The Wait is Over: SEC Proposes “Regulation Crypto Assets,” A Bespoke Offering Regime for Crypto Investment Contracts

On August 18, 2026, the U.S. Securities and Exchange Commission (SEC or the Commission) proposed new rules, under the title “Regulation Crypto Assets” (the Proposing Release), that would create the first tailored offering regime for certain investment contracts involving crypto assets. The proposal marks a long-awaited acknowledgment that the SEC’s existing disclosure regime — designed for traditional securities such as stocks and bonds — is ill-suited for crypto asset offerings and represents the SEC’s most significant step yet toward a stand-alone regulatory regime for the asset class. The proposal is the centerpiece of Commission Chairman Paul Atkins’ “Project Crypto” initiative and represents the most significant SEC rulemaking in the digital asset space to date. Chairman Atkins has described the proposal as an effort to provide crypto innovators with “bespoke pathways to raise capital in the U.S., while providing appropriate investor protections.”

This Update summarizes the key components of Regulation Crypto Assets, highlights practical considerations for market participants, and discusses the proposal’s relationship to the stalled Digital Asset Market Clarity Act¹ (Clarity Act) in Congress. Comments on the proposal are due 60 days after publication in the Federal Register. We urge clients to act quickly: Identify provisions of the proposal that would affect current or planned product offerings, and consider preparing a comment letter or positioning your capital-raising strategy for the final rule. 

What This Means for Your Business

• Raise capital, faster. Early-stage projects could raise up to $5 million with streamlined disclosures and no audited financials; larger issuers up to $75 million per year — no full SEC registration required.
• Freely tradable tokens. No resale restrictions, and state “blue sky” registration is preempted — clearing the way for liquid secondary markets.
• An off-ramp from SEC oversight. Once your network is functional and promised development is complete, your token can exit securities regulation entirely.
• Timing is critical. Prefiling communications can blow the exemption. If you’re planning a raise in the next 12–24 months, position now.
• Shape the rules. The 60-day comment window is open; affected businesses should weigh in.

What Does Regulation Crypto Assets Do?

The proposed rules establish four interlocking components: (1) a “startup exemption” for smaller offerings, (2) a “fundraising exemption” for larger capital raises, (3) an “investment contract safe harbor” that would allow a crypto asset to exit existing securities law entirely, and (4) a definition of “qualified purchaser” that would preempt state securities law registration and qualification requirements.² Taken together, the framework is designed to give blockchain projects a legally compliant on-ramp for capital raising and a defined off-ramp once the project matures and the issuer’s “essential managerial efforts” have been completed. Importantly, the framework works within the Howey test³ rather than around it: It creates compliant pathways for investment contract offerings while recognizing that the underlying crypto assets are not themselves securities and accordingly need a path to become digital commodities beyond the SEC’s jurisdiction.

Critically, the proposal applies only to “covered investment contracts,” defined as investment contracts in which (1) a crypto asset is subject to the investment contract, (2) the crypto asset is not itself a security, and (3) no other asset (security or otherwise) is subject to the investment contract. This scoping is narrow and intentional. Tokenized equity, debt instruments, and other traditional securities remain outside the framework and must use existing offering pathways. Notably, although covered investment contracts are securities, the Commission expressly states that they are not “equity securities” and therefore are not subject to the registration requirements of Section 12(g) of the Securities Exchange Act of 1934, as amended (the Exchange Act).⁴

The Startup Exemption

The startup exemption is a one-time, nonexclusive exemption from registration under the Securities Act of 1933, as amended (the Securities Act) that would permit offerings in the form of “covered transactions” of up to $5 million over a four-year period. It is aimed squarely at early-stage projects that need a regulatory runway to raise a limited amount of funds and build their networks.

