The United States Securities and Exchange Commission (SEC) has unveiled proposed Regulation Crypto Assets rules that could make public token sales more feasible for issuers in the U.S. Unveiled on Aug. 18, the proposal introduces two exemptions for specific investment contracts involving crypto assets.
The first option is a one-time exemption allowing startups to raise up to $5 million over four years. The second is a larger fundraising exemption permitting qualifying issuers to raise up to $75 million during any 12-month period.
According to legal experts, the rolling nature of the $75 million limit could allow projects to conduct serial raises year after year as they build out their networks. Drew Hinkes, a partner at Winston & Strawn, noted that issuers could return every 12 months for additional funds provided the offerings are distinct.
However, Lilya Tessler, partner and leader of Sidley's Global FinTech and Blockchain group, pointed out that subsequent raises are not automatic. Issuers would need to file a new offering statement, undergo SEC staff review, and submit ongoing annual and semiannual reports while verifying the prior 12-month cap.
Financial regulation expert and Duke University lecturing fellow Lee Reiners stated that while the proposal makes public offerings more feasible, it is unlikely to recreate the freewheeling initial coin offering (ICO) boom of 2017. Reiners noted that markets are shaped by past reputational damage, liquidity, token economics, and investor appetite, recalling that up to 90% of projects funded via ICOs between 2017 and 2019 ultimately failed.
Additionally, non-accredited investors will face limits restricting them to purchasing 10% of the greater of their income or net worth, regardless of the round they join. The SEC estimates that roughly 130 offerings would utilize the two new exemptions annually.
Despite providing an explicit regulatory pathway for raising capital, legal and regulatory concerns remain. The proposal indicates that investment contracts associated with crypto assets can continue transferring in secondary market transactions until the asset separates from the issuer's promises. Hinkes warned that secondary market transfers could carry risks of being viewed as securities transactions, creating potential complications for exchanges and trading venues.
