SEC Proposes Regulation Crypto Assets

• A US regulatory framework for offering crypto asset securities, disclosure, and a path out of "security" status. | "There is no spoon."¹
• Regulation Crypto Assets would create a capital-formation framework for certain investment contracts involving crypto assets; it is not a token-classification rule.
• The proposal would allow a non-security crypto asset to be distributed through a regulated investment contract and later separate from that contract once the issuer's disclosed managerial promises end.
• Reflecting the difficulty inherent in the analysis, and the complicated history, important questions remain.

Background

On August 18, 2026, the Securities and Exchange Commission proposed Regulation Crypto Assets (Proposing Release),²  a new federal framework for offers and sales of "covered investment contracts"³involving crypto assets. The Proposing Release follows the SEC's March 2026 interpretation⁴distinguishing a crypto asset from the contract, transaction, or scheme through which it may be offered. The SEC's new framework offers meaningful opportunity for engagement during the comment period. Key aspects of the proposed framework and consequential details remain open to comment.

From Howey to a Crypto Asset Framework

Historical doctrine was operationalized, albeit at times obscured, with the emergence of digital assets. In Howey, the orange groves were not securities standing alone; the land-sale and service arrangements, viewed together, formed the investment contract.⁵ Joiner likewise directed courts to examine the terms of the offer, the plan of distribution, and the economic inducements held out to investors.⁶  Later cases applied the same separation between an asset and the surrounding program. A portfolio of ordinary bank certificates could support an investment-contract claim when coupled with Merrill Lynch's selection, monitoring, and secondary-market commitments.⁷  And in Ripple, the district court analyzed different distributions of the same token by reference to the circumstances and expectations created in each transaction.⁸

With Regulation Crypto Assets, the SEC seeks to add clarity to that line of precedent. A "covered investment contract" would be a contract, transaction, or scheme that is an investment contract, has a crypto asset as its subject, and does not have another asset as its subject. The subject crypto asset itself is not a security. The regulated security is the investment contract surrounding the asset, not the asset in the abstract.⁹

That distinction matters because status could change over time. The proposal would regulate the formation and performance of managerial promises and then provide a mechanism to document their completion. It is better understood as lifecycle regulation than as a taxonomy of tokens.

Three Pathways and a Disclosure Backbone

The proposed regulation would offer two exemptions for capital formation and a safe harbor from the federal definitions of "investment contract." All three pathways turn on the issuer's essential managerial efforts and the record created around them. They are nonexclusive, so existing exemptions would remain available.

1. Startup Exemption: Time-Limited Broad Distribution

Proposed Rule 200 would permit a one-time offering involving up to $5 million in covered investment contracts over four years. An issuer, including a coordinated group, and its affiliates could use the exemption only once for the same or a substantially similar crypto asset. Covered transactions could include sales, airdrops, network-use incentives, validator or contributor rewards, governance distributions and other arrangements used to develop or secure a network or application.¹⁰

The exemption would allow general solicitation, impose no investor-eligibility or per-investor cap, require no audited financial statements, and treat the covered investment contracts as unrestricted securities. It would, however, impose a hard operational clock. Before the first covered transaction, the issuer would file Form NOR and certify an intent to complete its promised essential managerial efforts within four years. It would post Rule 103 disclosures on a free public website, update material changes annually, and file Form TR by the four-year deadline.¹¹

The apparent simplicity is deceptive. The $5 million ceiling is aggregate offering limit, not a simple cash-proceeds test, across the entire startup-exemption period. It does not reset annually. The release leaves valuation and aggregation questions that should be tested against the full distribution design before launch.