Key features include the following:

• Four-year window. The exemption runs from the date the issuer files a “notice of reliance” on new Form NOR through the SEC’s Electronic Data Gathering, Analysis, and Retrieval system (EDGAR) until the earlier of four years or the filing of a transition report on new Form TR.
• Broad issuer eligibility. Unlike the fundraising exemption (described below), the issuer need not be a U.S. entity. It can be an individual, an entity, or even a group of individuals or entities, reflecting the reality that many blockchain projects start with informal development teams.
• Principles-based disclosure. Issuers must make the disclosures specified in proposed Rule 103 of Regulation Crypto Assets publicly available, free of charge, on a website identified in the notice of reliance. These disclosures cover the investment contract, the offering, the subject crypto asset, management and related persons, the associated crypto network or application, security and source code, token economics and allocations, governance, the crypto asset ecosystem, and risk factors. Notably, no financial statements are required.
• No resale restrictions. Covered investment contracts issued under the startup exemption would not be restricted securities and would not be subject to any rule-based resale restrictions. General solicitation is permitted. These features are designed to facilitate “network effects,”⁵ a driving rationale of the entire proposal.
• One-time use. An issuer and its affiliates may rely on the startup exemption only once with respect to the same (or a substantially similar) crypto asset.
• Broad scope of “covered transactions.” The exemption covers not only traditional capital-raising sales but also certain airdrops,⁶ distributions related to staking and governance, gas fees intended to enable network or application functionality, and fees for testing or other compensation. The inclusion of these transactions does not mean that each such distribution necessarily involves an investment contract; that remains a fact-specific determination under Howey. A distribution that does not involve an investment contract does not require registration or exemption, while a distribution that does may be conducted in reliance on the startup exemption, subject to its conditions and offering limit.
• Transition report. At the end of the four-year period (or earlier), the issuer must file a transition report on Form TR describing the status of the covered investment contract and whether it has ceased to exist.

The Fundraising Exemption

For issuers that need to raise larger amounts of capital, the fundraising exemption offers a more robust pathway modeled, in significant part, on Regulation A, which is an existing exemption for qualification of public offerings under the Securities Act. The fundraising exemption is a two-tier, nonexclusive exemption from Securities Act registration.

Key features include the following:

• Tier 1 and Tier 2 offering limits. Tier 1 permits offerings of up to $20 million in a 12-month period. Tier 2 permits offerings of up to $75 million in a 12-month period.
• Issuer eligibility requirements. Unlike the startup exemption, the issuer must be a U.S. entity of which a majority of its executive officers or directors are U.S. citizens or residents, more than 50% of assets located in the United States, and its business administered principally in the United States. Blank-check companies, registered investment companies, business development companies, and issuers subject to Section 12(j) orders under the Exchange Act within five years, are excluded.
• Offering statements filed on EDGAR. Issuers must file an offering statement on new Form 1-CRYPTO, which includes the same principles-based narrative disclosure required under the startup exemption; a discussion of the issuer’s financial condition; and financial statements (audited for Tier 2 offerings; for Tier 1 offerings, there is no financial statement assurance required).
• SEC staff review and qualification. No sales may occur until the offering statement has been qualified, a process that parallels Regulation A’s SEC staff review.
• Testing the waters. Issuers may solicit nonbinding indications of interest before qualification, consistent with Regulation A.
• Investment limitations for nonaccredited investors. If the purchaser is not accredited,⁷ the aggregate purchase price may not exceed 10% of the greater of the purchaser’s annual income or net worth. This limitation applies to both Tier 1 and Tier 2, a departure from Regulation A.
• Ongoing reporting. Issuers that have qualified offering statements must file annual reports on Form 1-KC within 120 calendar days after the end of the fiscal year and semiannual reports on Form 1-SC within 90 calendar days after the end of the semiannual period covered by the report, current reports on Form 1-UC with respect to the matters specified in the form (similar to reporting on Form 8-K), within four business days after the occurrence of one of the specified events, unless substantially the same information has been previously reported to the Commission by the issuer under cover of Form 1-KC or Form 1-SC, and transition reports on Form TR.
• No resale restrictions. As with the startup exemption, covered investment contracts issued under the fundraising exemption would not be restricted securities. Unlike the startup exemption, the fundraising exemption does not incorporate the broad “covered transaction” concept: Its scope extends to public offers and sales of covered investment contracts, and it contains no provision expressly covering airdrops, staking or governance rewards, or similar network-development distributions. That express coverage appears only in the startup exemption. Issuers planning both a larger capital raise and network-development distributions should consider how the two exemptions interact — both are nonexclusive, but the startup exemption is one-time-use and capped at $5 million.

