SEC Crypto Rules Could Redefine Token Sales and Startup Funding

• The SEC proposes a $5 million startup exemption and two larger fundraising tiers allowing up to $20 million and $75 million annually.
• Tokenized securities, including stocks and bonds, would remain outside the new exemptions.
• The larger fundraising routes require SEC qualification and continuing reports, while a conditional safe harbor could end an issuer’s investment-contract obligations.

The U.S. Securities and Exchange Commission’s proposed Regulation Crypto Assets would give qualifying cryptocurrency projects new ways to raise capital without completing a conventional registered securities offering. Yet the framework’s eligibility restrictions, disclosure obligations and treatment of token sales could determine how widely it is used.

Published in August 2026, the proposal introduces a startup exemption allowing up to $5 million over four years and a separate fundraising exemption with annual limits of $20 million and $75 million.

It also establishes a potential legal pathway for ending an investment contract after an issuer completes or permanently ceases the essential managerial efforts promised to investors.

The public consultation closed on October 20. The SEC must now consider industry comments before deciding whether to adopt the framework, revise its conditions or pursue another approach.

Three Fundraising Routes With Different Compliance Costs

The proposal creates distinct options for early-stage developers and more established issuers. The differences involve more than the amount of capital available.

SEC Regulatory Proposal How the Three Crypto Fundraising Exemptions Compare Proposed capital limits and disclosure obligations STARTUP $5M Over 4 years TIER 1 $20M Per 12 months TIER 2 $75M Per 12 months SEC Filing Form NOR Form 1-CRYPTO Form 1-CRYPTO SEC Qualification Not required Required Required Financial Statements Not required Unaudited GAAP Audited GAAP Continuing Disclosure Website updates SEC reports SEC reports Issuer Eligibility Individuals, groups or entities Qualifying U.S. entities Qualifying U.S. entities Proposed rules, not currently effective. Additional conditions apply. Source: SEC Release No. 33-11434.

The startup route would require a notice of reliance on Form NOR before covered transactions begin. Issuers would publish disclosures on a designated website and update material changes according to the proposed schedule.

The larger exemptions would require SEC qualification of Form 1-CRYPTO before sales could occur.

Both fundraising tiers would also require annual, semiannual and event-driven reports. Tier 2 adds audited financial statements, while Tier 1 generally permits unaudited statements prepared under U.S. accounting standards.

Unlike the startup route, the larger exemptions would be restricted to entities meeting U.S. organizational and operational requirements.

That limitation could affect cryptocurrency projects operating through offshore foundations, even when their developers or customers are based in the United States.

Token Classification Could Exclude Common Fundraising Structures

The exemptions would apply to qualifying covered investment contracts, not every asset represented on a blockchain.

Under the proposed definition, the crypto asset involved must not itself be a security, and the investment contract cannot include another asset.

This excludes tokenized stocks, bonds and fund interests from the new offering exemptions.

It also creates potential complications for fundraising structures combining token rights with equity or debt.

A startup raising capital through an agreement that provides both company shares and future tokens cannot assume the entire arrangement qualifies merely because part of the investment involves cryptocurrency.

The SEC’s analysis focuses on the economic substance of the transaction, including the rights investors receive and the commitments made by the issuer.

For founders, the practical implication is significant: selecting an exemption comes after determining whether the proposed investment arrangement satisfies its definition.

The distinction also limits the proposal’s relevance to tokenized real-world assets. Recording ownership of a conventional security on a blockchain does not change the underlying instrument’s legal status.

Industry Pushback Targets Fundraising Limits and Procedures

The proposed $5 million startup ceiling has attracted requests for greater flexibility.

In an October 21 announcement, Hawkeye Digital said it had submitted a comment recommending that the SEC increase the limit to $10 million, clarify the treatment of essential managerial efforts and simplify certain compliance procedures.

The submission also recommended recognizing independent code audits within technical security disclosures.

These are proposals from one market participant, not adopted rules or evidence of agreement among all industry commenters.

The broader policy issue is whether the startup exemption can accommodate projects that must finance substantial software development and security work before generating revenue.

Increasing the ceiling would provide more capital under a lighter disclosure regime, but it would also increase the potential exposure of investors purchasing through that exemption.

The larger fundraising pathway presents a different obstacle. SEC qualification and continuing reporting could make it less attractive to smaller teams without established accounting and compliance operations.

