SEC Proposes New Rules for Investment Contracts Involving Crypto Assets

While the CLARITY Act languishes in Congress, the Securities and Exchange Commission (SEC) has moved forward in its efforts to provide a federal regulatory framework for crypto assets by proposing a tailored securities offering regime for certain investment contracts involving crypto assets. On August 18, 2026, the SEC issued a 401-page release proposing new rules for "Regulation Crypto Assets." Regulation Crypto Assets would establish exemptions for startups and fundraising, provide a conditional investment contract safe harbor, and include a definition of "qualified purchaser" to preempt state securities registration and qualification requirements.

Regulation Crypto Assets follows the interpretive guidance issued by the SEC, joined by the Commodity Futures Trading Commission (CFTC) earlier this year in March, which set forth a token taxonomy that we previously analyzed. In his statement accompanying the proposed Regulation Crypto Assets, SEC Chair Atkins asserted that "we are charting a new course with a package of exemptions that would facilitate capital formation and allow crypto asset innovation to flourish in the United States in the years ahead." The proposed regulation includes 154 separate questions and requests comment on some or all those questions. The comment period will remain open for 60 days after publication in the Federal Register. This note summarizes the definitions, exemptions, safe harbor, and state preemption provisions proposed in the regulation.

Key Definitions and General Provisions

Proposed Rule 100 sets forth a series of definitions that would apply to Regulation Crypto Assets. Notably, a "covered investment contract" would be defined to be a contract, transaction, or scheme that constitutes an investment contract and satisfies the following requirements: (1) a crypto asset is subject to the investment contract; (2) such crypto asset is not a security; and (3) no asset other than the crypto asset is subject to the investment contract. The term "covered transaction," which would apply only to the proposed startup exemption, is defined as an offer, sale, or other distribution of a covered investment contract, including any public or private offering of a covered investment contract in one or more capital-raising transactions, or as a reward or incentive for conducting activities primarily related to operating, governing, or securing an associated crypto network or application.

Proposed Rule 101 consolidates general provisions that apply to many of the SEC's existing offering exemptions. An issuer would be permitted to rely on the exemptions and the investment contract safe harbor in Regulation Crypto Assets while also relying on other SEC exemptions or safe harbors.

Disclosure Requirements

Proposed Rule 103 would establish a principles-based, facts-and-circumstances approach to disclosure requirements for offerings of covered investment contracts. Disclosures would be current and ongoing, tailored to the particular issuer, the subject crypto asset, and the associated network or application, and should be presented in plain, concise language. The information that would be required to be disclosed encompasses the material terms of the covered investment contract and offering, the subject crypto asset, management, conflicts of interest, associated crypto network or application, security and source code, economics and allocations, governance, ecosystem, and risk factors.

Startup Exemption

The startup exemption proposed in Rule 200 would allow offerings of up to $5 million over a period of up to four years. The exemption is intended to provide a regulatory runway and temporary relief from registration requirements while the issuer works to fulfill the essential managerial efforts promised to investors pursuant to the covered investment contract. The conditions for the startup exemption include a four-year duration, issuer eligibility requirements, one-time use for the subject crypto asset, a $5 million offering limit, disclosure and filing requirements, and other general conditions. The issuer would be required to file a notice of reliance (Form NOR) on EDGAR, periodically update that information, and file a transition report (Form TR) no later than four years after the filing date of the notice of reliance. The proposed forms are included in the Appendix to the proposed regulation.

Form NOR would require the issuer to provide information about the issuer and the subject crypto asset as well as certify that the information is true, complete, and correct. Issuers would be permitted to amend a previously filed notice of reliance to correct a material mistake or error or to reflect a material change in information that had previously been reported.

Form TR seeks information about whether the issuer completed or permanently ceased all essential managerial efforts that it represented or promised it would undertake, and whether the issuer intends to make any new representations or promises. Should these conditions not be satisfied, the issuer would be required to disclose the current status of, and the issuer's plans for, the covered investment contract, subject crypto asset, and associated network or application.

Fundraising Exemption

The proposed fundraising exemption in Rule 300 would provide an exemption from registration requirements for offerings of up to $75 million of covered investment contracts in a 12-month period. This exemption is intended to facilitate larger capital-raising transactions for covered investment contract issuers than would be permitted under the startup exemption. Unlike the startup exemption, an issuer seeking to qualify for the fundraising exemption would not be required to certify its intention to fulfill the essential managerial efforts that it represented or promised investors it would undertake under the covered investment contract. However, the fundraising exemption would include additional disclosure requirements and ongoing reporting obligations that would not be required by the startup exemption.

