Author: Byron Gilliam

Translation: Deep Tide TechFlow

Deep Tide Overview: The U.S. Securities and Exchange Commission has finally released a proposal for regulating crypto assets, spanning 402 pages, but the core principles are not complicated: let the project parties clarify their statements and present the risks, leaving the rest to investors to judge for themselves. For crypto entrepreneurs, this may be the first clear path to legally selling tokens in the U.S.; for investors, the disclosure standards will become an important tool for project evaluation.

The "Crypto Asset Regulation" has finally arrived. A total of 402 pages.

Fortunately, there is no need to read it all.

The summary states: "The proposed issuance system aims to facilitate capital formation and adapt to innovations in the crypto asset market while ensuring that investors are adequately protected and have the information they need to make informed investment decisions."

To "adapt to innovation," the SEC proposed two exemptions allowing new crypto projects to issue tokens to users and investors without violating securities laws.

This will be the most watched part: crypto founders can finally raise funds by selling tokens. And it’s in the United States!

To ensure that U.S. investors are "adequately protected," the SEC proposed that anti-fraud laws continue to apply, regardless of whether an exemption is obtained, and "bad actors" will be prohibited from participation.

This is actually quite straightforward: exemptions from securities laws do not equate to exemptions from other laws. Fraud is still fraud.

To provide investors with "the information needed to make informed investment decisions," the SEC proposed that issuers relying on any exemption must publicly provide "principle-based narrative disclosures."

This is almost the entirety of the SEC’s responsibilities: to ensure investors are well-informed and then (most of the time) step aside.

Or, at least, this should have been its responsibility.

Here is a part of a message sent to Congress by President Franklin D. Roosevelt in 1933 during congressional debates on how the federal government should regulate securities:

Of course, the federal government cannot and should not take any action that could be interpreted as approving or guaranteeing the soundness of newly issued securities—that is, guaranteeing that their value will be maintained, or that the assets they represent will be profitable.

However, we have an obligation to maintain: every new security sold in interstate commerce must be accompanied by ample public information, and no important aspect related to the issuance should be concealed from the purchasing public.

This proposal adds a "seller also bears responsibility" principle on top of the old "buyer beware" rule. It places the responsibility of telling the whole truth on the seller. It should promote honest trading in the securities market, thereby restoring public confidence.

I suggested that the purpose of the legislation is to protect the public with as little interference with honest business as possible.

In short, Roosevelt told Congress that the SEC should be built on the principle of "disclosure regulation": it should protect investors by primarily ensuring that they have the information needed to make informed decisions.

However, this was not the only approach at the time. Most states in the U.S. took the opposite approach: "substantive regulation"—that is, regulators judged based on perceived merits or drawbacks of securities as investment products.

For example, in Texas and Wisconsin, regulators could—and often did—block proposed securities offerings because they believed those securities were overpriced or otherwise unfair to investors.

In contrast, the SEC judges proposed offerings solely on the quality and completeness of disclosures.

This light-touch approach was inspired by legal scholar Louis Brandeis. In 1914, he wrote that securities should be regulated like food. He explained that the Federal Pure Food Act does not guarantee the quality or price of food, but empowers consumers to judge quality themselves by requiring ingredient disclosures.

He argued that as long as information is readily available, the same applies to securities:

To be effective, facts must actually be conveyed to investors. The best way is to require these facts to be stated in clear, prominent type in every notice, flyer, letter, and advertisement inviting investors to purchase. Compliance with this requirement should also be mandatory and not waivable by investors.

"Sunshine is said to be the best disinfectant," he added, "and light is the most efficient policeman."

Twenty years later, when the SEC was established, its first chairman, Joseph Kennedy, explained that it would follow Brandeis's guidance:

Gentlemen, the Securities Act does not make the government a value judge. It does not provide advice; it does not express approval. You might ask: What does it do? The Act establishes a department that corporate executives must submit information to on required questions, which must be filed with that department. Before anyone asks you to invest in a business, Washington must have a record of important facts that can guide your judgment.

However, the SEC has not always adhered to this founding principle.

In a speech in 2024, SEC Commissioner Hester Peirce criticized the agency for straying from its original mandate of regulation through disclosure:

However, entering this century, as we expanded the rulebook at a record pace, the commission's regulatory approach has become increasingly directive. Some of these directives come from statutes, but many are products of SEC discretion. Public companies face increasingly lengthy lists of disclosure rules. Some mandates seem aimed at changing how companies operate rather than eliciting substantive disclosures.

She added: "Congress did not design the SEC to be a substantive regulator." She ultimately urged the agency to return to its initial disclosure-centered mandate.

Now, it has returned.

The "Crypto Asset Regulation" represents a return to the founding principles of the SEC: disclosure enables investors to assess risks on their own.

Setting Standards

The SEC's proposal requires that crypto projects selling tokens under exemptions must provide disclosures, but it does not mandatorily specify how those disclosures should be made.

It is still unclear whether the final regulations will include rules on how to disclose. The SEC may choose to acknowledge standards developed by an industry organization, much like its approach to accounting and compliance rules.

Nevertheless, in whichever way, the commission has a continuously evolving industry effort to draw from: Blockworks' Token Transparency Framework (TTF)—the first open-source disclosure standard for digital assets.

Since its launch in June 2025, 75 protocols have voluntarily submitted standardized disclosure documents to TTF.

TTF's "B-1" is a one-time filing, submitted before and after a token begins trading, similar to how companies submit an S-1 before an IPO.

(The photo above shows Bob Woodward and Carl Bernstein looking at some B-1 documents.)

B-2 is a filing made to keep information current, akin to how companies submit a 10-K.

(“B-K” might be too close to the code for a hamburger, I guess?)

69 industry participants—exchanges, custodians, and asset management companies—have joined the Transparency Alliance. This organization collaborates with Blockworks to develop a common disclosure standard for digital assets.

Perhaps more importantly, these participants have a combined market capitalization of over $400 billion. They have made TTF documents a core input of their due diligence processes.

For asset management companies, these documents are just the starting point of the investment process. They still need to conduct their own research (as the saying goes).

Blockworks explains: "Each document assesses completeness, not quality."

FDR would say, this is what we truly need.