Industry participants must weigh those obligations against the greater financing capacity available under Tier 1 and Tier 2.

Fixed-Price Rules Could Disrupt Some Token Launches

One provision has implications for token distribution methods commonly used in decentralized finance.

Under the proposed fundraising exemption, offerings would generally need to be conducted at a fixed price per unit.

That requirement could conflict with token sales using auctions, bonding curves or other mechanisms in which prices change dynamically according to demand.

A project planning a variable-price launch could therefore face a structural problem even if it meets the fundraising exemption’s capital and disclosure requirements.

The SEC has requested feedback on whether variable pricing or delayed offering mechanisms should be permitted.

This makes the final treatment of pricing particularly relevant for projects whose token distribution models depend on market-based price discovery rather than a predetermined offering price.

The Safe Harbor Depends on Development Promises

The proposed investment-contract safe harbor addresses what happens after fundraising.

An issuer could potentially establish that a covered investment contract has ended once it completes or permanently ceases the essential managerial efforts originally represented or promised to purchasers, provided the other conditions are met.

The mechanism involves a transition report on Form TR.

For example, a team that raised capital to develop a blockchain network would need to examine the specific functionality, governance arrangements and infrastructure it promised investors.

Completing those commitments may be legally significant. Continuing routine maintenance or optional software upgrades does not necessarily mean the original investment arrangement remains in place.

However, the distinction depends on the facts. A project cannot establish eligibility simply by describing itself as decentralized.

The proposed safe harbor also concerns the investment-contract analysis under the Securities Act and Exchange Act. It does not automatically resolve every possible securities-law question or erase liability for conduct that occurred while the investment contract existed.

This creates a practical reason for founders to preserve historical whitepapers, roadmaps and public statements: those materials may determine which managerial commitments must be evaluated before a transition report can be filed.

What Crypto Founders Should Prepare Now

Although the proposal is not effective law, developers and legal teams can begin organizing information relevant to future offerings.

A practical preparation checklist includes:

• Token classification: Identify contractual rights, investor claims and any securities bundled with the crypto asset.
• Offering documentation: Preserve whitepapers, token allocations, fundraising materials and representations about future development.
• Development milestones: Record which managerial efforts were promised and retain evidence of their completion.
• Financial reporting: Establish accounting processes capable of supporting the applicable U.S. GAAP requirements.
• Security disclosures: Maintain independent assessments, code versions, remediation records and material risk documentation.

Teams planning token distributions should also examine whether rewards, incentives or airdrops involve consideration that could bring them within the proposed startup exemption.

The proposal’s treatment of these transactions is not identical to a traditional cash fundraising round, and their potential inclusion could affect the exemption’s available capacity.

Founders should also review marketing communications before an offering. The proposed startup exemption requires Form NOR to be filed before covered transactions, making the timing and content of public statements relevant to compliance.

State Preemption Would Not Eliminate Trading Rules

Regulation Crypto Assets also proposes federal preemption of certain state securities registration and qualification requirements for eligible offerings and qualifying secondary transactions.

That could reduce the complexity of raising capital across multiple U.S. states.

However, the proposal does not eliminate federal antifraud obligations or all state enforcement authority.

It also does not resolve every question facing exchanges, brokers, custodians and other intermediaries handling crypto assets.

The distinction matters for investors expecting newly issued tokens to become freely tradable. Relief from particular resale restrictions does not necessarily mean every trading platform can list the asset without additional regulatory analysis.

The SEC’s final framework will therefore influence issuance and distribution, while other securities and market-structure requirements may continue to govern trading.

What Happens After the SEC Comment Period?

The SEC’s consultation period ended on October 20, 2026, under File No. S7-2026-27.

The agency must now evaluate submissions addressing fundraising limits, issuer eligibility, disclosure obligations, token pricing and the safe harbor’s conditions.

The most consequential decisions will determine which projects can use the exemptions, how much ongoing reporting they must provide and when an investment contract can be treated as concluded.

For investors, the proposal offers the prospect of more tailored information about token development and issuer commitments. For founders, it could reduce reliance on conventional securities registration pathways while introducing a new set of crypto-specific compliance obligations.

None of the proposed exemptions or safe harbor provisions is currently effective. Until the SEC adopts final rules, issuers must continue assessing token offerings under existing securities laws and available registration exemptions.

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