The SEC has proposed Regulation Crypto Assets, a draft rule that would create two exemptions for certain investment contracts involving crypto assets. According to ChainCatcher, the proposal would allow startups to raise up to $5 million in a single financing round over four years and permit eligible issuers to raise up to $75 million in any 12-month period, with the possibility of conducting different rounds in later years.

Winston & Strawn partner Drew Hinkes said projects could theoretically raise $75 million every 12 months if each round is treated as a separate offering. Sidley fintech and blockchain practice head Lilya Tessler said later financings would not be automatically approved and would require a new offering statement, SEC staff review, ongoing annual and semiannual reports, and disclosure of funds raised under the exemption in the prior 12 months to ensure the cap is not exceeded.

The proposal would also limit participation by non-accredited investors, capping purchases at 10% of the greater of an individual's income or net worth. Duke University financial regulation expert Lee Reiners said the smaller initial cap could make early token allocations more attractive, but the rule is unlikely to recreate the 2017 ICO boom, noting that as many as 90% of projects funded through ICOs from 2017 to 2019 ultimately failed.

The SEC expects about 130 offerings a year to use the two exemptions and roughly 475 issuers to use the broader investment contract safe harbor. The proposal would give token issuers a clearer U.S. fundraising path than the current system, but secondary market trading could still remain in a securities gray area. It says investment contracts tied to crypto assets may continue to move with the token in secondary market transactions until they are separated from the issuer's statements or promises.

Hinkes said that if a non-security token transfers an investment contract from seller to buyer, the trade could still be treated as a securities transaction and affect trading platforms. Reiners also said some issuers may meet the formal requirements for an exemption while still influencing token value through team-managed efforts, concentrated insider holdings, and aggressive promotion.