Written by: Xiaobing
The U.S. Securities and Exchange Commission (SEC) released a 402-page proposed rule titled "Regulation Crypto Assets" on August 18. It outlines two registration exemption paths and one safe harbor mechanism specifically designed for investment contracts involving crypto assets. This marks the first time in SEC history that permanent regulatory rules have been drafted specifically for crypto assets.
The timing is notable: the SEC originally scheduled a meeting and vote for August 14, canceled it abruptly, and then directly released the proposal four days later. Even more noteworthy is the context: before recessing on August 7, the Senate failed to vote on the "Clarity for Digital Asset Markets Act" (CLARITY Act), postponing the procedural vote to September 15. What Congress couldn't accomplish, the SEC took into its own hands.
What Does the Rule Say?
Two exemption paths correspond to two project stages.
"Startup Exemption": Allows a one-time raise of up to $5 million within a four-year period. Requires the filing of public documents at the beginning and end of the offering, disclosing basic information about the project, team, technology, and risks to investors. Audited financial statements are not required.
"Fundraising Exemption": Allows raising up to $75 million per 12-month period. This higher threshold requires the submission of financial statements, subjects the project to ongoing reporting obligations, and brings activities under anti-fraud and market manipulation rules.
A common requirement for both paths is "principles-based narrative disclosure." The SEC did not provide rigid form templates, allowing projects to disclose key information based on their specific circumstances. This is completely different from the traditional IPO's S-1 form, leaning more towards a "you tell investors what they need to know" approach.
The part that truly changes the game is the investment contract safe harbor.
Tokens Can "Graduate"
For the past eight years, the biggest legal dilemma for the U.S. crypto industry can be summed up in one sentence: once a token is deemed an investment contract (security) at the time of issuance, it remains a security forever. Even if the project goes live, the network decentralizes, and the founding team exits daily operations, the security label on the token cannot be removed. This meant it could not be listed on non-securities exchanges, could not circulate freely, and every transfer could trigger securities law compliance issues.
Regulation Crypto Assets proposes an exit path. When the issuer completes or permanently ceases the "essential managerial efforts" it promised in the investment contract, and after meeting specific conditions and submitting proof to the SEC, the token will no longer be considered the subject of an investment contract and will exit the securities framework.
As SEC Chairman Paul Atkins stated, this is "commonsense regulation: the minimum effective dose, the maximum constructive freedom."
The significance of this mechanism is that it creates an unprecedented legal lifecycle for tokens. A token is born a security, raises funds within a regulated framework, with the project team bearing disclosure obligations and investor protection responsibilities; when the project matures, decentralization goals are achieved, and management dependency disappears, the token "graduates" into a non-security asset. The SEC oversees the first half, the CFTC (or no one) oversees the latter half.
Since the birth of securities laws in 1933, no financial instrument has had such a "promotion" channel. Stocks are securities, from issuance to delisting. Bonds disappear upon maturity, they don't transform into another asset. Tokens will become the only financial instrument that can "be born a security and die a commodity."
Decentralization Becomes an Exam Paper
The safe harbor sounds beautiful, but the sharpest question in implementation is: who decides that the "essential managerial efforts have been completed"?
The SEC's proposed solution is to leave the definition of the criteria to the issuer, subject to SEC review. According to the interpretive guidance jointly issued by the SEC and CFTC in March of this year, the standard is based on which "essential managerial efforts" the issuer promised in the investment contract. If you promised to achieve decentralized governance, you need to prove governance is indeed decentralized; if you promised to develop a core feature, you need to prove the feature has been delivered.
The standard is self-defined by the issuer, but the proof process is subject to scrutiny. Decentralization is no longer just a visionary description in a white paper, nor a subjective argument in court debates; it is becoming a compliance condition requiring documentation and verification.
What does this mean for the industry?
Future token projects may need to clearly list "graduation conditions" in the white paper stage: the timeline for governance transfer, milestones for team control exit, technical standards for independent network operation. The decentralization roadmap will shift from marketing material to a legal commitment.
The SEC is Racing Against Congress
Placing Regulation Crypto Assets within the larger policy landscape, the SEC's move carries clear time pressure.
The CLARITY Act is stalled in the Senate. It failed to get a vote before the August 7 recess, with the procedural vote pushed to September 15, requiring 60 votes to proceed. On Polymarket, the probability of the bill passing by 2026 has fallen from its February peak of around 82% to about 28%. The two parties are deadlocked over an ethics clause: Democrats want restrictions on federal officials profiting from cryptocurrency businesses, while Republicans prioritize advancing market structure clarity. With only 14 working days left before the midterm elections, the time window is extremely narrow.
Atkins also acknowledged in his statement that "legislation remains indispensable," but he chose not to wait. The SEC used administrative rules to perform part of the work of congressional legislation, creating a token fundraising framework that can operate independently. If the CLARITY Act eventually passes, the two systems can be integrated; if Congress continues to delay, at least the market has a usable regulatory foundation.
This is a pragmatic judgment. The SEC is proactively filling the legislative vacuum, replacing the "case-by-case enforcement" regulatory model of the past decade with a registration exemption system specifically designed for crypto assets. Atkins's exact words were that these rules aim to "reduce the incentive for issuers to establish and operate overseas," which is tantamount to publicly admitting: the past enforcement-first strategy drove projects offshore.
It's crucial to emphasize again: this is a proposed rule, not a final rule. After formal publication in the Federal Register, there will be a 60-day comment period. Subsequently, the SEC will need to review public comments, revise the rule, and vote again to adopt a final version. From proposal to effectiveness typically takes several months to over a year.
The industry reaction is positive but cautious. Digital Chamber of Commerce CEO Cody Carbone stated that the SEC adopted several suggestions from crypto businesses in the rule's language.
The final form of the rule depends on feedback during the comment period and the final decision by the SEC's three commissioners (all Republicans). If the SEC's composition changes after the midterm elections, the rule's fate could face further uncertainty.
But the direction is set: U.S. regulators have begun building a compliant pathway for token fundraising, rather than continuing to block the road. Tokens can raise funds legally and can "graduate" from the securities framework once conditions are met.
These two elements together constitute the most significant paradigm shift in U.S. crypto regulation to date.
