SEC Proposes New Crypto Fundraising Regime With $75mn Limit

The proposed "Regulation Crypto Assets" would create two exemptions from Securities Act registration: a startup route allowing projects to raise up to $5mn and a larger fundraising exemption permitting up to $75mn. 

The commission released the framework days after cancelling a scheduled vote to publish it for public comment and on the eve of a White House summit bringing together President Donald Trump, regulators and industry leaders to discuss the future of US digital asset policy.

The proposal is one of the SEC's most significant efforts yet to replace the application of traditional securities rules to crypto fundraising as regulators have opted not to wait for Congress to pass comprehensive market structure legislation this year. 

"The work before us is too important," said SEC Chairman Paul Atkins, speaking in a video statement. "It is the commission's answer to the question that has puzzled innovators since the birth of the blockchain: How can I raise capital to develop a crypto asset while I am still working to develop the network where it will be used?"

New fundraising rules

Under the proposal, the crypto asset itself would not necessarily be considered the security. Instead, securities regulation would apply to what the SEC calls a "covered investment contract" involving a crypto asset that is itself not a security. 

The rulemaking would also override certain state securities registration requirements for qualifying offerings and secondary transactions, a move intended to create a uniform federal framework but one likely to face pushback from state regulators.

Four-year runway 

The startup exemption is designed to give early-stage projects as long as four years to build a network or application while distributing tokens without registering each transaction with the SEC. 

Projects could use the exemption for capital raising as well as distributions associated with developing and operating a network, including some airdrops, staking and governance rewards and payments of gas or testing fees. 

The $5mn limit would apply over the entire four-year exemption period and issuers could use the startup exemption only once. Tier 1 would permit offerings of up to $20mn over 12 months while Tier 2 would allow up to $75mn. Both would require crypto-specific disclosures, while issuers using the fundraising exemption would also have to provide financial statements and comply with ongoing reporting requirements. 

The exemption would allow general sales to retail investors without limiting participation to accredited investors. Covered investment contracts issued under it would also not be treated as restricted securities under federal securities rules, allowing them to be resold without the holding periods imposed by some existing exemptions. 

The SEC said those features were designed in part to avoid regulations that prevent tokens from being distributed widely enough to develop the network effects on which many crypto systems depend. 

Tokens can transition 

Perhaps one of the most consequential part of the proposal is a separate safe harbor establishing when a token can cease to be tied to an investment contract. 

The SEC's March interpretation said a non-security crypto asset can nevertheless become subject to an investment contract when buyers reasonably expect profits from essential managerial efforts promised by an issuer. 

Under the new proposal, an issuer that satisfies the safe harbor could file a transition report explaining why those efforts have been completed or permanently ceased. The SEC would then deem the investment contract to have ended and the underlying crypto asset no longer subject to that investment contract. 

The framework seeks to address a longstanding challenge in crypto regulation: tokens are often sold to fund the development of a network before they function independently. Under former Chairman Gary Gensler, the SEC argued that many such sales, including those by Telegram, Kik, LBRY and Ripple, were unregistered securities offerings and pursued enforcement actions rather than creating a dedicated fundraising framework.

The SEC acknowledged that existing securities rules do not contemplate that transition but said issuers would still be subject to federal antifraud laws and crypto-specific disclosure requirements, including information on token economics, governance, development, conflicts of interest and project risks.

Separate track

The moves underscore how regulators may be hedging their bets in case that Congress will not finish work on the CLARITY Act, which would set the nation's first comprehensive rules for digital assets and better divide oversight between financial regulators. The Senate left for its August recess without voting on the bill and lawmakers are now expected to hold the first procedural vote on 15 Sep.  

With the midterm elections in November and a crowded Senate agenda, the prospects for the CLARITY Act this year appear to be fading. Prediction markets now put the odds of the bill passing in 2026 below 20%.

The SEC will accept public comments on the proposal for 60 days.