The SEC plans to set three financing caps of $5 million, $20 million, and $75 million, allowing project parties to enter the investment contract safe harbor after meeting development conditions and submitting Form TR.

Written by: ChandlerZ, Foresight News

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

During the fundraising stage, project parties can choose between two types of exemptions based on their scale. After completing their financing commitments, they can then determine whether tokens can exit the investment contract based on the safe harbor. The new regulations only apply to specific investment contracts involving crypto assets, while tokenized versions of traditional securities like stocks and bonds remain subject to securities laws. Payment stablecoins that meet the definition under the GENIUS Act continue to apply under a separate set of regulations.

Core Contents of the New Regulations

The proposed rules include two types of exemptions, specifically targeting certain investment contracts involving crypto assets, which could exempt them from registration requirements under the 1933 Securities Act.

The first exemption is a one-time exemption that allows the issuance of up to $5 million in securities within four years. After submitting Form NOR, the project party can raise $5 million within a maximum of four years, providing public disclosures about the tokens, team, development plans, supply distribution, governance, security, and risks on their website, and annually update this information in the case of significant changes. Before the four-year deadline, Form TR must also be submitted to the SEC, stating the status of the project and investment contract.

The second exemption is the financing exemption, modeled after Regulation A, and divided into two tiers. Tier 1 allows raising $20 million every 12 months, while Tier 2 has an upper limit of $75 million. Both tiers require the submission of Form 1-CRYPTO and ongoing annual, semi-annual, and significant event reports. Tier 1 can use unaudited financial statements, while Tier 2 must provide audited reports. Non-accredited investors cannot purchase more than 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 also requiring them not to make new key development commitments. Project parties must submit Form TR through EDGAR, publicly confirm their compliance with conditions, and provide an analysis supporting this determination. State-level securities registration and qualification reviews will no longer apply to these two types of offerings and to qualified secondary market transactions; however, 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 "security" found in both 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 exempt from the constraints of "investment contract" within the aforementioned "security" definitions. Furthermore, the proposed rules will take precedence over state securities laws regarding the registration and qualification requirements for the issuance and sale of securities exempted under the regulation for crypto assets, as well as for certain secondary market transactions.

What Problems Does This Address?

According to the details of the proposed rules published on the SEC’s official website, the startup exemption does not set a purchase limit for retail individuals and also allows for public promotion. According to the proposal, the relevant investment contracts will not become restricted securities, and projects can handle the distribution of tokens related to airdrops, staking, governance, gas fees, and testing rewards within the total cap of $5 million. The SEC reasoned that crypto networks need tokens in 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 early projects with more significant distribution space, mainly constrained by the $5 million cap, four-year term, and ongoing disclosures. Even project parties that have not yet established a company can use this exemption under the identity of individuals, entities, or multi-person teams; team members are required to jointly sign Form NOR and Form TR, with each member bearing compliance responsibility.

The financing exemption is only open to entities meeting U.S. business criteria, including being established in the U.S., having primary management activities in the U.S., holding 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 skips mandatory audits, while Tier 2 exchanges an audit report for a higher financing cap. Both tiers are subject to the retail 10% purchase limit and ongoing reporting requirements. The SEC estimates that after the rules take effect, approximately 99 issuances will utilize the startup exemption annually, with another 31 issuances utilizing the financing exemption.

Issuers not utilizing the startup exemption or financing exemption may also individually use the safe harbor policy. After the 2017 The DAO incident, the SEC mainly relied on the Howey Test to evaluate token issuances on a case-by-case basis. The new proposal shifts to using Form NOR to record development commitments at the start of financing, employs Form 1-CRYPTO and ongoing reports to track larger issuances, 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 evaluations of the safe harbor.

The secondary market is also included in this disclosure chain; as long as the project party continuously updates information under the startup exemption or submits periodic reports under the financing exemption, qualified token resales will no longer be subject to state registration reviews. Once the project party stops timely reporting, the state law exclusion will also be suspended, and disclosures must be completed to restore it. During the phase when the investment contract has not yet ended, trading platforms need to continuously check the project party's disclosure and periodic reporting status.

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

How This Rule Takes Effect

Hester Peirce proposed the Token Safe Harbor in 2020 and updated it in 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 the financing exemption and exit conditions for investment contracts into the same set of formal regulatory procedures.

For project parties, it offers a route for early planning of financing in the U.S. Teams can choose disclosure costs according to financing scale and have conditions for terminating the original investment contract after development work is completed. For investors, the product objectives, uses 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 obtained the necessary committee approval to enter the public comment phase. According to information on the official website, the text will initiate a 60-day comment period once published in the Federal Register. The document lists a total of 144 questions covering financing caps, retail purchase limits, whether Form TR requires more objective standards, state law exclusion conditions, and disclosure costs. The SEC can modify terms based on feedback, and if changes are significant, it may seek public comments again.

The final text will also be submitted to the full SEC commission for a vote. After approval, the Office of Management and Budget (OMB) needs to determine whether it qualifies as a major rule under the Congressional Review Act, following which the SEC will submit the rule to Congress and the Government Accountability Office (GAO). Congress is not required to vote for prior approval but can veto it through a joint resolution; if deemed a major rule, there is typically a waiting period of at least 60 days before it takes effect.

However, the SEC can currently only address securities issuances and investment contract issues under its jurisdiction. How the SEC and the Commodity Futures Trading Commission (CFTC) will delineate the entire crypto spot market will still need to be handled by Congress. How to maintain local investor protections after state-level registrations are 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.