether there are risks associated with the issuer's related persons
and, if so, whether the issuer has taken steps to mitigate those risks.
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\169\ For example, covered investment contract issuers often
represent or promise to decentralize the associated crypto network
or associated crypto application, at which point the issuer and its
insiders may not have control over, or the ability to profit from,
such network or application or the subject crypto asset. This
situation could incentivize insiders to delay such decentralization
(to the detriment of investors) to the extent they seek to retain
their leverage to profit from such network, application, or subject
crypto asset.
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v. Paragraph (b)(5)--Associated Crypto Network/Application; Plan of
Development
Rule 103(b)(5) would require the issuer to provide 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 plan of
development. As noted in section II.A.4.a above, information about the
associated crypto network or associated crypto application, including
architecture, network protocols and functionality, and security and
source code (the latter two of which are discussed in the next section)
is one of the key categories of information that several commenters
stated would be important for a disclosure framework tailored to
covered investment contracts. We agree that a covered investment
contract issuer should provide this information to investors because
this information will inform investors' expectations as to the intended
future state of the project (which, in turn, will help the investor
evaluate the potential future value of the subject crypto asset). In
addition, in many cases, the associated crypto network or associated
crypto application will not yet have been developed at the time of the
covered investment contract offering (in which case the funds from the
offering may be funding development of that network or application). In
those cases, information regarding the plan of development may be
material for investors as they assess the likelihood of success for the
project, as well as the expected timing and progress in connection with
the plan of development, both at the time of the offering and on an
ongoing basis. This proposed rule is intended to elicit that
information in a principles-based manner.
vi. Paragraph (b)(6)--Security; Source Code
Rule 103(b)(6) would require a description of the material aspects
of the security of 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 code
underlying the associated crypto network or associated crypto
application (also referred to as ``source code'') is accessible.\170\
As noted in section II.A.4.a above, information about the associated
crypto network or associated crypto application, including
architecture, network protocols and functionality, and security and
source code, is one of the key categories of information that several
commenters stated would be important for a disclosure framework
tailored to covered investment contracts.
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\170\ See proposed 17 CFR 228.103(b)(6).
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We agree that a covered investment contract issuer should provide
this information to investors because this information would help
investors to independently assess whether the associated crypto network
or associated crypto application may operate consistently with the
issuer's description. In addition, this information would help
investors assess potential cybersecurity risks associated with the
associated crypto network or associated crypto application. This
proposed rule is intended to elicit information regarding the security
and source code in a principles-based manner.
vii. Paragraph (b)(7)--Subject Crypto Asset Economics and Allocations
Rule 103(b)(7) would require the issuer to provide a description of
the material aspects of the subject crypto asset's economics and
allocations, including: (1) the subject crypto asset's supply, pricing,
lockups, distribution methods, holdings by related persons, and release
schedules; (2) the associated crypto network or associated crypto
application's mechanisms for generating and destroying subject crypto
assets; and (3) methods to verify the subject crypto asset's
transaction history.\171\ As noted in section II.A.4.a above,
information about the subject crypto asset economics and allocations is
one of the key categories of information that several commenters stated
would be important for a disclosure framework tailored to covered
investment
[[Page 54527]]
contracts. We agree that a covered investment contract issuer should
provide this information to investors because this information would
help investors assess the total number of subject crypto assets that
may be outstanding at a given point in time, which bears directly on
the value of the subject crypto asset (and, therefore, the value of the
covered investment contract). This proposed rule is intended to elicit
that information in a principles-based manner.
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\171\ See proposed 17 CFR 228.103(b)(7).
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viii. Paragraph (b)(8)--Governance
Rule 103(b)(8) would require the issuer to provide 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.\172\
As noted in section II.A.4.a above, information regarding the
governance of the associated crypto network or associated crypto
application is one of the key categories of information that several
commenters stated would be important for a disclosure framework
tailored to covered investment contracts. We agree that a covered
investment contract issuer should provide this information to investors
because this information would help investors understand the conditions
under which changes may be made to the subject crypto asset or the
associated crypto network or associated crypto application and who may
be empowered to make such changes. Such changes could relate to the
aspects of the subject crypto asset that are relevant to investors'
valuation of the subject crypto asset and, ultimately, the covered
investment contract. This proposed rule is intended to elicit that
information in a principles-based manner.
---------------------------------------------------------------------------
\172\ See proposed 17 CFR 228.103(b)(8).
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ix. Paragraph (b)(9)-Subject Crypto Asset Ecosystem
Rule 103(b)(9) would require the issuer to provide 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.\173\ As noted in section
II.A.4.a above, information about the subject crypto asset's ecosystem
is one of the key categories of information that several commenters
stated would be important for a disclosure framework tailored to
covered investment contracts. We agree that a covered investment
contract issuer should provide this information to investors because
this information would help investors understand potential activity
with respect to, and uses of, the subject crypto asset, which may help
inform investors' expectations with respect to potential demand for the
subject crypto asset. Investors' expectations regarding demand for the
subject crypto asset may be relevant to their valuations of the subject
crypto asset and, ultimately, the covered investment contract. This
proposed rule is intended to elicit that information in a principles-
based manner.
