SEC’s Proposed “Reg Crypto”: What Founders Need to Know

Startup founders and emerging-growth companies have a number of options for raising capital under the federal securities laws, including Regulation D (private placements), Regulation A+ (“mini” IPO), and Regulation CF (crowdfunding), among others. Each provides an exemption from the registration requirements of the Securities Act of 1933, though the anti-fraud provisions of the federal securities laws continue to apply. Reg D, by far the most widely used pathway, allows issuers to raise an unlimited amount of capital, primarily from accredited investors, with minimal SEC disclosure requirements and preemption of state blue sky laws.

On August 18, 2026, the SEC proposed a new pathway built specifically for crypto: Regulation Crypto Assets. “Reg Crypto” would create two new exemptions from SEC registration for offerings of “covered investment contracts,” which is an investment contract involving a crypto asset, where the arrangement satisfies the Howey test: (1) an investment of money, (2) in a common enterprise, (3) with a reasonable expectation of profits, (4) derived from the “essential managerial efforts” of others.

The proposal builds on the SEC’s March 2026 joint interpretive guidance with the CFTC, which identified four categories of digital assets generally not deemed securities: digital commodities, digital collectibles, digital tools, and payment stablecoins.

• Startup Exemption. A one-time exemption for offerings of up to $5 million over a four-year period. Issuers must make public filings at the beginning and end of the period and provide principles-based narrative disclosures to investors, but financial statements are not required. The exemption is designed to give early-stage projects temporary relief from registration requirements while they work toward fulfilling the essential managerial efforts promised to investors.

Founders familiar with Regulation CF (crowdfunding) will notice that its $5 million offering cap matches the Reg Crypto startup exemption. But the two are quite different: Reg CF requires offerings to be conducted through SEC-registered funding portals, imposes a rolling 12-month cap, and does not offer any path for a token to eventually exit securities regulation. Reg Crypto’s longer four-year window, tailored disclosure requirements, and safe harbor make it a fundamentally different framework.

• Fundraising Exemption. A two-tier exemption: Tier 1 would permit offerings of up to $20 million in a 12-month period, while Tier 2 would permit offerings of up to $75 million in a 12-month period. In addition to the same narrative disclosures required under the startup exemption, issuers must provide a discussion of their financial condition and financial statements (audited for Tier 2 offerings), and would be subject to ongoing public reporting requirements.

Both Reg Crypto exemptions would require tailored disclosures covering the crypto network, the development team, tokenomics, and the project roadmap. The proposed rules would also preempt state registration requirements.

Transition from Security to Commodity

Perhaps the most consequential element of the proposal is a conditional safe harbor that would allow a crypto asset to be “de-linked” from the investment contract with which it was originally associated. Once an issuer has completed or permanently ceased all “essential managerial efforts” it promised to undertake, the token could fall outside the definition of “security” entirely under the Securities Act and Exchange Act.

This raises a critical question for founders: what happens to a token after it exits the SEC’s jurisdiction? Under the March 2026 joint guidance, a crypto asset that is no longer subject to an investment contract could be classified as a digital commodity, potentially placing it under the oversight of the CFTC rather than the SEC. The regulatory handoff between the two agencies remains one of the most closely watched issues in the space, and until Congress legislates clear jurisdictional boundaries, the answer will depend on the specific facts and characteristics of each token.

The Clarity Act

The SEC’s move to propose Reg Crypto comes against a broader legislative backdrop. Congress has been working on the Clarity Act, sweeping legislation that would establish a comprehensive federal regulatory framework for digital assets for the first time. However, the bill has stalled in the Senate, with disputes over stablecoin rewards, concerns about conflicts of interest, and broader political headwinds.

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The SEC has opened a 60-day comment period on the proposal. For founders planning token offerings and counsel advising them, now is the time to evaluate how Reg Crypto could fit into capital-raising strategies and to engage with the rulemaking process.

This article is for informational purposes only and does not constitute legal advice. If you are considering a securities offering, please consult with qualified legal counsel.