SEC Proposes First Formal Crypto Rules for Token Fundraising
For the past decade, the Securities and Exchange Commission (SEC) has navigated cryptocurrency fundraising through litigation, pursuing token issuers on a case-by-case basis without establishing clear, published rules. This approach is now set to change.
Yesterday, the SEC unveiled “Regulation Crypto Assets,” its inaugural formal rulemaking for the cryptocurrency sector. This new framework outlines two distinct pathways for selling tokens without requiring full registration with the SEC.
The smaller option permits a one-time fundraising effort of up to $5 million over a four-year period. A more substantial path allows for up to $75 million in capital to be raised within any 12-month span. This latter ceiling is comparable to the framework established by Reg A+ Tier 2, a “mini-IPO” structure created by Congress through the JOBS Act. Both pathways mandate narrative disclosures based on core principles, resembling a whitepaper more than a formal registration statement. The $75 million tier further necessitates financial statements and ongoing reporting. The proposed rules would also supersede state-level registration requirements for exempt offerings and certain secondary market transactions.
A significant addition is a crucial safe harbor provision. Under the proposal, a token would no longer be considered an investment contract once the issuer has fulfilled or permanently ceased all essential managerial efforts it committed to. Chairman Paul Atkins has directly linked this framework to the Token Safe Harbor initially proposed by Commissioner Hester Peirce in February 2020, a measure the industry has been advocating for ever since.
This represents a notable departure from the SEC’s past practices. The initial wave of Initial Coin Offerings (ICOs) in 2017 faltered as the SEC classified token sales as unregistered securities offerings, leading to a series of lawsuits. Since then, projects have largely structured themselves around this ruling. This has resulted in the proliferation of offshore entities like Cayman and Swiss foundations, sales restricted to non-U.S. buyers, accredited investor-only rounds under Reg D, and the design of airdrops and points programs to circumvent classification as sales. These complex structures emerged due to the absence of a clear, onshore legal avenue.
The proposed rules now offer explicit guidelines for token sales within the United States. If these proposals are adopted, a resurgence of ICO activity is anticipated.
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