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\173\ See proposed 17 CFR 228.103(b)(9).
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x. Paragraph (b)(10)-Risk Factors
Finally, Rule 103(b)(10) would require the issuer to provide 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.\174\ As noted in section II.A.4.a above,
information about the material risks relating to the covered investment
contract, the subject crypto asset, and associated crypto network or
application is one of the key categories of information that several
commenters stated would be important for a disclosure framework
tailored to covered investment contracts. We agree that a covered
investment contract issuer should provide this information to investors
because this information would help investors assess the risks
associated with investing in the covered investment contracts. This
proposed rule is intended to elicit that information in a principles-
based manner.
---------------------------------------------------------------------------
\174\ See proposed 17 CFR 228.103(b)(10).
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The rule also would provide that this description must avoid
generalized statements and include only factors specific to the covered
investment contract, the issuer, the subject crypto asset, and the
associated crypto network or associated crypto application. This is
intended to avoid boilerplate disclosure and help ensure that
information disclosed under this rule is important to an investor's
investment decision.
Request for Comment
26. Should we adopt Rule 103 as proposed?
27. Are there any specific disclosure requirements in Rule 103 that
we either should not adopt or that we should change in the final rules?
If so, please identify those provisions along with any recommended
changes to the provisions.
28. Are there any other disclosure requirements that we should
specify in Rule 103?
29. In lieu of the principles-based requirements, should we adopt
more prescriptive disclosure requirements? Alternatively, should the
final rules supplement the principles-based requirements with non-
exclusive examples of disclosure that may be responsive?
30. Rather than adopting more prescriptive requirements or
including examples of disclosure that may be responsive to the
principles-based requirements, should we include more detailed guidance
in the adopting release regarding what types of information may be
responsive to the principles-based requirements?
31. Are there any material terms in the description of the offering
we should add, eliminate, or revise? If so, please identify the term
and the reasons for doing so.
32. Should we prescribe the methods by which issuers publicly
provide or otherwise deliver to investors the disclosures in Rule 103?
If so, what methods should the rules prescribe?
33. Will the proposed requirements result in disclosures that
investors (including retail investors) will be able to understand and
use to make informed investment decisions? If not, how should we revise
the requirements to better ensure investors (including retail
investors) will be able to understand the resulting disclosures and use
them to make informed investment decisions?
34. Do related persons of covered investment contract issuers pose
heightened risks with respect to information asymmetries and misaligned
incentives such that the disclosure of any resale or transfer
restrictions is warranted? Are there other risks that such insiders
pose that this disclosure would help address?
35. Instead of only requiring disclosure relating to any related
person resale or transfer restrictions, should we require that issuers
establish a specific minimum holding period for related persons, such
as a one-year holding period, as a condition to relying on the proposed
exemptions? Rather than a time-based holding period, should we
[[Page 54528]]
base any holding period on the achievement of certain development
milestones with respect to the associated crypto network or associated
crypto application? Are there other resale or transfer restrictions
that we should apply with respect to related persons as conditions to
the proposed exemptions in Regulation Crypto Assets?
36. How should we modify proposed Rule 103(b)(10), if at all, to
help ensure that the resulting risk factor disclosure will address only
material risks to the issuer and avoid boilerplate disclosures?
5. Disqualification (Rule 104)
a. Background
Many of the Commission's existing offering exemptions--including
Regulation A, Regulation D, and Regulation Crowdfunding--contain
disqualification provisions.\175\ These provisions generally
``disqualify securities offerings from reliance on exemptions if the
issuer or other relevant persons . . . have been convicted of, or are
subject to court or administrative sanctions for, securities fraud or
other violations of specified laws.'' \176\ Disqualification provisions
are intended to protect investors by reducing the risk of fraud in
connection with exempt offerings that include such provisions.\177\ As
such, we believe it is important to include a disqualification
provision (proposed Rule 104) in Regulation Crypto Assets to help
ensure that investors in covered investment contracts offerings are
protected from fraud.
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\175\ See, e.g., 17 CFR 227.503 (setting forth the
disqualification provision under Regulation Crowdfunding); 17 CFR
230.262 (setting forth the disqualification provision under
Regulation A); 17 CFR 230.506(d) (setting forth the ``bad actor''
disqualification provision under Regulation D).
\176\ Disqualification of Felons and Other ``Bad Actors'' from
Rule 506 Offerings, Release No. 33-9414 (July 10, 2013) [78 FR
44730, 44731 (July 24, 2013)].
\177\ See, e.g., Crowdfunding Adopting Release at 71520-21
(``This will help reduce the potential for fraud in the market for
such offerings, which in turn may reduce the cost of raising capital
to issuers that rely on section 4(a)(6), to the extent that
disqualification standards lower the risk premium associated with
the presence of bad actors in securities offerings.'').
