The SEC Releases Guidelines for Encryption-Related Securities Registration

On April 10, the financial department of the U.S. Securities and Exchange Commission (SEC) released a new staff perspective document outlining the application of federal securities laws in the registration and issuance of encryption-related securities.

This statement covers multiple aspects, including how companies should present information about their business operations, token design, governance structure, technical specifications, and financial reporting. Although this document does not establish new regulations, it reflects the current expectations of SEC staff regarding how companies should prepare their filing documents, and it also shows that the SEC has adopted a more open attitude towards encryption regulation under new leadership.

Provide Clear Guidance for Sign Up Companies

This guidance primarily targets registration statements submitted under the Securities Act of 1933 and the Securities Exchange Act of 1934, aimed at assisting entities involved in token issuance or building platforms based on blockchain infrastructure. These registration statements may include various 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.

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

For projects still in development, it is recommended that companies outline key milestones, expected timelines, sources of funding, and the roles that tokens or networks 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 outlined specific expectations for the disclosure of investment risks, 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, these dependencies should be described. Similarly, 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 procedures, and 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 vesting or lock-up periods apply.

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 the ownership of the token is tracked, the tools required for asset transfers, and any fees associated with these transfers.

Companies also need 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 sponsors and their management.

Financial disclosures must comply with 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 important references for encryption-related entities during the sign up process. This reflects the SEC's increasing attention to the encryption market as more and more companies seek to operate in the public market and raise funds through blockchain-based products.