Securities Law Blog

A startup exemption, fundraising exemption, investment contract safe harbor and state securities law preemption are among new proposals to facilitate capital formation and accommodate technological innovation in decentralized crypto asset markets  

On August 18, 2026, the Securities and Exchange Commission (SEC) released proposed rules to address capital raising through the offer and sale of covered investment contracts associated with crypto assets. These proposed rules, encapsulated in a new regulation to be called “Regulation Crypto Assets,” would provide startup and fundraising exemptions from the registration requirements of the Securities Act of 1933 (the Securities Act) for offers, sales and other distributions to investors of investment contracts associated with crypto assets such as utility tokens, digital collectibles and other non-security digital assets.

The proposed rules appear designed to address years of regulatory uncertainty and disparate enforcement regimes that have caused crypto companies to tread carefully when raising capital to develop their blockchains. In 2017 and 2018, crypto companies often sought to raise capital through Initial Coin Offerings, or ICOs – public offerings of their digital assets to investors to raise capital for the development phase of the blockchain. In the wake of these public fundraises, however, ICOs came under scrutiny as unregistered securities offerings, leading to SEC enforcement actions and investor class-action lawsuits. Regulation Crypto Assets would provide bespoke fundraising options for digital asset companies under an enhanced public disclosure framework.

The proposed rules also include a safe harbor for digital assets that have become sufficiently mature, such that the tokens no longer represent an investment contract. As has become increasingly accepted, digital assets maintained on sufficiently mature, decentralized blockchains are not investment contracts, they are commodities. The SEC’s website makes clear that numerous digital assets, including Bitcoin, Ether, Solana, Avalanche and others, are digital commodities, not digital securities.[1] Regulation Crypto Assets provides digital asset companies with a mechanism for certifying that a digital asset that was previously an investment contract has become commoditized and is no longer subject to federal securities laws.

The proposed startup exemption would permit certain ICOs in offerings of up to $5 million during a four-year period and the proposed fundraising exemption, modeled closely after the two-tier Regulation A+ exemptions, would permit later-stage capital raises through offerings of up to $75 million during each 12-month period. Under both exemptions, issuers would be able to sell covered investment contracts to an unlimited number of non-accredited investors, the covered investment contracts would not be subject to restrictions on resale and sales of covered investment contracts may be made directly to the public without the use of financial intermediaries. Under both exemptions, issuers would be required to make principles-based narrative disclosures. Issuers under Tier 2 of the fundraising exemption would have the additional requirement of providing audited financial statements, subject to ongoing reporting requirements.

Digital asset companies seeking to utilize the proposed fundraising exemption would need the SEC Division of Corporation Finance’s Office of Crypto Assets to review and qualify their offering statement, enhancing market confidence in these fundraising offerings. Importantly, issuers that rely on these exemptions would be subject to the anti-fraud and anti-manipulation provisions and “bad actor” disqualifying events under federal securities laws.

The proposed rules would also include federal preemption for offers and sales of covered investment contracts from state securities law registration and qualification requirements to harmonize treatment of digital assets throughout the country. This treatment is similar to an expansion of federal preemption of sales of covered securities under the National Securities Markets Improvement Act of 1996 (NSMIA), which was designed to streamline financial regulation and eliminate dual federal and state compliance burdens.

The public comment period for Regulation Crypto Assets [Release Nos. 33-11434; 34-106150; File No. S7-2026-27] ends on October 20, 2026.

Covered Investment Contracts

A prerequisite for the startup and fundraising exemptions would be the use of a “covered investment contract.” This term is defined narrowly to be a contract, transaction or scheme that constitutes an investment contract (i.e., an investment of money in a common enterprise with the reasonable expectation of profits derived from the essential managerial or entrepreneurial efforts of others) and satisfies the following requirements:

• a crypto asset is subject to the investment contract,
• the crypto asset is not a security (e.g., a digital security), and
• no asset other than the crypto asset (including any security or non-security asset) is subject to the investment contract.

The term “crypto asset,” as embedded in the definition of a covered investment contract, means any digital representation of value that is recorded on a cryptographically secured distributed ledger. A distributed ledger generally refers to databases that maintain information across a network of computers in a decentralized or distributed manner, such as blockchains that are used to issue and transfer ownership of crypto assets.

