SEC Proposes New Crypto Regulation: Token Sales Under $5M May No Longer Require Registration

Original | Odaily Planet Daily (@OdailyChina)

On August 18, North American local time, the U.S. Securities and Exchange Commission (SEC) officially released a new proposed regulation titled “Regulation Crypto Assets,” establishing a tailored framework for issuing contracts involving crypto assets. This marks the most significant substantive step in crypto regulation since SEC Chair Paul Atkins took office and signals the regulator’s proactive effort to forge an alternative path amid the ongoing stalemate of Congress’s CLARITY Act.

What’s new: Two exemptions allow altcoins to begin moving forward.

According to the official release by the SEC, the core provisions of Regulation Crypto Assets include two exemptions from registration under Section 5 of the Securities Act of 1933, as well as a conditional safe harbor rule.

1. Startup Exemption

Early-stage projects are permitted to raise up to $5 million in total over a period of up to four years without completing a full registration process. Issuers need only provide principle-based narrative disclosures, resulting in a streamlined process closer to a notice-based filing.

2. Fundraising Exemption

Issuers are permitted to raise up to $75 million over any 12-month period. This exemption framework largely mirrors the existing Regulation A+ structure, with two tiers requiring issuers to submit audited financial statements and fulfill ongoing reporting obligations in addition to narrative disclosures. Issuers under both exemptions remain subject to the anti-fraud and anti-manipulation provisions of federal securities laws.

In other words, if an issuer needs to raise funds by issuing tokens, they can choose to apply for one of the two exemptions above, depending on the size of the funding, thereby avoiding the traditional, time-consuming, and costly full SEC registration process:

• For small-scale early-stage funding (not exceeding $5 million total over four years): For example, a new project looking to sell tokens on a limited scale to fund development can qualify for the startup exemption, requiring only a clear, plain-language description of the project (narrative disclosure), without audited financial statements. The process is straightforward and resembles filing rather than approval.
• If the fundraising amount is larger (up to $75 million per year): For example, if the project already has a solid foundation and aims to raise funds from a broader public, it must follow a fundraising exemption. In addition to the same narrative disclosures, it must also submit audited financial statements, and after receiving the funds, it must continuously report to the SEC (similar to the periodic disclosure obligations of public companies).

Under these rules, the issuance of U.S. altcoins is fully legal.

Original text from the SEC website

3. Investment Contract Safe Harbor

Under this safe harbor provision, once the issuer has completed or permanently ceased the “essential managerial efforts” previously promised to investors, the relevant crypto asset will be considered no longer subject to the definition of an “investment contract,” meaning the asset can “detach” from its securities characteristics.

In addition, the proposal includes a redefinition of “qualified purchaser,” which would exempt securities issued under Regulation Crypto Assets, as well as related secondary market transactions, from state securities law registration and qualification requirements (i.e., federal preemption of state law).

In other words, if a token was initially sold as an “investment contract” (for example, if the project team originally promised, “We will work to develop, maintain, and operate this network, and the token will have value in the future”), then over time, provided certain conditions are met, the token may no longer be regulated as a security:

The triggering condition is when the project team has either completed all required efforts or ceased all efforts altogether. This means either the project team has fulfilled its promised “necessary managerial efforts” (e.g., the network is fully built and sufficiently decentralized, no longer requiring ongoing maintenance by a specific team), or the project team has permanently stopped fulfilling these commitments (e.g., the team has disbanded or abandoned development). In short, once investors can no longer reasonably expect the project team to continue working to support the token, the token can be freed from the investment contract and is no longer considered a security.

Once the conditions are met, trading and transfer of this token will no longer be treated as a securities transaction, eliminating the need for securities registration or compliance with lock-up restrictions, allowing the exchange to list the token more freely.

When a token is first issued, it is treated as a security because the project team promises, “I’ll work to make it valuable”; but once the team fulfills that promise (or completely gives up), the token can become an ordinary asset not subject to securities laws.

In other words, all tokens from teams that have abandoned their projects do not need to be classified as securities, are not subject to SEC regulation, and do not require reporting for large transactions, thereby removing all regulatory barriers.

Notably, the SEC specifically defines the new term “covered investment contract” in the proposal document, limiting it to:

(1) Involves a specific cryptocurrency asset;

(2) The cryptocurrency itself is not a security;

(3) This investment contract does not involve any other assets besides this cryptocurrency asset (whether securities or non-securities).

This strict scope definition ensures that the two exemptions and safe harbors apply only to narrowly defined cryptocurrency issuance scenarios, and not to issuances involving “securities” or “digital securities” (tokenized securities).

