SEC Proposes Long-Awaited Regulation for Primary Token Issuance

This article originally appeared in Galaxy Research's weekly newsletter. Subscribe to get timely insights delivered to your inbox every Friday morning.

The Securities and Exchange Commission on Aug. 18 proposed Regulation Crypto Assets ("Reg Crypto"), the first set of U.S. securities rules designed specifically around the offer and sale of crypto assets rather than adapted from rules written for corporate stock.

First, the proposal would create a lawful path to sell certain tokens to the U.S. public, including non-accredited buyers, without a registered offering. Second, it would create a formal, dated mechanism for the investment contract associated with a token to cease to exist. For most of the past decade, a U.S. token issuer effectively chose between registering (which almost none could practically do) and issuing offshore. Reg Crypto offers a third option, along with an off-ramp for thousands of tokens already trading with unresolved legal status.

The rule would apply only to a crypto asset that is not itself a security but was offered or sold as part of an investment contract under which the issuer promised to build something. Tokenized stocks and bonds, and arrangements that bundle a token with equity or other securities, sit outside the framework by design. Within that perimeter, the proposal follows four stages: