On August 18, 2026, the U.S. Securities and Exchange Commission (SEC) proposed a new regulatory framework for certain crypto assets, Regulation Crypto Assets. The proposal would (1) create two new exemptions from Securities Act registration requirements; (2) establish a conditional safe harbor for when a crypto asset ceases to be subject to an investment contract; and (3) preempt certain state securities-law registration requirements. The SEC intends to provide a tailored offering regime for covered investment contracts while facilitating capital formation and keeping investors informed.
In December 2025, we analyzed Congress's market structure proposals—the CLARITY Act and the Responsible Financial Innovation Act (RFIA)—and the SEC's emerging token classification framework. In April 2026, we examined the SEC-CFTC joint interpretive release that formalized a five-category crypto asset taxonomy. While the CLARITY Act faces an uncertain future in Congress, Regulation Crypto Assets delivers the next logical step: translating the classification framework and legislative principles into concrete registration exemptions, disclosure obligations, and a conditional safe harbor.
The proposal operationalizes two key concepts from the SEC’s recent work. First, it builds on the rules-based, classification-driven approach to token taxonomy by establishing offering pathways tailored to the unique characteristics of covered investment contracts. Second, it codifies the “separation” of a crypto asset from its investment contract through a certification-based safe harbor that, when triggered, removes the asset from the scope of the federal securities laws.
Key Provisions and Structure of Regulation Crypto Assets
Scope and definitions
Regulation Crypto Assets applies to “covered investment contracts,” defined generally as investment contracts under the Howey test that involve a crypto asset that is not itself a security and no other asset is subject to the investment contract. The proposal builds on the SEC’s March 2026 interpretive release distinguishing between a crypto asset and the investment contract it may be offered through.
Traditionally, investment contracts that met the well-known Howey test were deemed “securities” subject to SEC oversight. Regulation Crypto Assets would exempt investment contracts involving covered investment contracts from the federal securities laws. Covered investment contracts must meet three requirements under the new regulation: (1) a crypto asset is subject to a Howey investment contract; (2) that crypto asset is not itself a security (such as a tokenized stock, option, or other traditional security); and (3) the investment contract does not involve any other asset.
This reflects the SEC’s view that the crypto asset itself may not possess the attributes of a security, even though the surrounding transaction or arrangement constitutes an investment contract under Howey. The regulation addresses the latter without disturbing the former.
Notably, the framework does not apply to digital securities (crypto assets that are themselves securities), payment stablecoins regulated under the GENIUS Act, or digital commodities, collectibles, or utility tokens that fall outside the investment contract analysis.
Startup exemption
The first proposed exemption, the startup exemption, provides a one-time, nonexclusive exemption permitting issuers to offer up to $5 million of covered investment contracts over a period of up to four years. This exemption is designed for early-stage crypto projects that may not yet have the operational maturity or financial resources to undertake a full registered offering or qualify for the more demanding fundraising exemption. The startup exemption requires issuers to make public filings with the SEC and to provide principles-based narrative disclosures covering the material features of the offering, the investment contract, and the underlying crypto asset.
Because the exemption is nonexclusive, issuers may rely on it alongside other available exemptions (such as Regulation D or Regulation S), but it may be used only once by any given issuer. The four-year offering window provides meaningful flexibility for projects whose development timelines and capital needs may not align with traditional offering schedules.
Fundraising exemption
The second proposed exemption, the fundraising exemption, is modeled in part on Regulation A and provides two tiers of capital-raising capacity:
- Tier 1: Permits up to $20 million in fundraising during a 12-month period; requires principles-based disclosures and financial statements (unaudited).
- Tier 2: Permits up to $75 million in fundraising during a 12-month period; requires principles-based disclosures, audited financial statements, and ongoing reporting requirements.
Rather than prescribing rigid line-item requirements drawn from traditional equity or debt offerings, the proposal would require disclosures tailored to the unique characteristics of crypto asset projects. Both tiers require the use of a new Form 1-CRYPTO, a tailored offering statement designed specifically for covered investment contracts. The tiered structure provides issuers with options calibrated to the scale of their capital-raising needs and the corresponding level of investor protection.
Conditional safe harbor from “investment contract” status
Perhaps the most conceptually significant element of the proposal is the conditional safe harbor addressing when a crypto asset ceases to be subject to an investment contract. Under the safe harbor, if an issuer satisfies certain conditions—including certifying that it has completed or permanently ceased all essential managerial efforts it represented or promised to undertake with the investment contract—the crypto asset is no longer deemed subject to an investment contract.
The practical effect is significant: once the safe harbor is triggered, the asset is no longer a “security” under the Securities Act or the Exchange Act for purposes of registration, reporting, and trading restrictions. The safe harbor codifies and operationalizes the “separation” concept from the SEC–CFTC April 2026 interpretive release, providing a concrete, rules-based mechanism that allows a crypto asset to transition out of the securities regulatory framework.
To invoke the safe harbor, the issuer must publicly file a certification and supporting analysis with the SEC, establishing the basis for its determination that essential managerial efforts have been completed. The filing requirement ensures transparency and provides the market—and the SEC—with the information necessary to evaluate the issuer’s claim.
State-law preemption
The proposal would preempt state securities-law registration and qualification requirements for offerings conducted under either exemption, as well as for certain secondary market transactions when the issuer remains current on its disclosure and reporting obligations. To effectuate preemption, the proposal defines “qualified purchaser” in a manner that, under existing federal law, displaces state registration requirements for transactions involving qualified purchasers.
