SEC Releases Guidelines on Securities Registration Related to Encryption, Providing Clear Guidance for the Industry

Recently, the U.S. Securities and Exchange Commission (SEC) Division of Finance released a staff opinion document that outlines how federal securities laws apply to the registration and issuance of encryption-related securities. The document covers multiple aspects, including how companies should present information about their business operations, token design, governance, technical specifications, and financial reporting.

Although this document does not establish new regulations, it reflects the current expectations of SEC staff regarding the company's readiness to file documents. It also indicates that the SEC has adopted a more open attitude towards encryption regulation under the new leadership.

Provide clearer guidance for sign-ups

This guidance primarily targets the filings submitted under the Securities Act of 1933 and the Securities Exchange Act of 1934, aimed at assisting entities involved in token issuance or platforms built on blockchain infrastructure. These filings 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 should clearly outline their revenue strategies, project milestones, and the technical framework behind any relevant digital assets. If encryption assets serve specific functions in the business, such as supporting transactions, governance, or access to services, this information must be described in plain language. The SEC also expects these descriptions to be consistent with the content shared in promotional materials such as white papers and developer documentation.

For projects that are still in development, this document suggests that the company outlines key milestones, expected timelines, sources of funding, and any role that the token or network will play after launch. This includes explanations of the consensus mechanism, transaction fees, and whether the network uses open-source or proprietary software.

Disclosure Requirements

The SEC has also outlined expectations for investment risk disclosures, including token volatility, liquidity constraints, legal classifications, and security vulnerabilities. For example, if a company's business model relies on third-party blockchains or other external networks, those dependencies should be described. The same applies to any arrangements with market makers or custodians.

The issuer must disclose whether the tokens have voting rights, profit-sharing mechanisms, or redemption procedures, as well as how these rights are conveyed or modified. The document also requires detailed information about how the tokens are created, whether the supply is fixed, and whether a vesting period or lock-up period applies.

If the smart contract controls the behavior of the token, the code must be submitted as an attachment, and any updates made to it should be reflected in future revisions. Additionally, the company must describe how token ownership is tracked, the tools required to transfer assets, and any fees associated with these transfers.

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

Financial disclosures must adhere to established accounting standards, and the SEC encourages companies facing new reporting situations to consult their Chief Accountant's Office.

Although this staff guidance is not binding, it provides an important reference point for encryption-related entities during the sign up process. It reflects the SEC's increasing focus on the encryption market as more and more companies seek to operate in the public market and raise funds through blockchain-based products.