2. Fundraising Exemption: A Crypto-Specific Regulation A

Proposed Rule 300 would create two tiers. Tier 1 would allow up to $20 million in a 12-month period, including no more than $6 million sold by affiliated holders. Tier 2 would allow up to $75 million, including no more than $22.5 million sold by affiliated holders. During the first year, selling securityholders could account for no more than 30% of the offering. The issuer would have to be US-organized, principally administered in the United States, and satisfy US officer, director, and asset tests. Certain development-stage, investment-company, reporting-delinquent, and bad-actor issuers would be ineligible.¹²

Sales could begin only after the SEC qualifies Form 1-CRYPTO. Testing-the-waters communications would be permitted, subject to filing and antifraud requirements. Both tiers would permit public solicitation but cap each non-accredited investor's aggregate purchase at 10% of the applicable income, net-worth, revenue, or asset measure. Unlike Regulation A, the cap would apply in both tiers and would not disappear because the security becomes exchange-listed. The proposal would permit specified continuous and delayed offerings, but would prohibit at-the-market offerings and provide less pricing and volume flexibility than a conventional shelf.¹³

Both tiers would carry ongoing reporting: annual Form 1-KC, semiannual Form 1-SC, and current Form 1-UC. Tier 1 financial statements could be unaudited; Tier 2 statements would require an independent audit. Finance, product, disclosure, and token-administration systems would need to produce public-company-like information on a shorter operating history.¹⁴

3. An Off-Ramp: Investment-Contract Safe Harbor

Proposed Rule 400 would provide a conditional safe harbor from the definitions of "investment contract" under the Securities Act of 1933 (Securities Act) and the Securities Exchange Act of 1934 (Exchange Act) after the issuer has completed, or permanently ceased, all essential managerial efforts that it promised, represented, or otherwise undertook and does not intend to make new promises of that kind. The issuer would file Form TR with a certification and a reasoned analysis in support of the determination.

The safe harbor would operate prospectively only. These are not indulgences; the safe harbor would not cure an earlier unregistered offer or sale, excuse a misleading statement, or constitute SEC approval of the project's analysis. The SEC could challenge the filing, and private parties could still argue that later facts create a new investment contract. The rule also would address "investment contract" only under the Securities Act and Exchange Act, not parallel terms under the Investment Company Act or Investment Advisers Act.

This makes Form TR less like a graduation certificate and more like an exit declaration placed on the public record. Filing it may also be read as an implicit acknowledgment that the earlier arrangement involved an investment contract, a concern the SEC itself invites commenters to address. Counsel should therefore assess the filing's benefits, admissions risk, and collateral consequences across litigation, enforcement, and other regulatory regimes.

The Disclosure Backbone

Under the exemptions described above, issuers would be required to make certain principles-based narrative disclosures available to their investors. Proposed Rule 103 would require principles-based disclosure across 10 subjects, including the covered investment contract, the offering, the crypto asset, management and conflicts, the network and development plan, cybersecurity and source code, token economics and allocation, governance, the ecosystem, and risk factors. Those disclosures do more than inform purchasers. They identify the managerial efforts whose completion could later support Form TR.

The startup exemption offers a lighter disclosure regime for covered investment contracts subject to the $5 million aggregate ceiling and four-year runway. Here, the issuer must file Form NOR on EDGAR. Form NOR identifies the issuer, crypto asset, and disclosure website. The issuer also certifies its intent to fulfill its promised essential managerial efforts within four years.

Under the startup exemption, the substantive Rule 103 disclosure need not appear on EDGAR. Instead, the issuer must publish it free of charge on the website identified in Form NOR no later than the Form NOR filing date. The disclosure must remain accessible until the earlier of the four-year anniversary or the filing of Form TR. The updating requirements have two separate tracks. The issuer must amend Form NOR as soon as practicable after discovering a material error or a material change in the information contained in the form. The broader Rule 103 website disclosure requires an update within 30 calendar days after each calendar year-end if material changes existed at year-end.

The fundraising exemption requires that the issuer file Form 1-CRYPTO on EDGAR and obtain SEC qualification before making sales. Form 1-CRYPTO has three principal components. Part I contains structured issuer and offering data. Part II contains the offering circular, including the Rule 103 disclosures, a narrative discussion of financial condition, and US GAAP financial statements. Part III contains signatures and exhibits, including organizational documents, material contracts, distribution arrangements, whitepapers defining securityholder rights, and testing-the-waters materials.

