Main Points:
- SEC’s Division of Corporation Finance issued non-binding guidance on April 10, 2025, clarifying federal securities law disclosure expectations for crypto asset offerings.
- Key required disclosures include business models, token economics, governance structures, and technical protocols (PoW vs. PoS, block size, transaction speed).
- Issuers must describe ongoing developer involvement, supply caps, issuance schedules, and team backgrounds, enhancing transparency and investor protection.
- The SEC does not designate which assets are securities, but urges comprehensive risk factor disclosures covering price volatility, cybersecurity vulnerabilities, custody risks, and legal/regulatory uncertainties.
- Industry reaction has been positive, with legal experts calling it a “welcome step toward clear regulation” and new SEC Chair Paul Atkins promising more crypto-friendly rules.
- Recent developments include the SEC’s forthcoming roundtables, Federal Reserve’s withdrawal of crypto banking guidance, and evolving DeFi tax rules, all signaling a maturing regulatory landscape.
1. Background and Purpose of the Guidance
On April 10, 2025, the SEC’s Division of Corporation Finance released a Staff Statement outlining how existing federal securities laws apply to offerings and registrations in the crypto asset markets. This non-binding guidance is intended to help token issuers understand which disclosure obligations apply if their digital assets might constitute securities. The announcement emphasizes that while it carries no legal force, failure to adhere to these disclosure expectations could expose issuers to enforcement actions under the Securities Act of 1933 and the Securities Exchange Act of 1934.
The guidance builds on the SEC’s Crypto Task Force work and follows a series of enforcement actions that highlighted gaps in market participants’ disclosures. By clarifying expectations—particularly around how tokens function and how proceeds are used—the SEC seeks to bolster investor protection without imposing new rulemaking.
2. Business and Economic Disclosures
2.1. Description of Business Activities
Issuers must provide a clear, tailored description of their operations, as required by Item 101 of Regulation S-K. This includes:
- Objectives and Use Cases: What problem the network or application solves, target markets, and key use cases.
- Revenue Models: Current revenue streams (e.g., transaction fees, staking rewards) and future monetization plans.
2.2. Token Economic Model
The statement urges detailed explanations of a token’s economic design, including:
- Supply Mechanics: Whether supply is fixed or inflationary, issuance schedules, and any planned token burns or buybacks.
- Utility vs. Investment: Clarify whether tokens grant voting rights, dividends, or revenue-sharing features that might render them securities.
By insisting on these disclosures, the SEC aims to prevent mischaracterizations of tokens as pure utility assets when they resemble investment contracts.
3. Technical and Governance Details
3.1. Consensus Mechanism and Protocol Parameters
Token issuers must outline the protocol’s technical underpinnings:
- Consensus: Proof-of-Work (PoW) vs. Proof-of-Stake (PoS) choice, validator incentives, and security considerations.
- Network Metrics: Block size, transaction throughput, average confirmation times, and fee structures.
- Open-Source Status: Whether the protocol code is open source and where it can be audited.
3.2. Governance and Upgrades
Transparent governance disclosures help investors assess control risks:
- Upgrade Process: How protocol changes are proposed, approved, and implemented, including who holds veto power.
- Smart Contract Audits: Third-party security assessments of core contracts and bounty programs for vulnerability reporting.
These disclosures enable stakeholders to gauge decentralization levels and upgrade safeguards.
4. Comprehensive Risk Factors
The guidance underscores the necessity of robust risk disclosures covering:
- Market Risks: Token price volatility and liquidity constraints.
- Operational Risks: Cyberattacks, protocol bugs, and governance failures.
- Custody Risks: How assets are stored, custodial arrangements, and recourse in case of loss.
- Legal/Regulatory Risks: Potential enforcement actions, shifting laws, and cross-border compliance challenges.
By enumerating these risks, issuers help investors make informed decisions and reduce the likelihood of regulatory surprises.
5. Stablecoin Considerations
In parallel with token guidance, the SEC issued a Statement on Stablecoins emphasizing:
- Reserve Integrity: Stablecoin issuers must back tokens one-for-one with USD or low-risk liquid assets and honor unlimited redemptions.
- Payment vs. Investment: Stablecoins must be marketed for payments, not investments, with clear redemption terms and transparency around reserve audits.
This delineation aims to carve out a clear space for payment-focused tokens while ensuring investor safety.
6. Industry Reaction and Subsequent Developments
6.1. Legal Community’s View
Prominent crypto attorney Joe Carrascal lauded the guidance as “a welcome step toward clear regulation,” noting that compliance can build trust with regulators and users alike.
6.2. New SEC Leadership
On April 25, 2025, Paul Atkins was sworn in as SEC Chair and pledged to reduce “regulatory uncertainty” and adopt a more industry-friendly approach at upcoming roundtables . This leadership shift may accelerate formal rulemaking and refine definitions of what constitutes a security.
6.3. Broader Regulatory Landscape
- Federal Reserve: On April 24, 2025, the Fed withdrew its 2022 guidance requiring banks to pre-notify crypto activities, signaling greater banking innovation.
- Taxation of DeFi: Congress overturned the IRS’s “DeFi broker rule,” delaying on-chain transaction reporting requirements and easing compliance burdens for decentralized platforms.
These concurrent developments reflect a maturing ecosystem where regulators aim to balance innovation with investor protection.
The SEC’s April 10, 2025 guidance marks a pivotal moment in crypto regulation. By detailing disclosure expectations—ranging from economic models and technical protocols to exhaustive risk factors—the Commission has provided a roadmap for token issuers to follow. As new leadership under Chair Paul Atkins signals a potential shift toward formal rules and as other agencies recalibrate their stances, the crypto industry stands at the cusp of clearer, more predictable regulation. For issuers, embracing these transparency measures not only reduces legal risk but also fosters credibility with investors and partners.
