The SEC plans to set three financing tiers of $5M, $20M, and $75M. Projects that meet development conditions and submit Form TR can enter the investment contract safe harbor.
Written by: ChandlerZ, Foresight News
On August 18, the U.S. Securities and Exchange Commission (SEC) announced it has proposed a new rule called "Regulation Crypto Assets" aimed at establishing a clear and applicable framework for specific investment contracts involving crypto assets. Previously, in March 2026, the SEC released an interpretive document clarifying how federal securities laws apply to certain crypto assets and transactions involving them.
During the fundraising phase, projects can choose from two exemption tiers based on scale. After fulfilling financing commitments, they can then determine whether tokens can exit the investment contract based on the safe harbor. The new rule only applies to specific investment contracts involving crypto assets; tokenized versions of traditional securities like stocks and bonds remain subject to securities laws, and payment stablecoins that meet the definition of the GENIUS Act continue to apply to another set of regulations.
Core Content of the New Rule
The proposed rule includes two exemptions specifically for certain investment contracts involving crypto assets, which can exempt them from the registration requirements of the 1933 Securities Act.
The first exemption is a one-time exemption allowing the issuance of securities up to $5M over four years. After submitting Form NOR, projects can raise up to $5M over a maximum of four years, publicly disclose information such as tokens, team, development plans, supply distribution, governance, security, and risks on their website, and update annually when major changes occur. Before the four-year period expires, they must also submit Form TR to the SEC, explaining the status of the project and the investment contract.
The second exemption is a financing exemption modeled after Regulation A, divided into two tiers. Tier 1 allows raising up to $20M every 12 months, while Tier 2 has a cap of $75M. Both tiers require submitting Form 1-CRYPTO and continuously filing annual, semi-annual, and material event reports. Tier 1 can use unaudited financial statements, while Tier 2 must provide audited reports. Purchases by non-accredited investors may not exceed 10% of the higher of their annual income or net worth.
The proposed rule also includes a conditional safe harbor provision applicable to projects that have completed or permanently ceased all key development work, while requiring them to make no new key development commitments. Projects must submit Form TR on EDGAR, publicly confirm that they meet the conditions, and provide an analysis supporting this judgment. State-level securities registration and qualification reviews will no longer apply to these two types of offerings and eligible secondary market transactions; state governments can still investigate fraud, collect notice filing fees, and handle illegal brokers.
This provision exempts the meaning of the term "investment contract" in the definition of "security" under the 1933 Securities Act and the 1934 Securities Exchange Act. If the conditions of the proposed safe harbor are met, crypto assets will be considered not subject to the "investment contract" part of the above "security" definition. In addition, the proposed rule will take precedence over state securities laws regarding the registration and qualification requirements for the issuance and sale of securities issued under the Crypto Assets Regulation exemptions, as well as certain secondary market transactions.
What Problems Does It Solve?
According to details of the proposed rule disclosed on the SEC's official website, the startup exemption does not set a personal purchase limit for retail investors and allows public solicitation. Under the proposal, relevant investment contracts will not become restricted securities, and projects can also handle token distributions involving airdrops, staking, governance, gas fees, and test rewards within the total $5M limit. The SEC's reasoning is that crypto networks need tokens to reach users, validators, and developers to form network effects, and resale restrictions on traditional securities would hinder this process.
This arrangement gives early-stage projects more distribution space, with constraints mainly on the $5M cap, four-year term, and continuous disclosure. Even if a project has not yet established a company, it can use this exemption as an individual, entity, or multi-person team; team members need to jointly sign Form NOR and Form TR, and each member bears compliance responsibilities.
The financing exemption is only open to entities that meet U.S. business conditions, including being established in the U.S., having main management activities in the U.S., more than half of assets located in the U.S., and most executives or directors being U.S. citizens or residents. Tier 1 eliminates mandatory audits, while Tier 2 exchanges audit reports for a higher financing limit. Both tiers are subject to the 10% retail purchase cap and continuous reporting. The SEC estimates that after the rule is implemented, about 99 offerings will use the startup exemption each year, and another 31 will use the financing exemption.
Issuers that do not use the startup or financing exemptions can also use the safe harbor policy alone. After the 2017 DAO incident, the SEC mainly relied on the Howey Test to judge token offerings on a case-by-case basis. The new proposal uses Form NOR to record development commitments at the start of financing, Form 1-CRYPTO and continuous reports to track larger offerings, and Form TR to mark the exit of investment contracts. Thus, the roadmap in the project's whitepaper becomes a legal basis for subsequent safe harbor judgments.
The secondary market is also included in this disclosure chain. As long as the project continues to update information under the startup exemption or submit regular reports under the financing exemption, eligible token resales will no longer be subject to repeated state registration reviews. If the project stops reporting on time, the state law exclusion will be suspended and can only be resumed after completing the disclosure. During the period when the investment contract has not ended, trading platforms need to continuously check the project's disclosure and regular report status.
The SEC estimates that about 475 issuers will use the investment contract safe harbor alone each year.
How Will This Rule Take Effect?
Hester Peirce proposed the Token Safe Harbor in 2020 and updated it in 2021, hoping to give development teams a three-year construction period, but this personal suggestion had no legal effect. This proposal is the first time that financing exemptions and investment contract exit conditions have been included in the same formal rulemaking process.
For projects, it provides a U.S. financing route that can be planned in advance. Teams can choose disclosure costs based on financing scale, and after completing development work, they can conditionally end the original investment contract. For investors, the product goals, fund uses, and development commitments in the whitepaper will bear stronger legal responsibilities, making it difficult for projects to completely separate marketing slogans from formal commitments.
Currently, this rule has obtained the committee approval required to enter the public comment period. According to official website information, after the text is published in the Federal Register, a 60-day comment period will be launched. The document lists a total of 144 questions, involving financing limits, retail purchase caps, whether Form TR needs more objective standards, state law exclusion conditions, and disclosure costs. The SEC can revise the terms based on comments, and may also seek comments again if the changes are too significant.
The final text will also be submitted to the full SEC committee for a vote. After passing, the Office of Management and Budget (OMB) needs to determine whether it is a major rule under the Congressional Review Act, and the SEC will then submit the rule to Congress and the Government Accountability Office (GAO). Congress does not need to vote to approve in advance, but can veto it through a joint resolution; if it is deemed a major rule, it usually has to wait at least 60 days to take effect.
However, currently the SEC can only address securities issuance and investment contract issues under its jurisdiction. How the SEC and the Commodity Futures Trading Commission (CFTC) divide the entire crypto spot market still needs to be handled by Congress. How to retain local investor protection after state-level registration is excluded, and how specific the completion standards for the safe harbor need to be, will also become controversies during the comment period.