As a practical matter, the startup exemption asks issuers to disclose the project's promises, design, economics, risks, and progress. The fundraising exemption requires the same project-level disclosure plus evidence of financial capacity, SEC review, and continuing event-driven transparency.

The disclosure framework requires consideration of appropriate controls, including, for example:

• A controlled registry that captures offering materials, roadmaps, tokenomics, social-media statements, governance commitments, and partner communications.
• Milestone owners and evidence standards for code deployment, security testing, governance transfer, treasury constraints, network operation, and the permanent cessation of unfinished work.
• Communications controls that prevent business teams from making new essential promises after the stated completion point.
• A cross-functional approval process for Form TR and post-filing monitoring, supported by a record that can withstand regulatory and private-party scrutiny.

Preemption of State Registration, Secondary-Market Liquidity, and Issuer-compliance

Proposed Rule 500 seeks to establish a single federal pathway for offerings under Regulation Crypto Assets. The SEC would define every offeree and purchaser in a Regulation Crypto Assets offering as a "qualified purchaser" under Section 18(b)(3) of the Securities Act, preempting state registration and qualification requirements for the initial offering and specified secondary resales.¹⁵  Covered-security status would preempt state registration and qualification requirements, state restrictions on federally prescribed offering documents, and state merit review. The D.C. Circuit upheld the SEC's authority to define qualified purchasers broadly in the Regulation A context.¹⁶

Regulation Crypto Assets would preempt state-law registration and qualification requirements applicable to covered investment contracts (initially sold by the issuer, either pursuant to an exemption in Regulation Crypto Assets or another exemption under the federal securities laws) in secondary-market transactions by any person other than an issuer, underwriter, or dealer. Such secondary-market preemption would continue while the issuer satisfies the information, filing and periodic reporting requirements of an exemption under Regulation Crypto Assets for that covered investment contract.

Preemption would not eliminate state authority over fraud, deceit, broker-dealer conduct, notice filings, or fees.¹⁷  It also would not make the covered investment contract cease to be a security. Until Rule 400 or Howey independently supplies an exit, broker, exchange, clearing, custody, and other intermediary questions remain.

The operational issue is that secondary-market preemption would depend on the issuer having satisfied, and remaining current under, the applicable exemption. Certain reporting delinquencies could interrupt the federal shield; a cure could restore it. Trading venues and intermediaries would therefore need reliable issuer-status feeds, asset-level identifiers, escalation rules, and controls for a change in eligibility. Liquidity would no longer be solely an attribute of the token or venue. It would partly depend on continuing issuer compliance.

What the Proposal Does Not Solve

Regulation Crypto Assets is not a full regulatory regime. It does not provide relief from broker-dealer, exchange, alternative trading system, clearing-agency, custody, or transfer-agent requirements. It would not resolve Investment Company Act or Investment Advisers Act status, Commodity Exchange Act questions, Bank Secrecy Act obligations, sanctions, tax, consumer-protection rules, or state money-transmission licensing. Any launch plan must overlay those regimes. Form NOR, Form 1-CRYPTO, or Form TR do not provide a single regulatory passport.

Of note, Regulation Crypto Assets does not purport to classify crypto assets generally as securities. Rather, the proposal is directed towards certain investment contracts involving crypto assets, offering a federal capital-raising framework for transactions involving crypto assets.

If adopted, the proposal could provide crypto asset issuers with a more practical US pathway for raising capital, reduce reliance on offshore offering structures, and provide greater clarity regarding when a crypto asset initially sold in connection with an investment contract may no longer be subject to securities laws governing investment contracts. The proposal remains subject to public comment, and comments will be due 60 days after publication in the Federal Register.

Key Takeaways

The proposal would create a crypto-specific federal securities offering framework for certain investment contracts involving crypto assets. The proposal would preempt certain state securities registration and qualification requirements for covered offerings and certain secondary-market transactions.

• The proposed safe harbor would create a path for a crypto asset to be delinked from an investment contract once the issuer has completed or permanently ceased the essential managerial efforts it promised to undertake.
• Use the comment period to fix market plumbing. The final rule would be improved by objective criteria, reliable industry data[18] to support cost-benefit analysis, and workable issuer-status controls for secondary trading.