The proposed fundraising exemption comprises two tiers with separate offering limits. Tier 1 would permit issuers to offer and sell up to $20 million of covered investment contracts in a 12-month period, including no more than $6 million offered by selling securityholders who are affiliates of the issuer. Tier 2 would permit issuers to offer and sell up to $75 million of eligible securities in a 12-month period, including no more than $22.5 million offered by the issuer's affiliates.

Unlike the startup exemption, the proposed fundraising exemption would be available only to an issuer organized in the United States with a majority of its executive officers or directors being U.S. citizens or residents, more than 50% of its assets located in the United States, and its business administered principally in the United States. The proposed exemption would not be available to a development-stage company without a specific plan or purpose, a registered investment company or business development company, or an issuer that has been subject to any SEC order within five years before filing the offering statement.

Issuers seeking to rely on the fundraising exemption would be required to file offering statements on EDGAR that include the same disclosure topics required by the startup exemption, as well as information about the issuer's financial condition and its financial statements. Offering statements filed under Regulation Crypto Assets would complete Form 1-CRYPTO, which would include basic information about the issuer and the proposed offering, offering circular disclosures, financial statements, assurance requirements, and exhibits. Issuers would be subject to periodic, current, and transition reporting requirements similar to Regulation A. Issuers would retain the ability to raise capital through registered offerings or under other existing exemptions.

Investment Contract Safe Harbor

Proposed Rule 400 would establish a non-exclusive safe harbor from the definition of "investment contract." If the conditions of the safe harbor are satisfied, a covered investment contract would be deemed to have ceased to exist, and the crypto asset that was subject to the covered investment contract would be deemed no longer subject to the investment contract. The proposed safe harbor would provide additional clarity and codify aspects of the SEC's earlier March interpretive guidance regarding when an investment contract may cease to exist. The March interpretation provided that a covered investment contract ceases to exist when either the issuer has fulfilled its representations or promises to engage in essential managerial efforts, or the purchaser would no longer reasonably expect the issuer to fulfill or continue to engage in those promised managerial efforts.

The proposed rule would require the issuer to complete or otherwise permanently cease all managerial efforts that it promised to undertake, and to refrain from making any new representations or promises to engage in essential managerial efforts with respect to the crypto asset. This information would be provided in a Form TR filed on EDGAR.

The investment contract safe harbor would be available to issuers relying on the startup exemption or fundraising exemption once they have satisfied the safe harbor conditions. It also would be available to issuers that have not used either exemption.

If the issuer has satisfied the safe harbor conditions, the reporting, registration, and other requirements of the federal securities laws would no longer apply from the point at which the issuer satisfied the safe harbor conditions. If the issuer has not satisfied the safe harbor conditions, a crypto asset may nonetheless be found not to be subject to an investment contract under the Howey test.

Preemption of State Registration and Qualification Requirements

Proposed Rule 500 would add a new definition of "qualified purchaser" such that state securities law registration and qualification requirements would be preempted for offers and sales of covered investment contracts pursuant to an exemption in Regulation Crypto Assets, as well as secondary market transactions in those covered investment contracts by any person other than the issuer, underwriter, or dealer. Under the proposed rule, a "qualified purchaser" would include any person to whom securities are offered or sold in an offering under Regulation Crypto Assets, or in a transaction by any person other than an issuer, underwriter, or dealer with respect to a covered investment contract, provided that the issuer has satisfied the requirements of an exemption under Regulation Crypto Assets and remains subject to, and current with, the exemption's disclosure, filing, and reporting requirements.

Conclusion

Regulation Crypto Assets is not a replacement for the more comprehensive crypto market structure framework contemplated by the CLARITY Act. Numerous issues remain to be addressed, including decentralized finance, custody, tokenization, and the innovation exemption previously referenced by SEC Chair Atkins. Even so, the proposal represents another step forward in the SEC's efforts to develop a federal regulatory framework for crypto assets. It builds on the SEC's prior token taxonomy and would provide a tailored offering regime for covered investment contracts involving crypto assets.

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Elizabeth Davis and Stephen Gannon are partners in the financial services group in the Washington, D.C., office of DWT. For any questions or more insights, please reach out to the authors or another member of our financial services team and sign up for our alerts.