Prepared by Josh Burton

For years, crypto issuers’ core complaints were that the SEC never gave them a workable way to comply. Token projects that raised capital through investment contracts were told to register under a framework written in the 1930s, with disclosure forms and ongoing obligations designed for corporate stock rather than functional network tokens. Many simply left for offshore jurisdictions instead.

On August 18, 2026, the SEC proposed an answer. Regulation Crypto Assets[1] would create the first offering regime under the federal securities laws designed specifically for crypto, and in my view it is the most consequential regulatory development for digital assets since the joint SEC-CFTC interpretive release on token taxonomy earlier this year. Keep in mind that this is still just a proposal. The public comment period runs for 60 days after publication in the Federal Register, and the details below may change before adoption.

The Foundation: Tokens Are Not the Security, the Contract Is

The proposal builds directly on the Commission’s March 17, 2026 interpretation, issued jointly with the CFTC, which established that when a non-security crypto asset is sold as part of an investment contract, the investment contract is the security rather than the token itself.[2] That interpretation also explained that a token can separate from its investment contract once the issuer fulfills or abandons the essential managerial efforts it promised investors.

Regulation Crypto Assets turns that interpretive framework into an operational one. The proposed rules apply to “covered investment contracts,” defined as investment contracts where a non-security crypto asset (and nothing else) is subject to the contract. In other words, the regime is built for token fundraising. Tokenized stock and hybrid instruments would continue to use existing offering frameworks.

Two New Offering Exemptions

The centerpiece of the proposal is a pair of exemptions from Securities Act registration tailored to token offerings:[3]

The startup exemption would be a one-time exemption allowing an issuer to raise up to $5 million over a four-year period. Issuers would make public filings at the beginning and end of the period and provide investors with principles-based narrative disclosures throughout. The four-year runway is deliberate: it gives a project time to complete the managerial efforts it promised investors, which matters for the safe harbor discussed below.

The fundraising exemption would be a two-tier framework modeled in part on Regulation A. Tier 1 would permit offerings of up to $20 million in a 12-month period, and Tier 2 would permit up to $75 million. Both tiers require publicly filed offering materials with the same principles-based disclosures plus a discussion of the issuer’s financial condition and financial statements, which must be audited for Tier 2. Issuers relying on this exemption would also take on ongoing reporting obligations.

Issuers under either exemption would remain fully subject to the antifraud and antimanipulation provisions of the federal securities laws.

The Investment Contract Safe Harbor

The most conceptually significant piece of the proposal is a conditional safe harbor from the term “investment contract” itself. An issuer could certify to the Commission, through a public filing with supporting analysis, that it has completed or permanently ceased all essential managerial efforts it represented or promised under the covered investment contract, and that it does not intend to make new ones. If the conditions are satisfied, the investment contract would be deemed to have ceased to exist, and the underlying crypto asset would be deemed not subject to it for purposes of the statutory definitions of “security.”[4]

Commissioner Hester Peirce first proposed a token safe harbor concept back in February 2020, when the idea had no realistic path to adoption.[5] Her statement accompanying this proposal frames the rule as the culmination of that six-year effort, and Chairman Paul Atkins credited her directly.[6] She has also invited comment on a forward-looking question worth watching: whether the rules could facilitate tokens that share in the growth and value of the enterprise building a network, a role that looks more like equity.[7]

State Law Preemption

Finally, the proposal would define “qualified purchaser” under the Securities Act so that state registration and qualification requirements are preempted for offers and sales under the new exemptions, as well as for certain secondary market transactions in those tokens. Secondary market preemption would continue for as long as the issuer keeps up its information and reporting obligations. For anyone who has navigated blue sky analysis for a multi-state token distribution, this is a meaningful piece of the package.

What This Means for Market Participants

For crypto venture and token funds: Portfolio companies that raise through SAFTs or direct token sales would gain defined, measurable fundraising paths with fixed dollar thresholds, rather than case-by-case exemption analysis. Commissioner Mark Uyeda made this point in his statement, noting that issuers would finally have conditions they can measure themselves against before conducting an offering, instead of learning through an enforcement action that they got it wrong.[8]

For funds holding previously issued tokens: The safe harbor would create a documented, verifiable event marking when a token separates from its investment contract. That certification filing would give advisers concrete support for classification analysis, which flows through to custody determinations, trading venue selection, and compliance documentation. Advisers should be prepared to incorporate safe harbor status into their diligence frameworks if the rule is adopted.

For everyone: The comment period is a real chance to shape the final rule. The proposing release asks dozens of specific questions, including whether the definition of covered investment contract is scoped correctly and whether the dollar thresholds are set at the right levels. Comments are due 60 days after Federal Register publication under File No. S7-2026-27.

A final Commission rule would carry far more weight than the staff statements and no-action letters that dominated 2025, but even final rules can be amended by a future Commission. Chairman Atkins acknowledged as much, stating plainly that legislation remains indispensable and that the SEC will continue supporting Congress in delivering the CLARITY Act, the market structure bill that passed the House in July 2025 and remains pending in the Senate.[9]

We will be following the comment process closely and will report on significant developments, including any changes between the proposal and a final rule. If you would like to discuss how the proposed exemptions or safe harbor could affect your fund strategies, portfolio classification analysis, or compliance program, or if you are considering submitting a comment letter, please reach out at [email protected].

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[1]SEC Press Release 2026-76, “SEC Proposes New Regulation Crypto Assets” (Aug. 18, 2026); Proposed Rule, Regulation Crypto Assets, Release Nos. 33-11434; 34-106150; File No. S7-2026-27 (Aug. 18, 2026).

[2]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).

[3]SEC Fact Sheet, Regulation Crypto Assets (Aug. 18, 2026).

[4]Id.

[5]Commissioner Hester M. Peirce, “Running on Empty: A Proposal to Fill the Gap Between Regulation and Decentralization” (Feb. 6, 2020).

[6]Chairman Paul S. Atkins, “Statement on Regulation Crypto Assets: Fit-for-purpose Exemptions for Crypto Market Innovation” (Aug. 18, 2026).

[7]Commissioner Hester M. Peirce, “Filling the Regulatory Tank: Regulation Crypto Assets Proposing Release” (Aug. 18, 2026).

[8]Commissioner Mark T. Uyeda, “Statement on Regulation Crypto Assets” (Aug. 18, 2026).

[9]See supra note 6.