SEC Proposes Framework to Clarify Token Regulation

The SEC's proposed Reg Crypto framework could provide regulatory clarity for hundreds of existing tokens by giving them a formal route out of investment contract status. Galaxy Research, a financial and crypto news writer, analyzed the proposal and found that it could resolve years of uncertainty over when an investment contract tied to a token ends.

According to Alex Thorn, Galaxy's head of firmwide research, 'Reg Crypto could provide meaningful regulatory clarity, but only Congress can make that clarity durable.' The framework would allow issuers to file a transition report with the SEC after completing or permanently ending all essential managerial work promised to buyers. This would treat the related investment contract as terminated under the Securities Act and the Securities Exchange Act.

The proposal also includes two exemptions from registration requirements: one for startups that can raise up to $5 million in covered investment contracts over four years, and another for larger offerings with a ceiling of $75 million over 12 months. These routes would require public filings at the beginning and end of the period, as well as financial statements and continuing reports.

Galaxy noted that existing projects may have more immediate use for the exit process than new issuers have for the fundraising routes. The SEC estimates that about 475 issuers would file transition reports each year, compared to approximately 130 annual offerings under the two new fundraising exemptions.