The Investment Contract Safe Harbor

The investment contract safe harbor is the proposal’s “off-ramp.” If its conditions are satisfied, a covered investment contract will be deemed to have ceased to exist, and the underlying crypto asset will be deemed not to be subject to that investment contract for purposes of the Securities Act and Exchange Act definitions of “security.”

The conditions are twofold. First, the issuer must have completed or otherwise permanently ceased all essential managerial efforts it represented or promised it would engage in under an investment contract and must not be making (or intend to make) any new representations or promises to engage in essential managerial efforts. Second, the issuer must file a transition report on Form TR with the Commission certifying that these conditions have been met and providing a supporting analysis.

The safe harbor is available to any issuer that meets its conditions, including issuers that used neither the startup exemption nor the fundraising exemption. It codifies the principles set forth in the SEC’s 2026 Interpretive Release outlining when a crypto asset ceases to be subject to an investment contract.

Preemption of State Securities Laws

Regulation Crypto Assets would define “qualified purchaser” under Section 18(b)(3) of the Securities Act to preempt state registration and qualification requirements in two important respects.

First, offers and sales of covered investment contracts made pursuant to the startup exemption or the fundraising exemption would be “covered securities” not subject to state registration or qualification. Second, secondary market transactions by any person other than an issuer, underwriter, or dealer in covered investment contracts would also be preempted, provided that the issuer initially sold the covered investment contracts pursuant to a Regulation Crypto Assets exemption and remains current with the applicable disclosure, filing, and reporting obligations.

This preemption is significant. Existing exempt offering frameworks like Regulation D and Regulation Crowdfunding do not preempt state law for secondary trading, and market participants have noted that compliance with state-by-state requirements creates a “patchwork” that is particularly ill-suited to the cross-border nature of crypto asset markets. This is a meaningful win for broker-dealers facilitating secondary markets, as investment contracts sold under the proposed exemptions could be freely transferable and exempt from additional state registration requirements.

Relationship to the Clarity Act

The timing of Regulation Crypto Assets is not a coincidence. The Clarity Act passed the House with bipartisan support in July 2025 and has since advanced in the Senate, although it has not yet received a Senate floor vote. The legislation would establish a comprehensive digital asset market structure framework, including by delineating regulatory authority between the SEC and Commodity Futures Trading Commission (CFTC). The SEC’s proposal draws on concepts reflected in the Clarity Act and may provide a regulatory framework for certain crypto asset offerings while Congress continues to consider market structure legislation.

That said, Regulation Crypto Assets and the Clarity Act are designed to be complementary, not duplicative. Chairman Atkins has stated that the proposed rules “draw heavily from Congressional work over recent years, particularly the CLARITY Act” and that the rulemaking would “give us a head start implementing historic bipartisan market structure legislation that, I trust, will soon reach President Donald Trump’s desk.” Notably, the proposed rules’ definition of “crypto asset” is identical to the definition of “digital asset” in the GENIUS Act⁸ (the stablecoin legislation), and the proposal’s four-year window for the startup exemption mirrors the Clarity Act’s timeline for token projects to reach a “mature blockchain system.” But there is a key difference: The Clarity Act would legislatively divide regulatory jurisdiction between the SEC and CFTC and create a comprehensive market structure framework. Regulation Crypto Assets addresses only the offering side of the equation and leaves questions of trading, custody, and exchange regulation to separate rulemakings the SEC has placed on its 2026 agenda. If the Clarity Act ultimately passes, it would provide a statutory foundation and could supersede, modify, or formalize parts of Regulation Crypto Assets. If it does not, the SEC’s administrative framework will be the primary source of regulatory clarity, though staff guidance and commission-level interpretations are more easily revised or rescinded by a future SEC administration than a statute.

