SEC Unveils New Regulations, Bullish Outlook

Project parties can apply to detach from securities attributes by self-certifying their commitments, while the SEC retains the right to pursue accountability afterward. Airdrops will count towards financing limits, addressing the legislative lag in Congress.

Written by: Conflux

On August 19, Beijing time, Paul Atkins, Chairman of the U.S. Securities and Exchange Commission (SEC), announced the draft of the Regulation Crypto Assets, allowing startups to raise up to $5 million within four years, while larger projects can raise $20 million or $75 million every 12 months without going through the full securities registration process.

At the same time, the White House is also backing this policy direction. In the early hours of August 20, Trump met with the SEC and CFTC chairs, as well as executives from Coinbase, Nasdaq, and other crypto and traditional finance firms, urging Congress to advance the CLARITY Act. With Congress's legislative efforts stalled, the U.S. government is preparing to establish rules for crypto asset issuance and financing through administrative regulation. Market sentiment has also begun to warm up.

The real significance of this draft lies not in the extent of the relaxed limits, but in its transformation of the judgment logic: in the past, whether a token could shed its securities attributes often depended on the Howey Test (a classic legal standard in the U.S. for determining whether an asset constitutes an 'investment contract'), the public commitments of the project parties, and whether the network had sufficient functionality and decentralization. Now, the SEC has further formalized this judgment—what commitments you made when you sold the tokens, whether these commitments have been fulfilled or permanently ceased, is for you to declare and prove, while the SEC retains the right to challenge afterward.

Who Decides When to 'Graduate'

The new draft establishes an Investment Contract Safe Harbor mechanism. The specific process is: project parties complete or permanently cease their previous commitments of 'essential managerial efforts' (referring to the development, operation, promotion, etc., that the team undertakes to enhance the value of the tokens), make no new related commitments, and then submit a TR form (Form TR, a self-certification declaration document), in which they certify that they have met the conditions and attach an analysis supporting this judgment.

A key point is that submitting the TR form does not equal SEC's prior approval. The SEC will not approve each project party's declaration individually but retains the power to review and challenge the validity of the project party's certification later.

This means that the initiative has not simply shifted from 'market consensus' to the SEC, but has transitioned from a vague judgment based on decentralization, functionality, and project management efforts to a systematized framework of 'issuer self-certification, SEC post-supervision.' The SEC does not issue a 'graduation certificate' to projects; it stipulates how project parties must prove they have graduated and who will be responsible if the proof is incorrect.

This distinction may seem technical, but it fundamentally determines the nature of the entire set of rules: the power concentrated in the regulatory agency is not the prior approval authority, but the post-challenge and enforcement authority.

Who Can 'Graduate' Faster

The most obvious beneficiaries are mature teams capable of 'telling fewer stories and passing the baton quickly.' Corporate securities lawyer Gabriel Shapiro points out that whether a token can shed investment terms is directly tied to the commitments made publicly by the project parties—fewer commitments mean less work to prove completion or cessation, and a faster exit from the safe harbor.

Rule 103 of the draft requires project parties to disclose what they committed to do, what the 'essential managerial efforts' specifically are, to what extent they have been achieved, and the development plans and progress. In the future, these disclosures will become important bases for judging whether the investment contract has ended. The more management commitments the team makes during the financing phase—committing to complete a key function, establish a network mechanism, or push the ecosystem to a certain maturity—the more they will need to prove that these commitments have been fulfilled or permanently ceased in the future.

If these rules are ultimately implemented, projects wishing to legally raise funds from U.S. investors will see the value of domestic issuance, compliance, and trading infrastructure rise. The draft's financing exemption mechanism clearly requires issuing entities to be registered in the U.S., with a majority of executives being U.S. citizens or residents, and over half of the assets located within the U.S., with business primarily conducted in the U.S. This set of rules aims to reclaim the issuance and financing activities that have flowed outside the U.S. in recent years.