As Regulation Crypto Assets is directed at ensuring the growth of decentralized digital asset companies, its exemptions would not be available in connection with offerings of digital securities maintained on centralized systems. The SEC indicated in the release that existing exemptions under Regulations A+ and D are otherwise available for such transactions. For background on the SEC’s prior classification of crypto assets as digital securities, see our March 24, 2026 blog post, “SEC Issues Helpful Guidance Regarding Its Treatment of Crypto Assets under Federal Securities Laws.”

SEC Disclosure Framework

Regulation Crypto Assets would establish a principles-based disclosure framework for offerings of covered investment contracts. When relying on the startup and fundraising exemptions, issuers would be required to provide disclosure on a number of key items including the covered investment contract and offering, the crypto asset, its management, related persons and conflicts of interest, the associated crypto network or application, its plan of development, its security and source code, the crypto asset economics and allocations, entity governance, the crypto asset ecosystem, and risk factors. This enhanced disclosure regime, buttressed by robust anti-fraud securities laws, should increase public confidence in digital asset companies, ensuring the United States remains home for continued digital asset company growth. Proposed forms for SEC filings required under Regulation Crypto Assets are included in the SEC’s release and are noted for each of the exemptions below.

The Startup Exemption

The startup exemption would be a one-time, non-exclusive exemption from Securities Act registration requirements. It would permit an issuer (which could be an entity, individual or group of individuals or entities) to conduct offerings of covered investment contracts of up to $5 million during a period of up to four years if the issuer satisfied certain conditions. These conditions include making public filings at the beginning and end of the startup period, as well as making certain principles-based narrative disclosures available to investors during that period. These conditions would improve disclosures and confidence in digital asset startup fundraising, especially when compared to the ICOs of 2017 and 2018.

The startup exemption is intended to provide issuers with temporary relief from Securities Act registration requirements during an initial period so that they may work towards developing and marketing a crypto asset project and fulfilling the essential managerial efforts they represented or promised investors they would engage in under the covered investment contract, while also ensuring that fundraises are done under the disclosure and anti-fraud requirements of the federal securities laws.

SEC Filings.  Under the startup exemption, the issuer would be required initially to file on the SEC’s electronic filing system (EDGAR) a notice of reliance using new Form NOR. Form NOR, which would not be subject to review by the SEC, would require the issuer to provide information about the issuer and the particular crypto asset and to certify that the information is true, complete and correct. The issuer would also be required to update that information periodically and file a transition report using Form TR no later than four years after the filing date of the notice of reliance. Form TR seeks information about whether the issuer completed or permanently ceased all essential managerial efforts that it represented or promised it would undertake, and whether the issuer intends to make any new representations or promises. If these conditions are not satisfied, the issuer would be required to disclose the current status and its plans for the covered investment contract and the crypto asset and associated network or application.

The Fundraising Exemption

The fundraising exemption would be a non-exclusive, two-tier exemption from Securities Act registration requirements.

Under Tier 1, issuers would be permitted to conduct offerings of up to $20 million of covered investment contracts in a 12-month period, including no more than $6 million offered by selling securityholders who are affiliates of the issuer.

Under Tier 2, issuers would be permitted to conduct offerings of up to $75 million of covered investment contracts in a 12-month period, including no more than $22.5 million offered by selling securityholders who are affiliates of the issuer.

Unlike the startup exemption, the fundraising exemption would be available only to an issuer organized in the United States with a majority of its executive officers or directors being U.S. citizens or residents, more than 50% of its assets located in the United States and its business administered principally in the United States. The exemption would not be available to a development stage company without a specific plan or purpose, a registered investment company or business development company or an issuer that has been subject to an SEC order within five years before filing the offering statement.

The fundraising exemption is intended to facilitate larger capital raising transactions for covered investment contract issuers than would be permitted under the startup exemption. It would encourage the growth of U.S.-based digital asset companies, ensuring growth of the industry, and provide confidence that those companies would be accountable under federal securities laws.