The proposal’s state-law preemption addresses a long-standing pain point for crypto asset issuers, which have faced a patchwork of inconsistent and often conflicting state requirements. By establishing a uniform federal framework, the proposal may significantly reduce compliance costs and legal uncertainty for issuers conducting offerings to a national or global investor base. The proposal’s state-law preemption would not extend to state fraud and manipulation rules, which would continue to apply.
The administrability of the preemption framework, however, may itself present challenges. As preemption of secondary market transactions depends on the issuer remaining current with the applicable disclosure and reporting obligations, it is not clear how a secondary market participant or state securities regulator would determine, at the time of any given transaction, whether preemption in fact applies. The SEC has requested comment on this question and related matters, including whether preemption should turn on an issuer being merely subject to those obligations rather than current with them, and how market participants should confirm an issuer’s compliance status. A secondary market participant that incorrectly treats a transaction as preempted could remain subject to state registration and qualification requirements.
Preservation of state and federal antifraud protections
In addition to the continued application of state fraud and manipulation rules, the exemptions from registration do not diminish the SEC’s enforcement authority over fraud, manipulation, or material misrepresentation in the offer, sale, or trading of covered investment contracts or the underlying crypto assets. As noted in the SEC’s comments to the proposed rule, issuers relying on the startup or fundraising exemptions would remain subject to the antifraud and manipulation rules, including Section 17 of the Securities Act and Section 10 of the Exchange Act. In addition, the exemptions under Regulation Crypto Assets will not be available to any person that qualifies as a “bad actor” under Rule 262 of Regulation A.
Practical Implications
Token issuers and crypto entrepreneurs
The proposal establishes two clear capital-raising pathways for token issuers. Early-stage projects with limited capital needs may rely on the startup exemption’s streamlined regime, while more mature projects seeking larger raises may look to the fundraising exemption’s tiered structure. Issuers should begin evaluating which exemption best fits their development stage, capital needs, and readiness to meet the applicable disclosure and reporting requirements. The conditional safe harbor provides a crucial “exit ramp” from securities regulation, and issuers with credible plans to decentralize should develop compliance roadmaps that anticipate the certification requirements.
Crypto exchanges, trading platforms, and broker-dealers
The safe harbor’s practical significance may be greatest for crypto trading in the secondary market, though certain practical details may require further clarification. Once a crypto asset achieves safe-harbor status, secondary trading in that asset is no longer subject to securities-law registration and trading restrictions, substantially simplifying the compliance posture of platforms that list them. Exchanges should monitor which assets achieve safe-harbor status and maintain processes for distinguishing between assets that remain subject to investment contracts, which require securities-law infrastructure, and those that have transitioned out of the securities framework.
Broker-dealers should assess the interaction between the proposed exemptions and existing broker-dealer registration requirements. While the state-law preemption provisions significantly simplify multistate compliance, federal broker-dealer obligations continue to apply to intermediaries facilitating transactions in covered investment contracts. Firms should evaluate whether their existing registrations and compliance frameworks are adequate for the anticipated increase in exempt offerings under the new regime.
Notably, while the proposal provides clear exemptions from securities registration requirements for issuers, it does not provide comparable exemptions from broker, dealer, or exchange registration requirements. Further clarification from the SEC may be required to address how secondary trading will work in practice. This is also an area where the Commodity Futures Trading Commission, which shares jurisdiction over digital assets with the SEC, may step in. The blurred lines between the two regulators, particularly in secondary trading, may also be addressed by the CLARITY Act, if enacted.
Investment advisers and fund managers
The proposal has significant implications for advisers and fund managers with crypto asset allocations. Understanding the regulatory status of each token in a portfolio—whether it remains subject to an investment contract, has achieved safe-harbor status, or falls outside the framework entirely—will be essential for custody, valuation, and regulatory reporting. The fundraising exemption’s ongoing reporting requirements will also aid due diligence by providing fund managers with a continuing stream of material information about portfolio holdings.
All market participants
All market participants should revisit their internal classification frameworks in light of the proposal. The SEC’s formalization of the “covered investment contract” concept and the safe harbor’s separation mechanism provide concrete guideposts for determining the regulatory treatment of a crypto asset at any point in its life cycle. Firms should also continue to monitor the trajectory of the CLARITY Act and related legislation, which may further refine or supplement the SEC’s rulemaking.
Next Steps, Timeline, and Legislative Interplay
- Comment Period. The comment period runs for 60 days following publication in the Federal Register, so comments will be due on October 20, 2026. The SEC has specifically invited comments on several key topics, including the dollar thresholds for each exemption tier, the scope and specificity of the disclosure requirements, the conditions for invoking the safe harbor, the practical mechanics of state preemption, and the treatment of crypto assets serving an equity-like role for token holders.
- Anticipated Timeline. Based on the SEC’s current pace of crypto-related rulemaking, we anticipate a final rule in the first or second quarter of 2027. Implementation dates will be specified in the adopting release and are expected to provide issuers with a reasonable transition period.
- Legislative Interplay. The CLARITY Act remains active in Congress and could be enacted during the current session. The RFIA’s “ancillary assets” concept may also surface in the legislative process. The SEC has designed Regulation Crypto Assets to be compatible with congressional action—the proposed framework is intended to complement, not conflict with, the legislative architecture Congress is developing, though it is possible that elements of Regulation Crypto Assets would be superseded by the CLARITY Act, if enacted. Investors should monitor both tracks simultaneously in case legislative developments affect the scope, timing, or substance of the final rule.
If you have any questions, or would like additional information, please contact one of the attorneys on our Capital Markets & Securities, Securities Litigation, or Financial Services teams.
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