SEC Releases Guidelines for Securities Registration Related to Encryption

The U.S. Securities and Exchange Commission (SEC) recently released a new staff perspective document outlining how federal securities laws apply to the registration and issuance process of encryption-related securities.

This document covers multiple aspects, including how businesses should present their operations, token design, governance structure, technical specifications, and financial reports. Although the document does not establish new regulations, it reflects the current expectations of SEC staff regarding the documents that businesses are preparing to file, and it also indicates that the new leadership of the SEC has adopted a more open attitude towards encryption regulation.

Provide clear guidance for sign ups

This guide is primarily aimed at entities that submit filing documents under the Securities Act of 1933 and the Securities Exchange Act of 1934, with the intention of assisting those participating in token offerings or building platforms based on blockchain infrastructure. These filing documents may include various registration forms, such as the S-1 form for public offerings, the 10 form for reporting companies, the 20-F form for foreign issuers, and the 1-A form for Regulation A exemptions.

Companies need to clearly outline their revenue strategies, project milestones, and the technological framework behind the related digital assets. If encryption assets serve specific functions within the business, such as supporting transactions, governance, or access to services, this information must be described in plain language. The SEC also requires that these descriptions be consistent with promotional materials such as white papers and developer documentation.

For projects still in development, companies should outline key milestones, expected timelines, sources of funding, and the role that tokens or networks will play after launch. This includes an explanation of the consensus mechanism, transaction fees, and whether the network uses open source or proprietary software.

Disclosure Requirements

The SEC has outlined specific expectations for investment risk disclosures, including token volatility, liquidity constraints, legal classifications, and security vulnerabilities. If a company's business model relies on third-party blockchains or other external networks, these dependencies should be described. Any arrangements with market makers or custodians must also be disclosed.

Issuers must disclose whether the tokens have voting rights, profit-sharing mechanisms, or redemption processes, and how these rights are communicated or modified. The document also requires detailed information about how the tokens are created, whether the supply is fixed, and whether vesting or lock-up periods apply.

If smart contracts control token behavior, the code must be submitted as an attachment, and any updates made to it should be reflected in future revisions. In addition, businesses must describe how token ownership is tracked, the tools required for asset transfer, and any fees associated with these transfers.

Companies must also disclose information about their leadership and key personnel, including individuals or entities that may play a central role in decision-making but do not hold formal titles. For trusts or exchange-traded products, the disclosure should include information about the sponsors and their management personnel.

Financial disclosures must comply with established accounting standards, and the SEC encourages companies facing new reporting situations to consult their chief accounting office.

Although this staff guide is not legally binding, it provides important reference for encryption-related entities during the sign up process. This reflects the SEC's increasing attention to the encryption market, as more and more businesses seek to operate in the public market and raise funds through blockchain-based products.