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b. Proposed Rule
Rule 104 would provide that the exemptions in Regulation Crypto
Assets are not available if the issuer or any person listed in Rule
262(a) \178\ would be subject to disqualification under Rule 262. Rule
262, in turn, sets forth various disqualifying actions or events,\179\
as well as exceptions from those disqualifying actions or events.\180\
Both the disqualifying actions and events, as well as the exceptions
from the disqualifying actions or events, would apply under Rule 104.
Additionally, requests for waivers of disqualification, where
appropriate, would remain available to the same extent they are
available under Rule 262.\181\
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\178\ In addition to the issuer, Rule 262(a) lists the following
persons: any predecessor of the issuer; any affiliated issuer; any
director, executive officer, other officer participating in the
offering, general partner or managing member of the issuer; any
beneficial owner of 20 percent or more of the issuer's outstanding
voting equity securities, calculated on the basis of voting power;
any promoter connected with the issuer in any capacity at the time
of filing, any offer after qualification, or such sale; any person
that has been or will be paid (directly or indirectly) remuneration
for solicitation of purchasers in connection with such sale of
securities; any general partner or managing member of any such
solicitor; or any director, executive officer or other officer
participating in the offering of any such solicitor or general
partner or managing member of such solicitor.
\179\ See 17 CFR 230.262(a).
\180\ See 17 CFR 230.262(b).
\181\ See U.S. Securities and Exchange Commission, Waivers of
Disqualification Under Regulation A and Regulation D (last reviewed
or updated Apr. 2, 2025), available at <a href="https://sec.gov/about/divisions-offices/division-corporation-finance/waivers-disqualification-under-regulation-regulation-d">https://sec.gov/about/divisions-offices/division-corporation-finance/waivers-disqualification-under-regulation-regulation-d</a>.
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We believe it is appropriate to cross-reference the existing
standard in Regulation A, rather than enumerate disqualification
requirements specific to the proposed exemptions in Regulation Crypto
Assets, in the interest of regulatory consistency and simplicity. We
also believe that aligning the proposed disqualification standard with
the existing standard under Regulation A (which is aligned with similar
provisions in Regulation D and Regulation Crowdfunding) is appropriate
because it is likely to simplify due diligence, particularly for
issuers that may engage in different types of exempt offerings.\182\
Our experience with existing offering exemptions leads us to believe
that a bad actor disqualification provision would provide appropriate
investor protections in the context of covered investment contract
offerings.
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\182\ We recognize that, in some places, Rule 262 refers to
``Regulation A'' or other Regulation A rules. Those references may
be somewhat confusing when trying to apply Rule 262 to the
Regulation Crypto Assets exemptions pursuant to proposed Rule 104.
For example, Rule 262(a) provides that ``[n]o exemption under
Sec. Sec. 230.251 through 230.263 (Regulation A) shall be available
for the sale of securities if the issuer'' or certain other persons
have engaged in certain disqualifying events. 17 CFR 230.262(a).
Therefore, we propose including an instruction to Rule 104(a)
stating that references to ``Regulation A'' or other Regulation A
rules in Rule 262(a) should, for purposes of Rule 104(a), be read as
references to Regulation Crypto Assets or its rules.
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Further, under Rule 104, the disqualification provisions in Rule
262 would not apply with respect to any conviction, order, judgment,
decree, suspension, expulsion, or bar that occurred or was issued
before the date on which Rule 104 becomes effective, if the rule
ultimately is adopted. This approach would prevent prior conduct from
triggering disqualification without prior notice. To address concerns
regarding prior disqualifying events, however, Rule 104 would require
the issuer to include in an offering circular or otherwise furnish to
each purchaser, a reasonable time prior to sale, a description in
writing of any matters that would have triggered disqualification under
Rule 104 but occurred before the date on which Rule 104 becomes
effective.\183\ This disclosure would help put investors on notice of
events that would, but for the timing of such events, have disqualified
the issuer from relying on an exemption in Regulation Crypto Assets.
This approach is consistent with the approach the Commission took when
imposing bad actor disqualifications on newly created exemptions in the
past.\184\ Moreover, the failure to provide such information would not
prevent an issuer from relying on an exemption under Regulation Crypto
Assets if the issuer establishes that it did not know and, in the
exercise of reasonable care, could not have known of the existence of
the undisclosed matter or matters.\185\
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\183\ See proposed 17 CFR 228.104(b). This provision is based on
a similar disclosure provision in Rule 262. That provision, however,
applies only to disqualifying events that occurred before Rule 262
became effective. Accordingly, we are including a similar provision
in Rule 104 to clarify the date to which such disclosure provision
applies.
\184\ See, e.g., 17 CFR 230.262(d); 17 CFR 230.506(e).
\185\ Rule 104 further would provide that an issuer would not be
able to establish that it has exercised reasonable care unless it
has made, in light of the circumstances, factual inquiry into
whether any disqualifications exist. The nature and scope of the
required factual inquiry will vary based on the facts and
circumstances concerning, among other things, the issuer and the
other offering participants. See proposed 17 CFR 228.104,
instruction to paragraph (b).
