SEC Proposes Regulation Crypto Assets: A Nondilutive Financing Tool

Current as of September 17, 2026 | This alert addresses a proposed rule that is not yet final and is subject to change.

On August 18, 2026, the SEC proposed “Regulation Crypto Assets,” which would let companies raise up to $75 million by pre-selling tokenized products, such as usage credits or platform access, without issuing equity. The rule was published in the Federal Register August 21 and is not yet final, but if adopted, it could give venture-backed companies a meaningful new tool for nondilutive financing. The comment period closes October 20. Some questions remain about the scope of qualifying activities and secondary-market liquidity.

Regulation Crypto Assets creates two exemptions from Securities Act registration for offerings of a “covered investment contract,” which is an investment contract involving a non-security crypto asset and no other asset.

• Startup exemption: Up to $5 million over four years, with minimal disclosure and no audited financials. Available only once per crypto asset, to the issuer and its affiliates.
• Fundraising exemption: Tier 1 permits up to $20 million per 12 months; Tier 2 permits up to $75 million per 12 months. Both require ongoing SEC reporting and GAAP financial statements. Financial statements for Tier 2 offerings must be audited.
• Safe harbor: Once the issuer completes or permanently stops the development work it promised, it can certify that the covered investment contract has ceased to exist, so the token is no longer subject to it, ending reporting obligations. The test is measured against the issuer’s own promises, not against any abstract standard of decentralization, and the safe harbor is open to issuers that never used either exemption.
• State preemption: The proposal would preempt state blue-sky registration for offerings and most resales under these exemptions.
• Comment deadline: October 20, 2026. Companies should monitor SEC docket S7-2026-27 and consider submitting comments.

Who Can Use This

These exemptions are not limited to crypto-native businesses. Any company that pre-sells a consumption-based feature, such as usage credits, platform access, or in-app currency, as a blockchain-issued token could potentially qualify, regardless of whether it considers itself a crypto company. A product feature may qualify for a token issuance if it meets these criteria:

• The token is issued and recorded on a cryptographically secured distributed ledger (using existing open-source infrastructure is sufficient—no need to build a proprietary chain).
• The token’s value is tied to redemption or use, not to a share of the company’s profits.
• The token is sold on its own, not bundled with equity or debt in the same instrument.
• The token is tied to describable development milestones the company can later certify as complete.

How the Proposed Exemptions Work

Startup Exemption (Proposed 17 CFR 228.200)

The startup exemption would allow an issuer to raise up to an aggregate of $5 million over four years. Any issuer—entity, individual, or group—is eligible. The issuer files a notice of reliance (Form NOR) at the start of the four-year period and a transition report (Form TR) at the end, and provides (and updates within 30 calendar days of calendar year end if there are material changes) narrative disclosures to investors via the issuer’s website. Audited financials are not required. This tier is designed for early-stage companies testing product-market fit or that may require less capital. The Form NOR requires the issuer to certify an intent to complete essential managerial efforts within four years; filing the NOR starts the four-year clock.

The exemption is one-time use: neither the issuer nor its affiliates may rely on it again for the same or a substantially similar crypto asset, so the $5 million functions as a lifetime cap per asset rather than a renewable annual allowance. It is also unusual in reaching more than capital raises: “covered transactions” include conditioned airdrops, staking and governance distributions, and gas-fee allocations, each counting against the $5 million cap at the value of the non-cash consideration.

Fundraising Exemption (Proposed 17 CFR 228.300–307)

Unlike the startup exemption, which imposes no jurisdictional requirement, the fundraising exemption is limited to issuers that are organized in the United States, have a majority of executive officers or directors who are U.S. citizens or residents, hold more than 50% of assets in the United States, and administer the business principally in the United States. A Delaware entity with an offshore team and offshore assets would not qualify. The fundraising exemption has two tiers. Tier 1 offerings can raise up to $20 million over 12 months, while Tier 2 offerings can raise up to $75 million over 12 months. Both tiers require SEC-filed disclosure via Form 1-CRYPTO and ongoing reporting via annual reports (Form 1-KC, due within 120 calendar days of fiscal year end), semiannual reports (Form 1-SC, due within 90 calendar days of the semiannual period), and current reports (Form 1-UC, due within four business days of a specified event). Both tiers require GAAP financial statements (up to two fiscal years); Tier 2’s must be audited (and if a Tier 1 issuer obtains an audit for other purposes, it must be filed). The Commission also states its view that covered investment contracts are not equity securities and so do not trigger registration under Exchange Act Section 12(g), and asks whether to codify that position.

Non-accredited investors participating in an offering under either tier are limited to 10% of the greater of annual income or net worth (or, for non-natural persons, the greater of revenue or net assets for the most recent fiscal year). At-the-market and variable-price offerings are expressly prohibited. Sales by affiliate selling securityholders are capped at $6 million in a Tier 1 offering and $22.5 million in a Tier 2 offering, and secondary sales may not exceed 30% of the aggregate offering price in an issuer’s first offering or in any offering qualified within a year of it.