Conversely, the situation becomes more complex for issuers who rely on 'decentralized narratives' to package projects while retaining actual control within the team—if they previously framed promoting network decentralization as a key management commitment that investors could rely on, even if the mainnet is online and products are available, they may still need to prove that this commitment has been fulfilled or permanently ceased to enter the safe harbor.

Free Airdrops Have a Price

Another easily overlooked detail in the draft is that the exemption mechanism for startups explicitly includes airdrops and network rewards as 'covered transactions.' This means that even if tokens are distributed 'for free,' their value may still count towards the $5 million exemption limit—airdrops do not automatically exclude financing limits.

For activities that exchange points for future token allocations through trading, liquidity contributions, etc., whether and how these count towards the limit depends on the specific distribution structure and applicable rules, and cannot simply be equated with 'this type of distribution necessarily constitutes investment terms.' This has led some market participants to link the new regulations with Hyperliquid's yet-to-be-announced Season 3 airdrop—however, there is currently no public evidence to prove a direct connection between the two, making it more of a market speculation than a factual statement.

From 'First Grab' to 'First Establish Rules'

The SEC's proactive move to establish new rules comes after a not-so-easy history. During the tenure of former Chairman Gary Gensler, the industry widely criticized his approach of 'regulation by enforcement'—not providing clear rules in advance but relying on post-factum lawsuits to delineate boundaries. The direct consequence of this approach was that many projects chose to restrict U.S. buyers and move their issuance and financing activities outside the U.S.

The Regulation Crypto Assets is, to some extent, a remedial measure for the lack of specific rules in those years, primarily relying on enforcement and case interpretations. The SEC also acknowledges in the proposal that the nature of investment contracts related to crypto assets may change as projects develop and issuers complete or cease their essential managerial efforts, and that the traditional securities regulatory framework is difficult to directly adapt to this dynamic process.

Congress Delays, SEC Moves Ahead

The emergence of this draft is also driven by a more immediate impetus—the CLARITY Act, seen as the 'ultimate solution,' has faced continuous obstacles in the Senate, and market expectations on platforms like Polymarket regarding the Act's completion by 2026 have significantly weakened. White House crypto policy advisor Patrick Witt previously stated at the SALT conference that the government is leaving a window for Congress and the Senate to pass the bill but will not wait indefinitely—if the vote in September fails, regulatory agencies will advance rule-making on their own.

The SEC's rule proposal and the White House's subsequent pressure on the CLARITY Act almost coincided, forming a response in the same policy direction: rather than waiting for a bill that could falter at any moment, it is better to use the existing rule-making authority of administrative agencies to keep issuance and financing activities within the U.S.

Tokens Also Have a 'Graduation Season'

The draft is still in the public comment phase, and all three sitting SEC commissioners voted in favor, but how to value airdrops, network rewards, and other non-cash distributions, which projects can truly meet the safe harbor conditions, and how these rules will be implemented in actual cases still leave many details for public commentary and subsequent regulatory practice to fill in.

However, what is more noteworthy than the $5 million, $20 million, or $75 million limits is that the SEC is attempting for the first time to write 'when tokens detach from investment contracts' into a clear institutional process: project parties first complete or cease essential managerial efforts, then self-certify, while the SEC retains the right to challenge afterward.

This suggests that the U.S. regulatory approach to crypto assets may be shifting from 'determining whether it is a security' to 'managing how it transitions from a security to an independent asset.'

In the past, the 'graduation' of tokens was more of a question that needed repeated explanation among courts, regulatory agencies, and the market; if these rules are ultimately implemented, 'graduation' will for the first time have a relatively clear procedure and proof path.

But the change in rules will also, in turn, alter the behavior of project parties. Since the management commitments made during the issuance phase will become the basis for future judgments on 'whether to graduate,' project parties may recalculate: which matters are worth publicly committing to, which roadmaps must be documented, and which long-term goals are better left in internal planning.

What the SEC truly wants to redefine may not be how tokens are issued, but when tokens can be considered truly 'graduated.'

And as 'graduation' begins to have clear rules, the next competition will no longer just be 'who can issue tokens,' but who can complete the step of separating tokens from investment contracts faster.