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Request for Comment
37. Should we adopt Rule 104 as proposed?
38. Are there any portions of Rule 104 that we either should not
adopt or that we should change in the final rules? If so, please
identify those provisions along with any recommended changes to the
rule.
39. Would it be beneficial to maintain general uniformity between
Rule 104 and the disqualification provisions in Regulation A, as
proposed? Are there aspects of this disqualification provision
[[Page 54529]]
that are not well suited to Regulation Crypto Assets?
40. Are there types of persons that are subject to disqualification
as proposed under Rule 104 that should be excluded? Alternatively, are
there types of persons that are not subject to disqualification under
Rule 104 that should be included?
41. Are there types of disqualifying events that would trigger
disqualification under Rule 104 that should be excluded? Alternatively,
are there types of disqualifying events that would trigger
disqualification under Rule 104 that should be included?
42. Rather than cross-referencing Rule 262, should we instead
cross-reference the disqualification provision in Regulation D or
Regulation Crowdfunding? Are there aspects of these disqualification
provisions that are better suited to Regulation Crypto Assets than the
disqualification provision in Rule 262? Alternatively, should we adopt
a standalone disqualification provision rather than cross-referencing a
disqualification provision set forth in an existing exemption?
B. Startup Exemption (Subpart B, Rule 200)
Subpart B of Regulation Crypto Assets would set forth an exemption
from the registration requirements of section 5 of the Securities Act
for certain offers, sales, and other distributions of covered
investment contracts during a period of up to four years. This proposed
startup exemption would permit offerings of up to $5 million during the
four-year period. The exemption is intended to provide issuers with
temporary relief from Securities Act registration requirements--during
which time they may work towards fulfilling the essential managerial
efforts they represented or promised investors they would engage in
under the covered investment contract--while, at the same time,
ensuring that investors remain sufficiently protected and informed.
Issuers that rely on the exemption would remain subject to the
antifraud and antimanipulation provisions of the Federal securities
laws, including, but not limited to, section 17 of the Securities Act
and section 10 of the Exchange Act.
1. Background
As noted above,\186\ issuers often conduct ICOs when the relevant
project (i.e., the crypto asset and associated crypto network or
associated crypto application) is in its early stages or has not yet
begun. In those cases, the issuer typically uses the capital raised in
the ICO to fund development of the project. Because issuers in ICOs
typically pair the offer or sale of a crypto asset (or the promise to
deliver a crypto asset at a later date) with representations or
promises regarding their efforts to, for example, develop and market
the project, those issuers often are offering and selling covered
investment contracts.\187\ If that is the case, then those offers and
sales are subject to the Securities Act and, therefore, must be either
registered under section 5 or made pursuant to an exemption.
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\186\ See supra note 21.
\187\ See 2026 Interpretation at 13722.
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As with offers and sales of other types of securities, an issuer of
a covered investment contract must either register its offering or rely
on a valid exemption from registration. The Commission's existing
rules, however, pose two main difficulties when applied to offerings of
covered investment contracts. First, as discussed above,\188\ the
Commission's existing disclosure requirements may not elicit the types
of information that are most likely to be material to investors in
covered investment contracts. Thus, these disclosure requirements, when
applied to covered investment contract offerings, can impose undue
compliance costs on issuers while failing to provide investors with
information important to their investment decisions. The Commission has
confronted similar issues with respect to other asset classes and
sought to address them with bespoke disclosure requirements.\189\
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\188\ See supra section II.A.4.
\189\ See id. (noting that the Commission has adopted Regulation
S-K subparts tailored to specific issuers and transactions, such as
Regulation M-A (mergers and acquisitions), Regulation AB (asset-
backed securities), subpart 1200 (oil and gas producing activities),
subpart 1300 (mining operations), subpart 1400 (banks and savings
and loans), and subpart 1600 (Special Purpose Acquisition
Companies)).
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Second, subject crypto assets may eventually separate from the
issuer's representations or promises to engage in essential managerial
efforts, and, as a result, the covered investment contract may cease to
exist. This process of the covered investment contract ceasing to exist
generally occurs under the circumstances described in the 2026
Interpretation (e.g., as a result of the issuer fulfilling, or failing
to satisfy, its representations or promises to engage in essential
managerial efforts under the covered investment contract).\190\ This
process also may be consistent with issuers' and investors'
expectations in a covered investment contract offering. For example,
the completion of an issuer's stated goal at the outset of the offering
(i.e., the fulfillment of its representations or promises to engage in
essential managerial efforts under the covered investment contract)
should give rise to the cessation of the covered investment contract.
Similarly, investors' interest in the offering often is driven by their
perception of the likelihood of the issuer fulfilling its
representations or promises and achieving its stated goal. Thus, in
these circumstances, the relevant stakeholders in the offering may
share a common interest in achieving an outcome that will result in the
subject crypto assets (that initially were sold subject to an
investment contract) eventually not being subject to the Federal
securities laws.
