Galaxy: SEC's Reg Crypto Could Resolve Token Securities Status

A second route, modeled on Regulation A, would contain two tiers. Tier 1 would permit an issuer to raise up to $20 million in 12 months, while Tier 2 would raise the ceiling to $75 million during the same period. Offerings under the second route would require SEC qualification, financial statements, and continuing reports. Tier 2 issuers would also need audited financial statements and substantial organizational, management, and asset ties to the United States.

For unaccredited investors, the purchase limit would equal 10% of annual income or net worth, whichever figure is higher. Galaxy said the provision would give US retail buyers lawful access to qualifying token distributions while imposing a defined exposure limit.

Covered investment contracts sold through either exemption would not be restricted securities under the proposal. Unless the issuer added a separate contractual restriction, buyers could resell them immediately without a federal holding period. Galaxy identified the lack of a resale lockup as a potentially important feature for projects that want tokens to circulate among users instead of remaining with venture investors.

Rather than relying only on disclosure rules written for corporate shares, Reg Crypto would require information tied to how digital assets operate. Issuers would need to disclose token supply, release schedules, minting and burning systems, governance arrangements, and smart contract permissions. Required information would also include source code, the structure of the project's ecosystem, development promises, and progress toward completing them.

Galaxy said the list addresses information that token buyers use when assessing a project but that may not appear in a conventional equity filing. Token ownership does not necessarily give buyers the voting, dividend or liquidation rights attached to corporate stock, making supply controls and smart contract access more relevant to the investment decision.

Obstacles and open questions

Even with the new pathways, Thorn questioned how many projects would choose the fundraising exemptions. Rule 506 under Regulation D already permits uncapped offerings without an SEC qualification process or continuing public reports, although it does not offer the same public distribution route to non-accredited buyers.

Offshore structures could present another obstacle for larger offerings. According to Galaxy, token projects often use overseas foundations for governance, treasury management and tax planning, while the larger Reg Crypto exemption would require much of the issuer's organization, management and assets to sit in the United States. The startup exemption does not impose the same US incorporation condition. Galaxy said smaller domestic offerings could therefore use the $5 million route more readily, despite its lower ceiling.

Reg Crypto would preempt state registration and qualification requirements for covered primary offerings and certain secondary transactions, provided that the issuer remained current with its obligations. The state antifraud authority would continue to apply.

The proposal does not establish rules for exchanges, brokers, dealers, or custodians. It also does not determine whether a token that leaves investment contract status becomes a commodity under the Commodity Futures Trading Commission's supervision. Galaxy said the safe harbor could therefore remove SEC treatment without assigning the token to another federal regulator. The CLARITY Act would address that question through legislation dividing oversight between the SEC and CFTC.

Galaxy warned that an agency rule could also be changed by a future commission. Federal legislation would carry more permanence and would override any conflicting SEC rule if Congress enacted it.

The Senate has scheduled a Sept. 15 procedural test for the CLARITY Act. The cloture motion needs 60 votes and would only allow the chamber to begin considering the bill, not approve its final passage.

The SEC published Reg Crypto in the Federal Register on Aug. 21 under docket S7-2026-27. Chairman Paul Atkins and Commissioners Hester Peirce and Mark Uyeda issued statements supporting the proposal. The public comment period remains open until Oct. 20.