“Graduation rules” under SEC's new rules: token financing is legal, but too many promises make it impossible to get away
Author: 0xFacai
Original title: The SEC threw a bombshell, is the spring of compliant token financing finally here?
Public coin sales and financing have once again gained a legal path in the US.
On August 18, the US Securities and Exchange Commission released a draft “Regulation Crypto Assets”. According to this draft, startups can raise $5 million in up to four years, and larger projects can raise $20 million or $75 million in 12 months. Without completing a complete set of securities registration, the project can also sell tokens to investors to raise money for network development.
Sounds like IC0 is back.
But the SEC gave far more than three funding lines. It wants to establish a set of rules for tokens from birth to “graduation”: projects can be sold to finance first, but it is necessary to clearly explain what to do with this money; if the key work promised by the team is not completed, the token continues to carry the regulatory responsibility for investment terms; only after fulfilling the promise, the token has a chance to exit this level of relationship.
“Commitment” is the core of the entire draft; devs must “work” until the token “graduates” before they can “sell”.
rules
The draft gave the project parties two options.
The first type is suitable for startup teams. Assuming a project required $3 million to develop, common choices in the past were to seek venture capital, limit buyers and issue coins outside of the US, or incur the high cost of registering securities. The new draft allows it to use the “startup exemption,” raise no more than $5 million over a maximum period of four years, and file with the SEC when the funding starts and ends.
The second type is suitable for projects with greater funding requirements. The first tier raised up to $20 million every 12 months, and the second tier raised up to $75 million. Compared to the $5 million startup exemption, this path can be used over and over again, but the rules are more stringent.
Projects can't just hand in a white paper and start selling coins. Both exemptions require the team to disclose how the network is being managed, how the product is being prepared and developed, what security risks the code has, what the company's financial situation is, and who is managing the project. The two larger funding levels also require financial statements to be provided and continuously updated, and the $75 million tranche requires an audit.
The SEC didn't remove the original fence either. Issuers and insiders with a record of serious violations cannot use these exemptions, and anti-fraud and anti-manipulation responsibilities remain in effect. If the project uses other securities exemptions at the same time, it must also comply with existing consolidated financial calculation rules.
How to define “graduation”
The most important aspect of the entire draft is to treat tokens separately from the investment relationships formed around tokens.
A project sells coins to raise money to build a network. Buyers often buy more than just a digital asset that can already be used. They are also expecting the team to create products, attract users, increase token demand, and profit from these efforts. This relationship, which depends on the team's future work, is what the SEC calls an “investment clause.”
The token itself can be just a digital asset, but how the project sells it and what it promises to the buyer makes it covered by a layer of investment terms. What the SEC really regulates is this level of relationship between issuers and buyers.
The draft designs an exit path for the token. The token can only enter a “safe harbor” after the issuer has completed or permanently ceased all key management tasks of its promises, no new related commitments, and then submitted public certification and analytical instructions to the SEC.
As a result, tokens have the concept of “graduation.”
When the project is sold and financed, construction is promised to the market. After the project is completed and key tasks are completed, the buyer can no longer rely on the team to fulfill the old promises before the token can “graduate” and the project party can withdraw.
The new regulations don't focus on whether tokens are securities
In the past, the market judged when a token was no longer subject to securities laws, and often questioned whether the network was “decentralized enough.” As long as the foundation, development company, or founding team continues to work, many people will understand this as the token still relies on a central entity.
The SEC draft changed the question: what promises did the project rely on to sell the tokens, and are those promises fulfilled now?
Take an example. When Project A sells coins, it tells investors that the team will develop the main network, launch transfer and pledge functions, and then leave the network to a decentralized validator to operate. The main network was later launched, and the features were also available, but the validators were still controlled by the team. Since “decentralizing the network” was also a promise at the time of financing, the token is still unable to “graduate” at this point.
When Project B sells coins, it only promises to make a network that can function properly; it does not include “the team must disappear” or “the network must reach a certain degree of decentralization” in the financing promise. After the online launch and product availability, the team continued to fix bugs, update versions, fund developers, and promote products. These daily maintenance is not part of the “investment terms.” The products that investors were initially waiting for have been delivered, and the value of the token has begun to derive more from actual use, network operation, and market supply and demand.
The SEC is concerned about whether the market is still waiting for the team to complete the key promises made during the coin sale. The core team continues to exist and is no longer a uniform yardstick for whether a token can graduate.
The core team can stay. Unfulfilled promises cannot be left behind.
Talk less and do less
This method of judging whether a project “fulfills its promises” will greatly influence the project's promotion strategy.
Corporate securities attorney Gabriel Shapiro suggests that the SEC binds whether the token can break free from investment terms to the project party's public promises, and the team will be motivated to talk less and promise less in the future. The less the project promises, the less work that needs to be proven to be completed before “graduation.”
The roadmap is therefore no longer just marketing material. If the project promises to launch the main network, increase revenue, achieve decentralization, and build some kind of functionality, it will have to answer the same question in the future: have these tasks been completed? The more the team told the story during the funding, the harder it was to quit after TGE.
There is also a new set of contradictions hidden here. Buyers need sufficient information to determine whether the project is worth investing in, yet the project parties are motivated to lower their promises in order to enter the “safe harbor” earlier. Too few disclosures make it impossible for investors to determine risk; too many promises make it difficult to graduate from the project.
A New Paradigm for Airdrop
The draft will also influence the design of airdrops and point campaigns.
The first case is a retroactive airdrop. The project did not promise to issue coins in advance; it only rewards early users after the fact. The recipient did not pay money or provide services for this airdrop, and there was no need to trade or perform tasks after the announcement. This type of airdrop of non-securities crypto assets could fall within the scope that the SEC has previously explained.
The second situation is a teaser credit event. The project tells users in advance that they can trade, buy an asset, buy a service, or complete a task in exchange for future tokens. If participants pay money, services, or actions, this type of distribution is more likely to form investment terms and count towards the $5 million IC0 exemption.
Therefore, some people associate the draft withHYPERLIQUIDThe season 3 airdrop, which has been slow to be publicly confirmed, is connected. If the project only rewards past actions after the fact, the legal relationship will be much simpler; if the project announces credit rules in advance and then uses future tokens to attract trading volume, credit activities will incur additional regulatory burdens.
There is no evidence that Hyperliquid knew the SEC's policy direction ahead of time; this association is still market speculation. More importantly, the SEC itself is also asking for opinions: how the value of airdropped tokens should be calculated, and whether the startup exemption requires additional special rules, so far, there is no final answer.
The current Regulation Crypto Assets is still a draft. All three incumbent SEC commissioners voted in favor, but the rules are still awaiting public comment.
The IC0 model of “my project is cool, pay me money” is gone. In the future, how much money the project can raise will be determined by the exemption amount. Whether the token can “graduate” depends on what the team has said to the market and what it has actually achieved.
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