Author: Meng Yan-Mike Meng

The SEC has just released a key proposal, Regulation Crypto Assets. This is not a principled declaration, but a complete set of specific rules aiming to answer one question: how should a crypto project legally raise funds, grow, and ultimately move out of the scope of securities regulation from zero to one.

I quickly read the datasheet on the SEC's official website, summarized its main content, and commented as follows:

Main Content of the Proposal

The core of the proposal comprises two exemptions and one safe harbor. First, the startup exemption, which allows raising up to $5 million over a four-year period. Second, the fundraising exemption, divided into two tiers: Tier 1 allows raising up to $20 million within twelve months, and Tier 2 allows raising up to $75 million within twelve months. Third, the investment contract safe harbor, where the SEC determines that the tokens no longer constitute an investment contract once conditions are met, fully exiting the jurisdiction of securities laws.

The design logic of the startup exemption is clear: it provides a regulatory buffer period for project teams to complete the development work promised in their white papers. Conditions include a four-year term, one-time usage, a $5 million cap, principle-based narrative disclosure made publicly on the official website, and submitting Form NOR to the SEC for record. This path does not require financial statements, allows public fundraising, and permits sales to retail investors, with no resale restrictions on the tokens. Issuers can be individuals or teams and do not even need to be registered entities, which is quite friendly to early-stage development teams with limited resources.

The fundraising exemption references the framework of Regulation A but has targeted adjustments. Issuers need to submit Form 1-CRYPTO in EDGAR, disclosing financial status and financial statements; Tier 2 requires an audit. This results in greater fundraising limits and ongoing reporting obligations. The two exemptions are not mutually exclusive; projects can start with the startup exemption and later expand using the fundraising exemption.

The safe harbor is the endpoint of this entire system. Once a project has completed or permanently abandoned its core management efforts as promised in the white paper, and no new commitments are made, it can submit Form TR along with an analysis explanation. The SEC then recognizes that the investment contract has been extinguished, and the tokens themselves are no longer considered securities. The assets truly complete their transformation from fundraising targets to freely circulating commodities.

Significance

This proposal deserves serious consideration when placed within a longer timeline. After the FTX collapse in 2022, the crypto industry essentially lost its capability to incubate quality new assets. Today, the top-ranking assets by market value were almost all born before 2022. The uncertainty in regulation effectively closed compliant fundraising pathways in the United States, forcing new projects to either go overseas or abandon compliance altogether.

If an asset market has no new assets emerging for a long time, even old assets will gradually lose vitality. Liquidity will dry up, narratives will become stale, and incremental capital will lack new targets. After 2023, the crypto industry had hoped to escape the challenge of creating new assets by layering new dynamics onto old assets, but the bear market lasting from the end of 2025 to present has put a veto on that. If the crypto industry cannot create new assets that are more attractive and dynamic than stocks, even old-school crypto assets like Bitcoin and Ethereum will gradually decline.

The Clarity Act delineates roles and responsibilities at the market structure level, while the SEC's proposal provides a specific path at the fundraising level; both point towards the same goal: reopening the channel for incubating new assets from zero to one.

Industry Background

It is essential to add a more stark backdrop. The entire crypto industry is undergoing an unprecedented filtration process, with widespread expectations that over 95% of projects will ultimately go to zero. At the same time, RWA has quietly become the mainstream driver of on-chain transaction growth. Behind this data lies an uncomfortable truth: the industry is admitting that its ability to create native quality assets has been exhausted, turning instead to leverage traditional assets in a side market.

This should not be the fate of crypto. This positioning has failed to leverage the technological and economic advantages that crypto and tokenomics should inherently possess; tokenization should not merely add a layer of on-chain shell to real-world assets. The industry must regain its capability to create native assets, which is the true focus of this proposal, as it at least reopens this door at an institutional level.

If this path proves viable, and the crypto industry recovers its ability to create new assets, we can envision many new projects, including those in AI and robotics, starting in a crypto manner, laying the foundation under regulatory oversight, completing asset creation, and once the basic quality of the assets is up to par, amplifying them on platforms like Coinbase, Binance, and OKX. The degree of standardization across the entire industry will be improved, reducing fraud, though it may not necessarily diminish speculation.

A Startup's Pathway Consideration

Let's imagine a startup company, Xyz, and consider which pathways it can pursue after the proposal is implemented.

Phase Zero: The team first posts a principle-based disclosure on the official website, which must be completed before any token distribution.

Path One: Utilize the startup exemption. Submit Form NOR, commit to completing the promised development work within four years, with total funding not exceeding $5 million, including airdrops, staking rewards, and testing expenses. No financial statements are required, public fundraising is allowed, sales to retail investors are permitted, and there are no resale restrictions on tokens. This path can only be used once, and Form TR must be submitted upon the expiry of the four-year term.

Path Two: Utilize the fundraising exemption. If Xyz needs a larger scale of funding or wishes to skip the seed phase and go directly for scaled financing, it can submit Form 1-CRYPTO, complying with Tier 1's $20 million or Tier 2's $75 million limits; Tier 2 requires audited statements, and prior to fundraising, testing the waters can be undertaken to gauge interest. The two paths can be used sequentially: start with the startup exemption, and after the product is running, use fundraising exemption to scale up.

The endpoint is the safe harbor. Once Xyz has truly completed the promised development work, or has voluntarily and permanently abandoned the commitment to continue development, it submits Form TR accompanied by an analytical explanation. The SEC recognizes the investment contract as extinguished, the tokens become ordinary non-security crypto assets, no longer requiring registration and ongoing reporting, and secondary market trading is exempt from state securities law registration requirements due to the definition of qualified purchasers.

Impact of the Clarity Act

Finally, I would like to add the impact of the Clarity Act. The Clarity Act completed procedural voting for the motion to be introduced into the deliberation process at the beginning of August, but the final floor vote was postponed until mid-September, and its passage remains uncertain.

If Clarity ultimately passes, it will establish a market regulatory framework for mature digital commodities at the CFTC level, forming a division of labor with the SEC's proposal. The SEC's rules address the process of tokens moving from zero to one, fundraising, and exiting securities characteristics, while Clarity addresses the issue of tokens circulating in regulated trading venues once mature; the two serve in relay rather than overlap. If Clarity remains stalled, projects can still rely on the SEC's proposal to complete financing and enter the safe harbor, but the regulatory jurisdiction at the secondary market and trading venue level will continue to be in a gray area.

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