Practical Considerations for Market Participants

For blockchain developers and crypto asset issuers: The proposal would provide the first fit-for-purpose federal offering framework for the fundraising through investment contracts and distribution of crypto assets. Issuers should begin assessing which exemption best fits their capital-raising needs and timeline and whether their disclosure practices (including existing whitepapers) align with the principles-based requirements in proposed Rule 103. The startup exemption’s $5 million cap and four-year limit make it a natural fit for early-stage projects, while more mature issuers with larger capital needs should evaluate the fundraising exemption’s Tier 1 and Tier 2 pathways. The rules also provide for a path forward for certain crypto asset distributions that may not be subject to U.S. securities laws. Issuers should also be aware of the gun-jumping risk under the startup exemption: The exemption covers only transactions that occur after the Form NOR is filed on EDGAR. Any communication made before that filing may constitute an “offer” under the Securities Act outside the exemption’s safe harbor. Issuers that have already been publicly marketing a project should carefully assess whether prior communications create exposure before relying on the exemption. Additionally, issuers relying on the startup exemption or the fundraising 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.

For investors and trading platforms: Covered investment contracts issued under these exemptions would not be restricted securities and would benefit from preemption of state registration requirements for secondary trading, potentially facilitating the development of liquid secondary markets. Trading platforms should evaluate how qualified offerings under Regulation Crypto Assets will interact with existing broker-dealer and alternative trading system (ATS) requirements. Notably, the proposal expressly does not address whether platforms that facilitate secondary trading in covered investment contracts must register as exchanges, broker-dealers, or ATSs under the Exchange Act. The Proposing Release notes that these are questions the Commission will “continue to consider,” and intermediaries involved in secondary market transactions should consider including comments addressing these issues. Platforms should not interpret the preemption of state registration requirements as resolving these open federal-law questions.

For legal counsel: The proposal’s reliance on principles-based rather than prescriptive disclosure represents a meaningful departure from existing SEC offering frameworks. Counsel should closely evaluate the scope of the “covered investment contract” definition and the conditions for the investment contract safe harbor, particularly the fact-intensive determination of when “essential managerial efforts” have been completed or permanently ceased. The rule cross-references the 2026 Interpretive Release for guidance on that determination: Detailed representations about development milestones, funding, and timelines likely constitute essential managerial efforts, while vague or aspirational promises likely do not. Postlaunch maintenance or enhancement activities (i.e., once the associated network or application is functional) do not constitute essential managerial efforts. Counsel should also evaluate bad actor disqualification under proposed Rule 104, which incorporates Regulation A’s Rule 262 disqualification provisions. Critically, conduct predating the rule’s effective date does not automatically disqualify an issuer, but it must be disclosed in writing to each purchaser before sale, a compliance obligation that warrants careful diligence before any offering commences.

For all stakeholders: These are proposed rules, not final rules. The comment period will be open for 60 days following Federal Register publication. Given the breadth of the proposal (the Proposing Release includes over 150 requests for comment), the final rules could look meaningfully different. Any final rules remain at least several months away from adoption.

Please contact us if you would like assistance in submitting a comment letter in response to the Proposing Release or if you would like to discuss Regulation Crypto Assets and its implications for your business. Sidley will continue to monitor developments and will issue further updates as the SEC’s proposal proceeds through the rulemaking process.

Knowledge management lawyer Daniel Engoren contributed to this Sidley Update.