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\190\ See 2026 Interpretation at 13722-23.
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Some have asserted that, as currently applied, the Federal
securities laws can inhibit the realization of this mutually beneficial
outcome.\191\ In short, for developers to complete crypto asset
projects as they envision and represent or promise to crypto asset
offerees and purchasers, they often must distribute crypto assets to
other persons. This is especially the case when the project
contemplates a functional and decentralized crypto network or
application. To the extent those distributions constitute offerings of
covered investment contracts, however, the Securities Act and the
Commission's rules thereunder can impose prohibitive costs or
burdens.\192\
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\191\ See, e.g., Commissioner Peirce, Running on Empty; see also
letters from Nasdaq; CrowdCheck Law; AIMA; a16z 1; Crypto Council;
Figure Markets.
\192\ Some concerns also have been raised about other aspects of
the Federal securities laws that may apply to transactions involving
covered investment contracts. See Commissioner Peirce, Running on
Empty (recommending exemptions from the definitions of ``exchange,''
``broker,'' and ``dealer'' under the Exchange Act). This proposal
does not address those recommendations. We will continue to consider
whether further action with respect to covered investment contracts
beyond the proposed rules in this release is warranted. To the
extent concerns have been raised about whether an issuer may need to
register a class of covered investment contracts under section 12(g)
of the Exchange Act, we do not view covered investment contracts as
equity securities, and, therefore, we believe they are not subject
to section 12(g). Specifically, a covered investment contract is not
an ``equity security'' under section 3(a)(11) of the Exchange Act,
17 CFR 240.3a11-1, or 17 CFR 230.405. The term ``investment
contract'' is not included in the aforementioned statutory section
or rules, and a covered investment contract does not constitute any
of the financial instruments enumerated in the definition of
``equity security'' in such section or rules. See also infra note
249 and accompanying text.
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The startup exemption, set forth in proposed 17 CFR 228.200 (``Rule
200''), would help address these concerns, thereby avoiding unduly
burdening issuers as they attempt to fulfill their
[[Page 54530]]
representations or promises to engage in essential managerial efforts
under covered investment contracts.\193\ Specifically, issuers that
qualify for the startup exemption would be able to distribute subject
crypto assets to potential associated crypto network or associated
crypto application participants via an offering framework that, on the
one hand, is tailored to covered investment contracts such that it
avoids undue costs and contemplates the potential eventual cessation of
the covered investment contract and, on the other hand, ensures
investors are appropriately protected and well-informed.
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\193\ In that regard, we note that several commenters suggested
that the level of decentralization associated with a crypto asset
should determine whether such crypto asset is subject to an
investment contract and, therefore, that the Commission should adopt
an exemption to facilitate such decentralization. See supra sections
I.B.1 and 4. As discussed in the 2026 Interpretation, we believe the
determination as to whether a crypto asset is subject to an
investment contract is based on whether a crypto asset purchaser's
profit expectations depend on the issuer's representations or
promises to engage in essential managerial efforts. See 2026
Interpretation at 13721. That investment contract would, in turn,
cease to exist if the issuer fulfills those representations or
promises. Whether an issuer fulfills its representations or promises
to engage in essential managerial efforts depends on how the issuer
defines or otherwise describes such efforts in marketing and
promoting the investment contract. If the issuer represents or
promises to achieve decentralization of an associated crypto network
or associated crypto application, whether the issuer has achieved
decentralization would be based on how the issuer defined or
otherwise described decentralization, not a general market
conception of what constitutes decentralization. Thus, we believe
the proper focus of the startup exemption (and the investment
contract safe harbor, as discussed in section II.D below) should be
on the issuer's fulfillment of the representations or promises it
made to engage in essential managerial efforts under the covered
investment contract rather than a general market conception of
decentralization.
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2. Proposed Rule
As noted in the preceding section, the startup exemption is
intended to provide issuers with a regulatory runway during which they
could attempt to fulfill their representations or promises to engage in
essential managerial efforts under covered investment contracts. Those
representations often focus on developing the functionality of, and
pursuing decentralization with respect to, the associated crypto
network or associated crypto application, which may necessitate the
distribution of subject crypto assets.\194\ Issuers relying on the
exemption would be able to perform the tasks needed to develop, test,
and launch their projects with increased certainty about the
application of the registration requirements of section 5 of the
Securities Act to their projects \195\ and with requirements that are
tailored to covered investment contracts and their issuers. Issuers
also would be able to rely on this exemption to conduct smaller
capital-raising transactions involving covered investment contracts
(subject to a $5 million offering limit). As explained in more detail
below, we believe this proposed exemption is appropriate in the public
interest and consistent with the protection of investors because it
appropriately balances capital formation and the protection of
investors in this space.
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\194\ Covered investment contracts issued pursuant to the
startup exemption would not be restricted securities or otherwise
subject to rule-based resale restrictions, and the startup exemption
would not limit an issuer's ability to sell covered investment
contracts to retail investors (by, for example, prohibiting sales to
non-accredited investors or limiting the amount that may be sold to
such investors). General solicitation also would be permitted under
the startup exemption. These features would help to avoid
impediments to the development of network effects. See supra notes
12-15 and accompanying text.