Steptoe is closely monitoring Regulation Crypto Assets and can help issuers, platforms, investors, and financial institutions evaluate pathway selection, design the promise and milestone record, prepare comments, and assess the proposal's interaction with market-structure and other digital-asset obligations. For more information, contact Marlon Q. Paz or visit Steptoe's Blockchain & Cryptocurrency practice page.

¹  See, The Matrix (Silver Pictures 1999) ("Do not try to bend the spoon. That is impossible. Instead, only try to realize the truth…That there is no spoon... Then you will see that it is not the spoon that bends.") available at https://www.scripts.com/script-pdf-body.php?id=84. At times, apparent constraints derive from the conceptual system through which the observer understands reality. Once the governing assumptions are challenged, the limitation loses its assumed force.

²  Regulation Crypto Assets, Securities Act Release No. 33-11434, Exchange Act Release No. 34-106150, at 1–4, 29–32 (proposed Aug. 18, 2026) ("Proposing Release").

³ The term "covered investment contract" means a contract, transaction, or scheme that constitutes an investment contract, provided that (1) a crypto asset is subject to the investment contract, (2) such crypto asset is not a security, and (3) no asset other than such crypto asset (including any security or non-security asset) is subject to the investment contract. Regulation Crypto Assets, Securities Act Release No. 33-11434, Exchange Act Release No. 34-106150, at 35–38 (proposed Aug. 18, 2026) (to be codified at 17 C.F.R. § 228.100).

⁴ Application of the Federal Securities Laws to Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets, Securities Act Release No. 33-11412, Exchange Act Release No. 34-105020, 91 Fed. Reg. 13,714, 13,721–23 (Mar. 23, 2026) (the "2026 Interpretation").

⁵ SEC v. W.J. Howey Co., 328 US 293, 298–300 (1946).

⁶ SEC v. C.M. Joiner Leasing Corp., 320 US 344, 352–53 (1943).

⁷ Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 756 F.2d 230, 240–41 (2d Cir. 1985).

⁸ SEC v. Ripple Labs, Inc., 682 F. Supp. 3d 308, 324–29 (S.D.N.Y. 2023).

⁹ Proposing Release at 35–38, proposed 17 C.F.R. § 228.100.

¹⁰ Proposing Release at 47–69, proposed 17 C.F.R. § 228.200.

¹¹  Proposing Release at 49–50, 64–69, 75–79.

¹²  Proposing Release at 80–101, proposed 17 C.F.R. § 228.300.

¹³  Proposing Release at 105–14, 125–35.

¹⁴  Proposing Release at 139–56.

¹⁵  Proposing Release at 171–84, proposed 17 C.F.R. § 228.500.

¹⁶  The principal authority supporting Rule 500 is strong, but the adopting release will need further support. In Lindeen v. SEC, 825 F.3d 646, 653–56 (D.C. Cir. 2016), the D.C. Circuit upheld an SEC rule defining every offeree and purchaser in a Regulation A Tier 2 offering as a qualified purchaser. The court emphasized that Congress, rather than the SEC, selected preemption; the SEC merely delineated its scope through the delegated definition. Lindeen expressly relied on Chevron's deferential framework. Loper Bright requires courts to exercise independent judgment when deciding whether an agency remained within its statutory authority, but it expressly preserves prior holdings that upheld specific agency actions under Chevron through statutory stare decisis. Express delegations remain effective, but courts determine their boundaries. Loper Bright Enters. v. Raimondo, 603 US 369, 394–96 (2024). Further, the final release will need a developed record explaining why each exemption's protections justify displacing state review to comply with the Administrative Procedure Act. The D.C. Circuit has vacated SEC rules for unsupported predictions, inadequate cost analysis, inconsistent reasoning, and failure to answer substantial comments. Business Roundtable v. SEC, 647 F.3d 1144, 1148–50 (D.C. Cir. 2011).

¹⁷  Securities Act of 1933 § 18(c), 15 USC. § 77r(c).