BRIEF
The SEC just proposed "Reg Crypto," the first real rulebook for raising money on new crypto networks and tokens. Small projects get a $5M pass with almost no disclosure. Bigger raises get $75M and real reporting.
Photo illustration by Shirley Yu at Sum of Parts for Zero Knowledge
The SEC has new proposed rules for blockchain fundraising via advance token sales.
So is this clarity? Or ICO Mania 2.0?
Good morning.
The SEC’s proposed new rules are a big deal. Or maybe they’re not?
In this week’s deep dive and roundup, Austin and I disagree (at least a bit) on “Regulation Cryptocurrency.”
It Depends Where You’re Standing.
David Z. Morris
Watching the Detectives at Zero Knowledge
PS. The Zero Knowledge team works hard to produce this for you.
If you like it, share it with your colleagues 👇 We’ll send you socks.
🏹 BACK UP
WTF IS REG CRYPTO?
A proposed rulemaking, not a law. Two exemptions, both skipping the "accredited investor" test that normally gates a private securities deal to the wealthy. Anyone can buy in.
$5M Startup Exemption (Rule 200): raise up to $5M over four years. No incorporation, no GAAP financials.
$75M Fundraising Exemption (Rule 300): modeled on Reg A. Tier 1, up to $20M, unaudited. Tier 2, up to $75M, full audits required.
The catch: skip incorporation on the $5M tier, and the SEC treats the team like a general partnership, personally and jointly liable, with no corporate shield.
⏳ BREAKDOWN
ICOs raised an estimated $8 billion directly from public retail crowdsales between 2017 and 2018, with almost none of it regulated. Reg Crypto is what the SEC built instead of doing that again.
$8B
$5M
. 2017.
ICO mania. Anyone with a whitepaper and a Telegram group could raise millions straight from the public, no disclosure required. Most of it went to zero.
. 2021-24.
Gary Gensler's SEC regulates almost entirely by enforcement lawsuit. No clear rulebook, just after-the-fact fines.
. 2025.
The Trump administration's Clarity Act, meant to be the legislative fix, stalls out in a lame-duck Congress.
. AUG 21.
The SEC proposes "Reg Crypto" as rulemaking instead of another lawsuit. Two exemption tiers, both open to the general public.
. NOW.
Public comment period, open through October 20, 2026. The rule can still be narrowed, expanded, or shelved before it's final.
. NEXT.
Exchanges and issuers start prepping filings before the ink on the proposal is even dry. Implementation likely won't land before summer or fall 2027.
ZERO INSIGHTS : THE LONG READ
They're Making ICOs Great Again. Why?
"Imagine you had to use McDonald's stock certificates to buy a Big Mac. That's basically how crypto works. We know it sounds stupid, don't ask us, we just work here."
~
🎭 BUSTED
Reg Crypto promises the clarity crypto has been begging for since 2017. Two things stand between that pitch and reality.
PROBLEM ONE
The $5M window needs no incorporation, barely any disclosure. That's a gateway for small-dollar fraud, and enforcement is already thin.
PROBLEM TWO
This is rulemaking, not law. The next administration's SEC can overturn it as easily as this one wrote it.
💰 BAG HOLDERS
WINNERS
Coinbase, Kraken, and other U.S. exchanges, the main venues once these tokens trade.
U.S.-based developers who can now raise money without guessing what counts as a security.
LOSERS
Overseas scam issuers, crowded out by better-labeled U.S. offerings.
Anyone who buys into a $5M-exemption token assuming "SEC-registered" means "SEC-vetted." It rarely does.
ZERO OUT
The bottom line: real clarity, arriving as a rule nobody can bank on for the long term.
Three things worth tracking:
1️⃣ Watch the comment period, not the headline. Lobbying between now and the final rule will decide exactly how loose that $5M tier stays.
2️⃣ Track which tier serious projects actually use. If the good ones lean on the $75M door and only the sketchy ones use the $5M one, the rule is working as a filter.
3️⃣ Build for a four-year shelf life. Anything that depends on this rule should survive the SEC that didn't write it.
The real test isn't the rule text. It's whether anyone actually enforces the $5M tier once the ribbon-cutting is over.
BEST CASE
Real project formation returns to crypto. Use cases boost network activity. The next SEC keeps the rules on the books.
WORST CASE
Grifts multiply under a stamp that reads as legitimacy. Crypto's reputation with the public stays trash no matter what the rule intended.
ZERO INSIDER
Taped Wolf of All Streets as well as the season finale episode of Zero Knowledge and Perena's "But Why?" series (Coming soon is Ep. 3 : Tokens)
B.T.S. photography by Lea Campbell for Zero Knowledge
David helped out with Ben Schiller’s script for Bitcoin Bad Boy, a play loosely inspired by crypto-dissident figures like Charlie Shrem and Ross Ulbricht. It runs at New York’s Chain Theater from October 15-25. (The theatre’s name is a coincidence, we’re told).
