According to Cointelegraph, the U.S. Securities and Exchange Commission has released a proposed rule titled Regulation Crypto Assets that would create two exemptions for certain investment contracts involving crypto assets.
The proposal would let startups raise up to $5 million in a one-time offering over four years. It would also allow eligible issuers to raise up to $75 million in any 12-month period, with the possibility of conducting separate offerings in later years.
Drew Hinkes, a partner at Winston & Strawn, said a project could theoretically raise $75 million every 12 months as long as each financing round is treated as a separate offering.
Lilya Tessler, head of Sidley’s fintech and blockchain practice, said follow-on fundraising would not be automatically permitted. Issuers would need to refile offering statements, undergo SEC staff review, continue submitting annual and semiannual reports, and disclose how much capital had been raised under the exemption during the previous 12 months to confirm they had not exceeded the cap.
The proposed rule would also limit participation by non-accredited investors. Their purchase amount could not exceed 10% of the higher of their annual income or net worth.
Lee Reiners, a financial regulation specialist at Duke University, said the limited first-round cap could make early token allocations more attractive, but the rule was unlikely to recreate the ICO boom seen in 2017. He noted that as many as 90% of projects that raised funds through ICOs between 2017 and 2019 ultimately failed.
The SEC estimates that about 130 offerings a year would use the two exemptions, while roughly 475 issuers could use a broader investment contract safe harbor.
The report said the proposal would give token issuers a clearer fundraising path in the U.S. than the current system, but questions would remain around whether secondary-market trading could still carry securities characteristics. Under the proposal, an investment contract related to a crypto asset could continue to travel with the token in secondary-market transactions until the asset is separated from the issuer’s statements or promises.
Hinkes said that even if a token itself is not a security, a transaction could still be treated as a securities trade if the seller transfers an investment contract to the buyer, which could affect trading platforms.
Reiners also said some issuers might satisfy the formal terms of an exemption while still influencing token value through team-driven managerial efforts, concentrated insider holdings, and aggressive promotion.