Written by Xiao Bing
On August 18, the U.S. Securities and Exchange Commission (SEC) released a proposed rule titled "Regulation Crypto Assets," spanning 402 pages, which establishes two registration exemption pathways and a safe harbor mechanism for investment contracts involving crypto assets. This marks the first time in SEC history that permanent regulatory rules have been specifically drafted for crypto assets.
The timing is notable: the SEC originally scheduled a vote for August 14 but canceled it at the last minute, then issued the announcement just four days later. Even more significant is the context: before adjourning on August 7, the Senate failed to vote on the CLARITY Act, pushing the procedural vote to September 15. What Congress could not accomplish, the SEC did on its own.
What do the rules say?
Two exemption pathways, corresponding to two project stages.
"Startup Exemption": A one-time fundraising of up to $5 million within four years. Public disclosure documents must be submitted at the start and end of the fundraising to provide investors with basic information about the project, team, technology, and risks. Audited financial statements are not required.
"Financing Exemption": Raise up to $75 million within any 12-month period. Higher thresholds apply, requiring submission of financial statements, ongoing reporting obligations, and compliance with anti-fraud and market manipulation rules.
The common requirement for both pathways is "principled narrative disclosure." The SEC has not provided rigid table templates, allowing projects to disclose key information based on their own circumstances. This differs significantly from the traditional IPO’s S-1 form and instead aligns more closely with the idea of “telling investors what they need to know.”
The truly game-changing part is the investment contract safe harbor.
The token is ready to "graduate".
Over the past eight years, the biggest legal challenge facing the U.S. crypto industry can be summed up in one sentence: Once a token is deemed an investment contract (security) at the time of issuance, it remains a security forever. Even if the project launches, the network becomes decentralized, and the founding team steps away from day-to-day operations, the security label on the token cannot be removed. This means the token cannot be listed on non-security exchanges, cannot circulate freely, and every transfer may trigger compliance issues under securities laws.
Regulation Crypto Assets proposes an exit pathway: when the issuer completes or permanently ceases the "essential managerial efforts" promised in the investment contract and submits the required documentation to the SEC, the token will no longer be considered the subject of an investment contract and will exit the securities framework.
In the words of SEC Chairman Paul Atkins, this is "common-sense regulation: the minimum effective dose with maximum constructive freedom."
The significance of this mechanism lies in its creation of an unprecedented legal lifecycle for tokens: tokens begin their existence as securities, raising funds within a regulated framework, with project teams assuming disclosure obligations and investor protection responsibilities; once the project matures, decentralization goals are achieved, and managerial dependency is eliminated, the tokens "graduate" into non-securities assets. The SEC oversees the first phase, while the CFTC (or no regulator) oversees the second.
Since its inception in 1933, no financial instrument has had such a "promotion" pathway under the Securities Act. Stocks are securities, remaining securities from issuance to delisting. Bonds disappear upon maturity and do not transform into another type of asset. Tokens will become the only financial instrument capable of being "born as a security and dying as a commodity."
Decentralization becomes an exam paper.
The safe harbor looks appealing, but the most pressing question upon implementation is: who determines whether "key management tasks have been completed"?
The SEC’s approach is to leave the determination to the issuer’s own definition, subject to SEC review. According to the joint interpretive guidance issued by the SEC and CFTC in March of this year, issuers must be held to the "key managerial efforts" they commit to in their investment contracts. If you commit to achieving decentralized governance, you must demonstrate that governance is indeed decentralized; if you commit to developing a core feature, you must prove that the feature has been delivered.
Standards are defined by the issuer, but the proof process must undergo review. Decentralization is no longer just a visionary description in a whitepaper or a subjective argument in court—it is becoming a compliance requirement that demands documentation and verification.
What does this mean for the industry?
Future token projects may need to clearly define "graduation criteria" at the whitepaper stage: a timeline for the transfer of governance rights, milestones for the team's exit from control, and technical standards for the network to operate independently; the decentralization roadmap will shift from marketing material to a legal commitment.
The SEC is racing against Congress.
Viewed within the broader policy landscape, the SEC's actions carry a clear sense of time pressure.
The CLARITY Act has stalled in the Senate. It failed to reach a vote before the August 7 recess, with procedural voting postponed to September 15, requiring 60 votes to advance. On Polymarket, the probability of the bill passing by 2026 has dropped from a February peak of 82% to around 28%. Both parties are deadlocked on ethics provisions: Democrats demand restrictions on federal officials profiting from cryptocurrency businesses, while Republicans prioritize clarifying market structure. With only 14 legislative days remaining before the midterm elections, the window for action is extremely narrow.
Atkins also acknowledged in his statement that "legislation remains essential," but he chose not to wait. The SEC has taken on part of Congress’s legislative role through administrative rules, establishing a standalone framework for token financing. If the CLARITY Act is ultimately passed, the two systems could be merged; if Congress continues to delay, the market will at least have a usable regulatory foundation.
This is a pragmatic assessment. The SEC proactively filled the legislative vacuum by replacing the past decade’s case-by-case enforcement approach with a registration exemption framework specifically designed for crypto assets. Atkins’s exact words were that these rules aim to “reduce the incentive for issuers to set up and operate overseas,” which amounts to an open admission that the previous enforcement-first strategy drove projects abroad.
It bears repeating: this is a proposed rule, not a final rule. After official publication in the Federal Register, a 60-day comment period will open, after which the SEC must review public comments, revise the rule, and vote again to adopt the final version. It typically takes several months to over a year from proposal to effectiveness.
The industry has responded positively but cautiously. Cody Carbone, CEO of the Digital Chamber, said the SEC adopted several recommendations from crypto companies in the rule language.
The final form of the rule depends on feedback from the comment period and the final decision by the three SEC commissioners (all Republicans). If the composition of the SEC changes after the midterm elections, the rule’s fate could become even more uncertain.
But the direction is clear: U.S. regulators are beginning to build a compliant pathway for token fundraising, rather than continuing to block it. Tokens can legally raise funds and may "graduate" from the securities framework once certain conditions are met.
Putting these two things together represents the most significant paradigm shift in U.S. cryptocurrency regulation.