\195\ Many of these tasks (including those functions that are
inherent to the operation of an associated crypto network or
associated crypto application) involve the transfer or distribution
of crypto assets that may constitute an offer or sale of covered
investment contracts subject to the Securities Act (e.g.,
distributions in connection with airdrops or transfers as gas fees,
fees for testing, or other compensation). See, e.g., letter from
Kiln (Apr. 3, 2025) (``Kiln'').
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Rule 200 would be separated into five paragraphs, denominated (a)
through (e). Under Rule 200(a), a covered transaction would be exempt
from the registration requirements of section 5 of the Securities Act
if the issuer satisfied the rule's conditions. Rule 200(b) would set
forth those conditions, which are as follows: (1) four-year duration;
(2) issuer eligibility; (3) one-time use; (4) offering limit; (5)
disclosure and filing requirements; and (6) general conditions. Rule
200(c) would set forth the filing requirements for issuers relying on
the startup exemption. This provision would require the issuer to file
a notice of reliance with the Commission on a new form titled ``Form
NOR,'' a description of which would be codified at 17 CFR 239.605.\196\
Rule 200(d) would require the issuer to make the information set forth
in Rule 103 publicly accessible, free of charge, at a website address
specified in the notice of reliance at or prior to the time it files
the notice of reliance. Rule 200(d) also would require the issuer to
periodically update that information, as set forth in the rule.
Finally, Rule 200(e) would require the issuer to file a transition
report with the Commission on a new form titled ``Form TR,'' a
description of which would be codified at 17 CFR 239.604,\197\ no later
than four years after the date on which the issuer filed the notice of
reliance. Each of these provisions is discussed in more detail below.
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\196\ As noted below, proposed Form NOR is set forth in Appendix
F to this release.
\197\ As noted below, proposed Form TR is set forth in Appendix
E to this release.
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a. Scope of Exemption (Rule 200(a))
Under Rule 200(a), a covered transaction would be exempt from the
registration requirements of section 5 of the Securities Act if the
conditions set forth in Rule 200(b) were satisfied. As discussed in
section II.A.1.b above, a ``covered transaction'' would be defined in
Rule 100 as any offer, sale, or other distribution of a covered
investment contract in reliance on the startup exemption.\198\ A
covered transaction would include, but not be limited to, capital
raising transactions as well as other offerings of covered investment
contracts in exchange for, in recognition of, or as incentive for past
or future use of an associated crypto network or associated crypto
application, or as a reward or incentive for conducting activities
primarily related to operating, governing, or securing an associated
crypto network or associated crypto application.\199\
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\198\ Because the startup exemption would apply only to covered
transactions once the conditions of Rule 200(b) (including filing a
notice of reliance on Form NOR and providing the disclosures set
forth in proposed Rule 103) are satisfied, issuers should be aware
that any communication made before that time may constitute an
``offer'' under the Securities Act that would not fall within the
scope of the exemption. As such, issuers should exercise caution
with respect to any such communications, including, for example, by
ensuring those communications are accurate and consistent with any
subsequent communications or disclosures made during the offering
period.
\199\ See proposed 17 CFR 228.100.
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The broad scope of the definition of ``covered transaction'' is
intended to allow issuers to conduct distributions of covered
investment contracts in connection with the development, testing, and
launch of a subject crypto asset and associated crypto network or
associated crypto application, subject to the offering limit and the
other conditions in Rule 200(b). Importantly, this would enable the
issuer to more easily conduct the various distributions of covered
investment contracts that may be necessary in connection with the
development of a crypto network or application, including airdrops;
\200\
[[Page 54531]]
distributions related to staking, governance, and gas fees that are
intended to enable crypto network or application functionality; and
paying fees for testing or other compensation.\201\
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\200\ As noted in the definition of ``covered transaction,'' an
issuer would be able to conduct an airdrop in reliance on the
startup exemption. See supra note 119 and accompanying text. As
discussed in section I.A.2.a above, in the 2026 Interpretation, the
Commission provided its view that airdrops of ``non-security crypto
assets by issuers to recipients who do not provide the issuer with
money, goods, services, or other consideration in exchange for the
airdropped non-security crypto assets'' do not become subject to an
investment contract and that issuers conducting such airdrops do not
need to register those transactions with the Commission under the
Securities Act or fall within one of the Securities Act's exemptions
from registration. 2026 Interpretation at 13730-31. As such, issuers
conducting airdrops that fall within the circumstances described in
the 2026 Interpretation would not need to rely on the startup
exemption, or any other exemption, for such airdrops. This would
include airdrops in which ``consideration was provided to the issuer
prior to the announcement of the airdrop and the recipients are not
required to provide any further consideration to the issuer after
such announcement in order to obtain the airdropped non-security
crypto asset.'' Id. at 13731. If, however, an issuer conducts an
airdrop that falls outside the scope of the circumstances described
in the 2026 Interpretation, then such issuer may conduct such
airdrop in reliance on the startup exemption, subject to the
offering limit in proposed Rule 200(b)(4). This would include, for
example, an airdrop in which the recipients would have to fulfill
conditions subsequent to the announcement of the airdrop, such as
buying a specific crypto asset, buying a good or service (whether or
not related to a crypto asset), or performing a specific task
(whether or not related to a crypto asset). See 2026 Interpretation
at 13731, n.141.
