SEC's new regulations are in place: compliant token financing is really coming back

Written by: ChandlerZ, Foresight News

On August 18, the U.S. Securities and Exchange Commission (SEC) announced a new regulation called "Regulation Crypto Assets," aimed at establishing a clear and applicable framework for specific investment contracts involving crypto assets. Previously, the SEC released an explanatory document in March 2026, clarifying how federal securities laws apply to certain crypto assets and transactions involving crypto assets.

Project parties can choose between two exemptions during the fundraising stage based on scale, and after fulfilling financing commitments, they can determine whether tokens can exit the investment contract based on a safe harbor assessment. The new regulation only applies to specific investment contracts involving crypto assets, while tokenized versions of traditional securities such as stocks and bonds remain subject to securities laws. Payment stablecoins that meet the definition of the GENIUS Act continue to be governed by a different set of regulations.

Core Content of the New Regulation

The proposed rules include two exemptions specifically for certain investment contracts involving crypto assets, exempting them from the registration requirements of the 1933 Securities Act.

The first exemption is a one-time exemption that allows the issuance of securities not exceeding $5 million within four years. After submitting Form NOR, project parties can raise $5 million over a maximum of four years, publicly disclosing information about tokens, teams, development plans, supply distribution, governance, security, and risks on their website, and updating annually in case of significant changes. Before the four-year period ends, they must also submit Form TR to the SEC, explaining the status of the project and investment contract.

The second exemption is a financing exemption, divided into two tiers similar to Regulation A. Tier 1 allows raising $20 million every 12 months, while Tier 2 has a cap of $75 million. Both tiers require submission of Form 1-CRYPTO and ongoing submission of annual, semi-annual, and significant event reports. Tier 1 can use unaudited financial statements, while Tier 2 must provide audited reports. The purchase amount for non-accredited investors cannot exceed 10% of the higher of their annual income or net worth.

The proposed rules also include a conditional safe harbor provision applicable to project parties that have completed or permanently halted all key development work, while requiring them to make no new key development commitments. Project parties must submit Form TR to EDGAR, publicly confirming that they have met the conditions and providing an analysis supporting this determination. State-level securities registration and qualification reviews will no longer apply to these two types of offerings and qualifying secondary market transactions, although state governments can still investigate fraud, collect notification filing fees, and address illegal brokers.

This provision exempts the meaning of "investment contract" in the definitions of "securities" in the 1933 Securities Act and the 1934 Securities Exchange Act. If the conditions of the proposed safe harbor provision are met, crypto assets will be considered not subject to the constraints of "investment contracts" in the aforementioned definition of "securities." Furthermore, the proposed rules will take precedence over state securities laws regarding the issuance and sale of securities exempted under the crypto asset regulatory framework, as well as registration and qualification requirements for certain secondary market transactions.

What Problems Does This Solve?

According to the details of the proposed rules disclosed on the SEC's official website, the entrepreneurial exemption does not set a purchase limit for individual retail investors and allows for public promotion. Under the proposal, relevant investment contracts will not become restricted securities, and projects can handle token distributions involving airdrops, staking, governance, gas fees, and testing rewards within the $5 million total cap. The SEC argues that crypto networks need tokens to enter the hands of users, validators, and developers to form network effects, and the resale restrictions of traditional securities would hinder this process.

This arrangement provides significant distribution space for early projects, with constraints primarily on the $5 million cap, four-year period, and ongoing disclosure. Project parties can use this exemption even if they have not yet established a company; individuals, entities, or teams can utilize the exemption. Team members must jointly sign Form NOR and Form TR, and each member bears compliance responsibility.

The financing exemption is only open to entities that meet U.S. business conditions, including being established in the U.S., having primary management activities located in the U.S., having more than half of their assets in the U.S., and having a majority of executives or directors who are U.S. citizens or residents. Tier 1 eliminates mandatory audits, while Tier 2 exchanges an audit report for a higher financing cap. Both tiers are subject to the 10% purchase limit for retail investors and ongoing reporting requirements. The SEC estimates that after the rules are implemented, approximately 99 issuances will use the entrepreneurial exemption each year, with an additional 31 issuances using the financing exemption.

Issuers not using the entrepreneurial exemption or financing exemption can also utilize the safe harbor policy independently. Following the 2017 DAO incident, the SEC primarily relied on the Howey Test to assess token issuances on a case-by-case basis. The new proposal instead uses Form NOR to record development commitments at the start of financing, tracks larger issuances with Form 1-CRYPTO and ongoing reports, and uses Form TR to mark the exit of investment contracts. The roadmap in the project party's white paper thus becomes the legal basis for subsequent assessments of the safe harbor.

The secondary market is also included in this disclosure chain, as long as project parties continue to update information under the entrepreneurial exemption or submit regular reports under the financing exemption, qualifying token resales will no longer be subject to repeated state registration reviews. If project parties stop timely reporting, the state law exclusion will also be suspended, and disclosure must be completed before it can be restored. During the phase when the investment contract has not yet ended, trading platforms need to continuously check the disclosure and regular reporting status of project parties.

The SEC estimates that approximately 475 issuers will independently use the investment contract safe harbor each year.

How This Rule Takes Effect

Hester Peirce proposed and updated the Token Safe Harbor in 2020 and 2021, hoping to provide development teams with a three-year construction period, but this personal suggestion has no legal effect. This proposal is the first to incorporate financing exemptions and investment contract exit conditions into the same formal rule-making process.

For project parties, it provides a route for planning U.S. financing in advance. Teams can choose disclosure costs based on the scale of financing, and there are conditional ways to end the original investment contract after development work is completed. For investors, the product goals, use of funds, and development commitments in the white paper will carry stronger legal responsibilities, making it difficult for project parties to completely separate marketing slogans from formal commitments.

Currently, this rule has received the necessary committee approval to enter the public comment phase. According to information on the official website, a 60-day comment period will begin after the text is published in the Federal Register. The document lists a total of 144 questions, covering financing limits, retail purchase caps, whether Form TR needs more objective standards, state law exclusion conditions, and disclosure costs. The SEC may amend the provisions based on feedback and may seek further comments if the changes are substantial.

The final text will also be submitted to the full SEC for a vote. Once approved, the Office of Management and Budget (OMB) will need to determine whether it constitutes a major rule under the Congressional Review Act, after which the SEC will submit the rule to Congress and the Government Accountability Office (GAO). Congress does not need to vote for prior approval but can veto through a joint resolution; if deemed a major rule, it typically must wait at least 60 days before taking effect.

However, the SEC can currently only address issues related to securities issuances and investment contracts under its jurisdiction. How the SEC and the Commodity Futures Trading Commission (CFTC) delineate the entire crypto spot market remains to be handled by Congress. How to retain local investor protections after state-level registration is excluded, as well as how specific the completion standards for the safe harbor need to be, will also become points of contention during the comment phase.