The developers of crypto projects and their advisors have spent years attempting to determine whether a token offering creates an investment contract that constitutes a “security” for purposes of the federal securities laws and, if so, when that investment contract ends. On August 18, 2026, the Securities and Exchange Commission (the “SEC”) proposed Regulation Crypto Assets, a new framework that would replace part of that uncertainty with two tailored offering exemptions and a conditional safe harbor.

The proposal is the first significant capital-formation rulemaking to emerge from SEC Chairman Paul Atkins’s July announcement of the SEC’s 2026 regulatory agenda. As Pryor Cashman previously observed, that agenda signaled a transition from deciding which assets are securities to building the market architecture for issuing, holding and trading them. Regulation Crypto Assets supplies the first detailed piece of that architecture by turning the startup exemption, fundraising exemption and investment-contract safe harbor that Chair Atkins outlined in March 2026 into proposed rules.

The proposal would not remove crypto offerings from the purview of the federal securities laws. Instead, the rules, if adopted, would create defined pathways for raising capital while imposing disclosure, filing, reporting and antifraud obligations suited to crypto projects. The rules also would give issuers a rule-based method for establishing that a crypto asset is no longer subject to the investment contract through which it was offered.

While the rules are only proposed and do not provide relief today, if adopted, they would affect not only crypto issuers, but also exchanges, broker-dealers, custodians, investment firms and other intermediaries responsible for determining an asset’s regulatory status.

Two Offering Paths

The SEC’s 402-page proposing release proposes separate non-exclusive exemptions for early-stage projects and larger capital raises.

The Startup Exemption

The startup exemption would permit an issuer to raise as much as $5 million during a four-year period. An issuer could use the exemption only once for a particular crypto asset. Before beginning an offering, it would file a notice on new Form NOR and make specified information publicly available on its website. The required principles-based disclosures, as outlined in Rule 103 of Regulation Crypto Assets, is aimed at giving issuers flexibility to tailor the disclosure to their particular facts and circumstances while still eliciting material information for investors. Such disclosure would address, among other things, the material terms of the investment contract, the material terms of the offering, the crypto asset, the network or application, the project’s governance and token economics, the issuer’s promised managerial efforts, material conflicts and relevant risk factors.

The startup exemption would permit general solicitation and participation by non-accredited investors. Covered investment contracts issued under the startup exemption would not be treated as restricted securities or be subject to rule-based resale restrictions. The issuer would, however, have to update its disclosures for material changes and file a transition report on proposed Form TR no later than four years after filing Form NOR to address the status of the investment contract, the subject crypto asset and the associated network.

The Fundraising Exemption

The fundraising exemption would be more demanding. Modeled in part on Regulation A, it would contain two tiers: up to $20 million under Tier 1 and up to $75 million under Tier 2, in each case over a rolling 12-month period. Selling stockholders who are affiliates of the issuer would be limited to $6 million under Tier 1 and $22.5 million under Tier 2, with the selling stockholder portion capped at 30% of the aggregate offering price in the first offering and in offerings qualified within one year of the first qualification date. An issuer would have to file an offering statement on new Form 1-CRYPTO containing the information specified in Rule 103 and obtain SEC qualification before making sales, though testing-the-waters communications would be permitted before qualification.

Both tiers of the fundraising exemption would require financial statements and ongoing annual (Form 1-KC), semiannual (Form 1-SC) and current (Form 1-UC) reports with the SEC. Tier 2 financial statements generally would have to be audited, while Tier 1 would not impose a financial-statement assurance requirement. The exemption also would be limited to issuers with substantial U.S. connections, including organization under U.S. law, a majority of executive officers or directors who are U.S. citizens or residents, more than half of the issuer’s assets in the United States and principal administration of the business in the United States.

Non-accredited investors could participate in Tier 1 and Tier 2 offerings, but generally could invest no more than 10% of the greater of their annual income or net worth (or, for non-natural persons, 10% of the greater of revenue and net assets). Issuers could rely on an investor’s representation concerning that limit unless they knew it was untrue.

The choice between the proposed exemptions therefore would involve more than offering size. A project would need to consider its development timetable, investor base, financial-statement readiness, U.S. footprint and willingness to undergo SEC review and continuing reporting obligations.

A Safe Harbor Based on What the Issuer Promised

The proposal’s most consequential feature may be its non-exclusive safe harbor for investment contracts.

The SEC’s March 2026 interpretation distinguished a non-security crypto asset from the investment contract through which it may be offered. Regulation Crypto Assets would build on that distinction by providing a formal process for determining that the investment contract has ended.

To rely on the safe harbor, an issuer would have to complete or permanently cease all essential managerial efforts it represented or promised to undertake under the investment contract. It also could not make, or intend to make, new promises to perform essential managerial efforts relating to the asset. The issuer then would file a transition report on Form TR setting forth the information that an issuer would have to provide to perfect its reliance on the investment contract safe harbor, including, among other items, a certification that the conditions of the safe harbor had been satisfied and an explanation of the basis for that conclusion.

If the conditions of the safe harbor are met, the investment contract would be deemed to have ceased to exist, and the crypto asset would be deemed no longer subject to that investment contract for purposes of the definitions of “security” contained in Section 2(a)(1) of the Securities Act of 1933 and Section 3(a)(10) of the Securities Exchange Act of 1934.

This approach places unusual legal weight on project roadmaps, white papers, offering materials and other communications describing what the development team will do. Those representations would help define both the investment contract and the work that must be completed or permanently abandoned before an issuer could invoke the safe harbor.

The filing would not amount to advance SEC approval. Issuers would need a defensible factual record showing what they promised, how each material undertaking was completed or ceased and why no new essential managerial efforts are being promised. An unsupported certification could create antifraud and enforcement risk rather than resolve it. Issuers should also be mindful that the SEC and other third-parties could challenge their analyses and conclusions.

Secondary Markets Get a Framework, But Not a Free Pass

By defining “qualified purchaser” for purposes of Section 18(b)(3) of the Securities Act, the proposal also would preempt state registration and qualification requirements for primary offerings under both the startup exemption and the fundraising exemption, as well as for certain secondary-market transactions.

For secondary-market transactions (i.e., transactions by a person other than an issuer, underwriter or dealer), however, preemption would depend on the issuer having satisfied the applicable offering exemption and remaining current with the applicable disclosure, filing and reporting obligations under Regulation Crypto Assets. An issuer’s compliance status therefore could directly affect whether downstream trading continues to receive federal preemption.

Securities exchanges, broker-dealers, custodians and investment firms would need procedures for reviewing the relevant filings and determining whether the issuer remains eligible to utilize Regulation Crypto Assets. The filing of a Form TR could become important evidence that an investment contract has ended, but intermediaries should not treat the filing as a blanket conclusion that the asset can never constitute or become subject to a security in another transaction or context.

Next Steps

The proposed rules were published in the Federal Register on August 21, 2026, with comments due on or before October 20, 2026. Our team will continue to monitor how the proposal evolves as it makes its way through the rulemaking process.

Conclusion

If you have any questions or would like additional information about proposed Regulation Crypto Assets, please reach out to the authors of this Legal Update, or to the Pryor Cashman professionals with whom you work.