This bill was introduced because the Clarity Bill is losing momentum.

The Regulation of Crypto Assets is a continuation and implementation of a series of policy actions by the SEC over the past year and a half:

• January 2025: Trump signs an executive order titled “Strengthening U.S. Leadership in Digital Financial Technologies,” establishing the President’s Digital Assets Market Task Force.
• Early 2025: The SEC establishes the Crypto Task Force, led by Commissioner Hester Peirce, and solicits public input, receiving over 300 comment letters in total.
• July 2025: The Presidential Working Group released a report explicitly recommending that the SEC use its rulemaking and exemption authority to establish tailored registration exemptions, time-limited safe harbors, and specific exemptions for “airdrops” related to digital asset securities offerings. Atkins subsequently announced the launch of the “Project Crypto” initiative.
• March 17, 2026: The SEC and CFTC jointly issued the “2026 Interpretive Guidance,” which for the first time systematically categorized crypto assets into five classes—digital commodities, digital collectibles, digital tools, stablecoins, and digital securities—and clarified the criteria under which non-securities crypto assets would “fall into” or “fall out of” the definition of an investment contract. This guidance serves as the direct theoretical foundation for the current “Regulation Crypto Assets” proposal.
• August 18, 2026: The “Regulation of Crypto Assets” is officially published as a regulatory proposal, entering a 60-day public comment period.

The SEC acknowledged in its proposal that its past regulatory approach to crypto assets has primarily relied on the Howey test established by the Supreme Court in 1946, which suffers from two major flaws: first, the Howey test itself is ill-suited for crypto assets—new types of assets whose rights evolve over time; second, the disclosure requirements under current rules (such as Regulation S-K and Form 1-A) often fail to align with the information that crypto asset investors truly care about, such as tokenomics, network governance mechanisms, and source code security. This is precisely why Rule 103, the “principle-based disclosure requirements,” has been carefully designed in this proposal.

More critically, the SEC’s decision to act at this juncture is directly tied to the severe stagnation of congressional legislative efforts. The “CLARITY Act,” long regarded as the “ultimate solution” for the crypto industry, has faced repeated setbacks in the Senate since earlier this year: from disagreements between the crypto and banking sectors over stablecoin incentive provisions, to ethical controversies surrounding former President Trump’s potential conflicts of interest regarding his crypto assets, the bill has consistently failed to secure sufficient votes in the Senate.

The contract price on Polymarket regarding the “CLARITY Act becoming law within 2026” has declined from a peak of nearly 82% in February to the 18%-21% range by mid-August. Although the Senate Majority Leader submitted a cloture motion on August 8 and set September 15 as the procedural vote date, this vote requires 60 votes in favor. Based on the current Republican seat count, approximately 10 Democratic senators would need to defect—a significant challenge.

Amid prolonged legislative delays and sustained pressure from the market and industry, White House crypto policy advisor Patrick Witt explicitly stated at the SALT conference that the government is “giving the Senate and Congress ample opportunity,” but “will not wait indefinitely”; if the legislative window in September fails to produce results, regulators will proceed independently to establish rules. The Regulation of Crypto Assets is the concrete implementation of this stance. The SEC has chosen to leverage its existing rulemaking and exemption authority to provide the crypto industry with an interim regulatory framework while Congress remains deadlocked, rather than waiting passively for a bill that could potentially fail at any moment.

Timeline: When will it become official policy?

The Regulation on Crypto Assets is still in the proposal stage and has not yet taken effect. The key upcoming milestones are as follows:

• August 18, 2026: The SEC formally releases the proposal, File No. S7-2026-27.
• Within 60 days after publication: The public comment period will be open, and anyone may submit comments via the SEC’s official website or by email. The deadline will be established after the proposal is formally published in the Federal Register.
• After the comment period ends: The SEC must review and respond to all substantive comments before deciding whether to formally adopt the final rule—and, if so, in what modified form (“adopting release”). This process has no statutory deadline; historically, similar rules have taken several months to over a year from proposal to finalization.
• November 2026: Hester Peirce plans to leave the SEC, which may impact the internal momentum for advancing this framework.

Overall, for the Regulation of Crypto Assets to take effect, it must still go through a full process of public consultation, revision, and formal approval, and is not expected to be completed in the near term (within months); similarly, the legislative progress of the parallel CLARITY Act remains uncertain. For the crypto industry, this means that, for the foreseeable future, the regulatory environment for crypto asset issuance in the United States will remain in a transitional state—characterized by a race between proposals and legislation, with no clear outcome yet.

Source: www.kucoin.com