\201\ See, e.g., letters from AIMA; Kiln.
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Request for Comment
43. Should we exempt covered transactions from the registration
requirements of section 5 of the Securities Act if the conditions in
Rule 200(b) are satisfied, as proposed in Rule 200(a)?
44. Does the proposed definition of ``covered transactions''
establish an appropriate scope for the exemption?
45. In footnote 192 above, we express our view that covered
investment contracts are not ``equity securities'' and, therefore, are
not subject to section 12(g) of the Exchange Act. Should we codify this
view by, for example, amending 17 CFR 240.12g5-1 to provide that for
purposes of determining whether an issuer is required to register a
class of equity securities with the Commission pursuant to section
12(g) of the Exchange Act, an issuer may exclude covered investment
contracts?
46. Are there specific revisions we should make to the proposed
startup exemption to address airdrops? For example, should we provide
additional guidance on how to calculate any consideration provided in
exchange for the airdrop? Alternatively, should we adopt a separate
exemption specifically tailored for airdrops? If so, what should a
standalone exemption contain?
b. Conditions (Rule 200(b))
Rule 200(b) would include six subparagraphs, each describing a
condition with which an issuer must comply in order to rely on the
startup exemption. Rule 200(b)(1) (Four-year duration) would require
the covered transaction to occur during the period beginning after the
issuer has filed a notice of reliance in accordance with Rule 200(c)(1)
and ending on the date that is the earlier of (i) four years after the
date of such filing or (ii) the date on which the issuer files a
transition report pursuant to Rule 200(e). The four-year maximum
duration of the startup exemption is intended to provide the issuers
with a reasonable amount of time to fulfill their representations or
promises to engage in essential managerial efforts under covered
investment contracts. At the same time, we are conscious that a
duration that is too prolonged could undermine the incentives that the
limited duration otherwise would provide issuers to fulfill their
representations or promises.
In this regard, we note that the startup exemption does not impose
certain requirements on the issuer that are contained in the other
proposed exemption (e.g., disclosing financial information or providing
narrative disclosures regarding the issuer's financial condition in a
Commission filing) so that the burdens of using the exemption are
commensurate with the $5 million offering limit, and also because it is
limited in its duration. The justification for less burdensome
disclosure requirements under the startup exemption may be undermined
if the duration were significantly extended. We believe the four-year
period and offering limit strike the appropriate balance with respect
to these considerations,\202\ but we are seeking commenters' feedback
on these aspects of the proposed rule.
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\202\ In determining the appropriate maximum duration for the
exemption, we note that commenters suggested between three and four
years as the appropriate time period. See, e.g., letters from a16z 3
(``[P]rojects should remain eligible for the safe harbor so long as
they have achieved ``Network Maturity'' during the three-year
period.''); Injective Labs (July 9, 2025) (recommending a four-year
exemption). We also note that Commissioner Peirce's recommended
exemption would have a three-year duration, whereas draft
legislation introduced in the House of Representatives would exempt
from section 5 of the Securities Act offers and sales of covered
investment contracts if the ``issuer intends for the blockchain
system to which the digital commodity relates to be a mature
blockchain system,'' generally within four years. See Cmr. Peirce
Proposal 2.0; Digital Asset Market Clarity Act of 2025, H.R. 3633,
119th Cong. (2025), available at <a href="https://congress.gov/bill/119th-congress/house-bill/3633">https://congress.gov/bill/119th-congress/house-bill/3633</a>. Having considered these recommendations,
we are proposing the longer of the two alternatives (i.e., four
years) in order to ensure that issuers would have sufficient time
under the exemption to fulfill their representations or promises to
engage in essential managerial efforts under covered investment
contracts.
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Rule 200(b)(2) (Issuer eligibility) would state that the issuer may
be an entity, an individual, or a group of individuals or entities. To
help ensure that investors remain sufficiently protected and that each
such member of the group of individuals or entities acknowledges
responsibility under the proposed rule, each member of the group (or an
authorized person for each member) would be required to sign the notice
of reliance and transition report and provide the certifications
thereunder.\203\ The members of the group would be responsible,
individually and collectively, for satisfying the conditions of the
exemption.
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\203\ The term ``group'' as used in Regulation Crypto Assets is
intended to be consistent with the group concept under the
beneficial ownership reporting rules. See Modernization of
Beneficial Ownership Reporting, Release No. 33-11253 (Oct. 10, 2023)
[88 FR 76896, 76932] (noting that determining whether a group has
been formed ``does not depend solely on the presence of an express
agreement'' and that ``concerted actions by two or more persons for
the purpose of acquiring, holding or disposing of securities of an
issuer are sufficient to constitute the formation of a group'').