SEC Filings.  Under the fundraising exemption, issuers would be required to publicly file offering statements on new Form 1-CRYPTO that include the same principles-based narrative disclosure items required by the startup exemption, as well as information covering the issuer’s financial condition and its financial statements (which, for Tier 2 offerings, would be required to be audited). Issuers would also be able to initially submit draft offering statements for non-public SEC staff review, which is consistent with what issuers of non-crypto assets can do currently. The fundraising exemption would allow sales to be made only after the offering statement has been qualified by the SEC. Following qualification by the SEC, issuers would be subject to periodic, current and transition reporting requirements modeled on analogous provisions in Regulation A+.

Investment Contract Safe Harbor

The investment contract safe harbor would provide a conditional safe harbor from the definition of “investment contract.” If the conditions of the safe harbor were satisfied, a covered investment contract would be deemed by the SEC to have ceased to exist, and the crypto asset that was subject to the covered investment contract would be deemed by the SEC not to constitute or represent or to be subject to such investment contract for purposes of the statutory definition of a “security.”

An issuer of a covered investment contract would satisfy the investment contract safe harbor if it: (i) completed or otherwise permanently ceased all managerial efforts that it represented or promised it would engage in under the covered investment contract and is not making and does not intend to make any new representations or promises to engage in essential managerial efforts with respect to the crypto asset, and (ii) made an SEC filing on Form TR certifying it had satisfied the conditions of the safe harbor and provided an analysis supporting that certification. In effect, the safe harbor would allow an issuer to certify that its digital asset is now a digital commodity being developed and maintained in a decentralized manner, like Bitcoin or Ether.

The investment contract safe harbor would provide market participants with greater clarity as to when a covered investment contract has ceased to exist due to a lack of essential managerial efforts thereby placing the crypto asset outside the scope of an investment contract.

Preemption of State Registration and Qualification Requirements

The proposed rules would add a new definition of “qualified purchaser” under the Securities Act with the effect that state securities law (or “blue sky”) registration and qualification requirements would be preempted for offers and sales of covered investment contracts pursuant to an exemption under Regulation Crypto Assets. With respect to secondary market transactions by any person other than an issuer, underwriter or dealer, the proposed rules would offer liquidity for secondary market purchasers by preempting state securities law registration and qualification requirements for covered investment contracts that were initially sold by the issuer pursuant to an exemption under Regulation Crypto Assets. Secondary market preemption would continue for the period during which the issuer continues to satisfy the information and filing and/or periodic reporting requirements of Regulation Crypto Assets for that covered investment contract.

Takeaways from the SEC Proposals

Regulation Crypto Assets represents a significant step by the SEC. It would allow issuers to raise money through offerings of covered investment contracts that provide (i) transparency both by utilizing the blockchain as the public open database for tracking the investment contracts and by requiring pre-qualification SEC disclosure and ongoing reporting and (ii) liquidity for investors because the investment contracts are unrestricted and freely tradable in secondary markets.

Regulation Crypto Assets then follows Regulation A+ as its model to allow the issuer to advertise the offering globally and solicit investments from all potential investors (both accredited and non-accredited), including traditional retail investors and crypto asset investors. Regulation Crypto Assets would be “blue sky” preempted so the issuer would not be required to navigate each U.S. state’s securities laws and requirements. The forms for Regulation Crypto Assets have also been well thought out to help issuers quickly prepare their Form 1-CRYPTO filing, and the SEC appears ready with its special Office of Crypto Assets to accelerate the time for getting the filings qualified.

Regulation Crypto Assets also would provide a clear model for late-stage digital asset companies to certify that the centralized development of their blockchain has ended and declassify the investment contract as a security under federal securities laws.

Regulation Crypto Assets is the SEC’s most comprehensive regulation of the lifecycle of new digital asset companies – it would provide a clear framework for digital asset companies to follow through their startup phase and through later mature capital raises, and an exit ramp for companies to certify that they have completed their development of a decentralized ledger.  If adopted, Regulation Crypto Assets would provide sorely needed regulatory clarity and allow digital asset issuers to again raise capital through better managed and disclosed ICOs.

Please contact the Olshan attorney with whom you regularly work or the attorneys listed below if you would like to discuss further or have questions.

[1] https://www.sec.gov/resources-small-businesses/capital-raising-building-blocks/crypto-assets-federal-securities-laws.

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