Investment Contract Safe Harbor (Proposed 17 CFR 228.400)

The safe harbor lets an issuer certify that the covered investment contract through which its tokens were sold has terminated once the issuer has completed or permanently stopped the promised development work. The issuer files a transition report (Form TR) certifying that the condition is met, together with a supporting analysis. There is no deadline; the filing is made whenever the issuer can support the certification. The safe harbor binds only the SEC; it does not preclude private litigants or state regulators from taking a different view. The safe harbor provides a defined exit from ongoing reporting obligations and is available even to issuers that never used these exemptions.

Critically, the safe harbor does not require the network to be decentralized in any abstract sense. It asks only whether the issuer has finished, or permanently abandoned, the specific work it told purchasers it would do. That makes the initial disclosure the decisive document: an issuer that promises discrete, dated, verifiable milestones has a clean exit, while one that promises open-ended ecosystem stewardship may never be able to certify. Rule 103 separately requires disclosure to be consistent with the issuer’s whitepaper, website, and official social accounts, so the discipline extends to marketing and community communications, not just the legal document.

State Law Preemption (Proposed 17 CFR 228.500)

The proposed rule would define “qualified purchaser” under Securities Act Section 18(b)(3) to include purchasers of covered investment contracts offered or sold under Regulation Crypto Assets or in any other transaction by persons other than issuers, underwriters, or dealers, so long as the issuer both (1) satisfied a Regulation Crypto Assets exemption with respect to the covered investment contract and (2) remains current with the applicable information, filing, and periodic reporting requirements. Form 1-UC current reports are deliberately excluded from the currency calculation because secondary buyers cannot verify them on their own timeline. Preemption lapses when the issuer’s reporting obligations end. States would retain anti-fraud enforcement authority.

Comparison Table: Regulation Crypto Assets vs. Other Exempt Offerings (Reg A, Reg CF, Reg D)

The table below places the proposed Regulation Crypto Assets exemptions alongside the three principal exemptions available today—Regulation A, Regulation Crowdfunding, and Regulation D. Figures for existing exemptions reflect current SEC rules as of August 2026; figures for Regulation Crypto Assets are proposed and not yet final. Once final, companies may be able to run multiple concurrent offerings (e.g., relying on the Startup Exemption and a private placement under Regulation D), subject to integration analysis.

Why It Matters

• Nondilutive capital with a compliant pre-sale pathway. Companies could raise up to $75 million without issuing equity, taking on debt, or giving up board seats—capital from future customers that helps kickstart network effects, rather than investors—under a framework with defined disclosure requirements and a clear exit from disclosures and/or SEC reporting once the issuer certifies that essential managerial efforts have ceased. (Unlike with issuing equity or taking on debt which generally does not give rise to a tax recognition event, these transactions may have tax consequences for companies. Companies should consult with their tax advisors).
• Sizing for venture stages. The startup exemption ($5 million) is sized to complement a Series Seed or small Series A round. The fundraising exemption Tier 2 ($75 million) could reduce the amount of equity capital needed at Series B or C.
• Clearer regulatory path than the ICO era. The 2017–2018 ICO wave collapsed in part because issuers had no clear exit from security status and no practical way to register under state blue-sky regimes, so tokens stayed perpetually exposed to securities liability and state-by-state compliance costs. The proposed safe harbor solves the first problem by giving issuers a defined certification process to exit security status; the proposed state preemption solves the second by removing the patchwork of state registration requirements.
• The only game in town, for now. The Senate’s failure to invoke cloture on the CLARITY Act on September 15, 2026, leaves Regulation Crypto Assets as the best candidate for an operative framework for token offerings for the foreseeable future.

Open Questions

Key issues that may affect the final rule:

• Offering size limitations: The proposed rule provides no pathway for a public offering of more than $75 million over 12 months, and any such offering of an investment contract would need to go through the existing S-1 offering pathway that is not conducive for these assets.
• Investment caps: Should the startup exemption include individual investment limits for non-accredited investors?
• Insider lockups: Should the SEC require mandatory lockups to prevent insiders from selling immediately after an offering?
• Hybrid instruments: Where is the line between permitted bundling and impermissible bundling with equity or debt? Commissioner Peirce separately invited comment on how crypto assets might play a role akin to equity, so that token holders can share in the growth and value of the enterprise building the network.
• Tier 1 reporting burden: Is the ongoing reporting requirement appropriately calibrated for smaller issuers? This has been a significant drag on the utilization of Regulation A offerings, and burdensome reporting obligations with a capped offering size may severely limit potential use as structured.
• Secondary trading markets: There is no safe harbor in this proposed rule for any entity that facilitates trading in these investment contracts prior to certification that essential managerial efforts have ceased. With no exemption for exchanges, brokers, or dealers, it is unclear how a secondary market for these assets would develop.

Next Steps

• Comment if the open questions affect you. Companies that would benefit from investment caps, lockups, simplified Tier 1 reporting, or broader preemption have a window to weigh in. Companies with views on these issues should consider submitting a comment by October 20 through SEC docket S7-2026-27.
• Consult with counsel early. Token design, securities analysis, and financing strategy overlap significantly. Getting aligned before any final rule is adopted positions a company to move quickly if Regulation Crypto Assets becomes effective.
• Existing projects should assess their position now. The safe harbor does not depend on which exemption the issuer used, or whether it used one—it is open to any issuer whose token was sold subject to a covered investment contract.