The US Securities and Exchange Commission (SEC) has proposed a new regulatory framework aimed at governing digital token projects from initial fundraising through the conclusion of their developmental phase. The proposal, titled Regulation Crypto Assets, outlines structured pathways for token projects to raise capital while establishing a formal mechanism to end the underlying securities contract once the issuer's promised work is completed.
Under the proposal, which entered the Federal Register on August 21 with a public comment window closing on October 20, token financing is divided into three distinct lanes based on funding limits and issuer requirements:
- Startup exemption: Allows individuals, groups, or entities to raise up to $5 million across a single period lasting up to four years. Issuers must file Form NOR and publish disclosures online without requiring financial statements.
- Fundraising Tier 1: Permits US-based entities to raise up to $20 million within a 12-month period using SEC-qualified Form 1-CRYPTO and unaudited financial statements.
- Fundraising Tier 2: Permits US-based entities to raise up to $75 million within a 12-month period using SEC-qualified Form 1-CRYPTO and audited financial statements.
Both Tier 1 and Tier 2 offerings allow an unlimited number of retail buyers, subject to a non-accredited investor cap limiting investments to 10% of annual income or net worth, whichever is greater. These tiers also require ongoing reporting through annual, semiannual, and current forms including Form 1-KC, Form 1-SC, and Form 1-UC.
A central element of the proposal is Rule 400, which introduces a safe harbor allowing issuers to terminate the investment contract associated with a token. To utilize this safe harbor, an issuer must have completed or permanently ceased every essential managerial effort promised to buyers and file Form TR on EDGAR with a written explanation and certification.
The commission must review public submissions and vote on a final rule before any project can utilize these new exemptions.