Under 17 CFR 240.13d-1(k)(2), a group may satisfy its beneficial
ownership reporting obligation either by a single joint filing or by
each of the group's members making an individual filing. By
contrast, under Rule 200, a joint notice of reliance and transition
report filing would be required, and the group would not satisfy its
filing obligations if each individual separately filed notices of
reliance or transition reports.
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This provision is intended to recognize the fact that, in the early
stages of a crypto asset project, a developer or development team may
not have consulted legal counsel or expended the time and money
(especially if it has not yet raised funds) to form a legal entity
through which to conduct their business.\204\ These early-stage
projects, however, may still benefit from the ability to use the
startup exemption in order to progress their projects toward fulfilling
their representations or promises to engage in essential managerial
efforts under covered investment contracts. As such, we believe it is
appropriate not to limit use of the startup exemption to a single
entity acting as the issuer.\205\
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\204\ See, e.g., letter from Vanguard Global Holdings LLC (May
28, 2025) (``[T]he reality is that many blockchain initiatives are
not born from large institutions or well-funded investors. They
often originate in garages, home offices, and kitchen tables . . . .
These are startups led by a single individual or a small team with a
bold vision but limited financial resources.'').
\205\ There is no requirement, however, that an issuer be a
``startup'' or early-stage in order to use the startup exemption, so
long as the issuer satisfies the exemption's conditions.
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[[Page 54532]]
Rule 200(b)(3) (One-time use) would state that the issuer and its
affiliates must not have previously relied on the startup exemption
with respect to the same subject crypto asset, or a substantially
similar crypto asset, other than with respect to covered transactions
that occurred during the period set forth in Rule 200(b)(1). This
provision is intended to avoid potential loopholes whereby an issuer
could effectively circumvent the four-year limitation (by using the
startup exemption for another four years after having used it for a
prior four-year period) or the offering size limitation (by permitting
multiple affiliated issuers to each separately raise funds pursuant to
the startup exemption).
We recognize that some may view this proposed restriction as overly
broad given that it would apply both to the issuer and its affiliates.
We also recognize that the limitation on ``substantially similar crypto
assets'' \206\ may inhibit serial entrepreneurs from utilizing the
startup exemption with respect to separate crypto asset projects.
Despite those potential concerns, we believe the proposed one-time use
requirement is needed to avoid circumvention of the four-year
limitation and offering size limitation. Moreover, the potential
availability of other exemptions on which issuers may rely for covered
investment contract offerings (including the fundraising exemption) may
help mitigate concerns about unduly restricting issuers' ability to
develop crypto asset projects. Nonetheless, we invite comment as to
whether there is a more appropriate way to ensure the four-year
limitation and offering size limitation are not circumvented while, at
the same time, addressing these potential concerns.
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\206\ This ``substantially similar'' standard is intended to
prevent an issuer or its affiliate from circumventing the one-time
use restriction by making superficial changes to a crypto asset or
the associated crypto network or associated crypto application. For
example, two crypto assets would be substantially similar if they
have different names but the crypto asset and the associated crypto
network or associated crypto application are functionally identical.
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Rule 200(b)(4) (Offering limit) would provide that the sum of the
aggregate offering price in the covered transaction plus the gross
proceeds from all covered transactions before the start of and during
the current covered transaction must not exceed $5 million. As
discussed above,\207\ the ``aggregate offering price'' definition in
proposed Rule 100 would explain how to calculate the value of non-cash
consideration and foreign currency for purposes of evaluating
compliance with the $5 million limit. Because issuers relying on the
startup exemption would not be required to provide disclosures with
respect to financial information, or at the same frequency as they
would under a registered offering, we believe it is appropriate, in the
interest of investor protection, to impose a limit on the amount of
capital that can be raised under this exemption.\208\ We believe that
$5 million is an appropriate offering limit--especially in light of the
higher offering limit we are proposing under the fundraising exemption,
which covered investment contract issuers also may avail themselves of
given the non-exclusive nature of these exemptions--and is
proportionate to the disclosure requirements and other investor
protections in the startup exemption. That said, we invite comments as
to this aspect of the proposed rule.
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\207\ See supra note 114 and accompanying text.
\208\ See, e.g., letter from a16z 3 (``Ultimately, caps are
necessary not only to mitigate investor risk, but also to preserve
the broader incentive structure of the Proposal. Without a cap on
primary sales, projects may use the Proposal to facilitate large-
scale distributions that function more like exit liquidity events
than capital-raising transactions intended to fund network
development.'').
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Rule 200(b)(5) (Disclosure and filing requirements) would require
the issuer to satisfy the disclosure and filing requirements in Rule
200(c), (d), and (e). Those requirements, which are discussed in more
detail below, are intended to help ensure that investors are prov
[…truncated; see source link]Indexed from Federal Register on August 21, 2026.
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