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

Recently, the U.S. Securities and Exchange Commission (SEC) Division of Enforcement released a new staff perspective document that elaborates on how federal securities laws apply to the registration and issuance processes of encryption-related securities.

This statement involves multiple aspects, including how companies should present information about their business operations, token design, governance structure, technical details, and financial reports. Although this document does not establish new regulations, it reflects the current expectations of SEC staff regarding companies' preparations for filing documents, while also indicating that the SEC has taken a more open attitude towards encryption regulation under the new leadership.

This guidance primarily targets the filings submitted under the Securities Act of 1933 and the Securities Exchange Act of 1934, aimed at assisting entities participating in token offerings 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.

According to the guidelines, businesses should clearly outline their revenue strategies, project milestones, and the technological framework behind the associated digital assets. If encryption assets serve specific functions in the business, such as supporting transactions, participating in 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, the guidelines suggest that companies 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.

In terms of risk disclosure, the SEC has outlined expectations for investment risk disclosure, 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. The same applies to any arrangements with market makers or custodians.

Issuers must disclose whether the tokens have voting rights, profit-sharing mechanisms, or redemption procedures, and how these rights are conveyed or modified. The guidelines also require detailed information on how the tokens are created, whether the supply is fixed, and whether vesting or lock-up periods apply.

If the behavior of the token is controlled by a smart contract, the code must be submitted as an attachment, and any updates made to it should be reflected in future revisions. Additionally, the enterprise must describe how token ownership is tracked, the tools required to transfer assets, 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.

Financial disclosures must adhere to established accounting standards, and the SEC encourages companies facing new reporting situations to consult their chief accounting officer's office.

Although this staff guidance is not binding, it provides an 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.