What SEC disclosure for crypto assets could look like

• "Trying to conduct a validly registered offering for a crypto company really presents a quandary," Ryan Adams, a partner at Morrison & Foerster and formerly of the SEC's corporate finance division, tells Axios. "It's a square peg in a round hole type of situation."

The big picture: U.S. securities law is a disclosure regime. That is, the SEC is charged with making sure potential buyers in the offering of a new asset have all the information that they need.

• The main way firms make these disclosures is through the form S-1 — the thing SEC Commissioner Mark Uyeda pointed to in his comment this week at Korea Blockchain Week.
• These registration forms were "the fundamental breakthrough of Congress in the Securities Act of 1933," Andrew Vollmer, a researcher at the Mercatus Center at George Mason University and former general counsel for the SEC, tells Axios.

Yes, but: Today's S-1 asks all the wrong questions for digital assets, attorneys say.

• "Not only is there no way to fit into the form, but even if you could, the information the forms are getting at are not the things people investing in this space would care about," Kayvan Sadeghi, a partner at Jenner & Block who works on its fintech and crypto asset practice, tells Axios.

Between the lines: Today's S-1 take into account certain assumptions about traditional issuers and assets that just don't fit cryptocurrencies or tokens.

• To vastly oversimplify it, the S-1 that's been fit for purpose over the last several decades assumes there's a company, one making something, and that any profit will come from that company making that thing.
• But that's not really how digital assets work.

Case in point: Bitcoin never had a company of any kind. Solana has several entities behind it. Ethereum is a digital nation.

Imagining a new S1

Investors getting in early on a new blockchain or a financial protocol probably care most about things today's registration form doesn't think to ask.

• Things like whether or not the code undergirding the new asset is publicly viewable, whether it has had a security audit, who gets how much tokens to begin and what kind of custody arrangements will be made for funds investors turn over to the team.
• Very specific details about governance could be important for projects that can change a lot, too, such as the Tezos blockchain or Curve's decentralized exchange, which shifts its incentivation scheme regularly.

Protecting consumers also requires demanding the right disclosures.

• In the very early days of securities in the U.S., entrepreneurs were able to hide the depth and complexity of their interest in an endeavor. That's a problem today's securities regime has largely sorted out, Vollmer explains.
• However, he said, "In the digital world, I think it remains hidden."

Reality check: There's a lot that would need to be sorted out. For example, there might need to be different disclosures for different sorts of digital assets (governance tokens vs. basic coins vs. staking tokens, etc).

• A registering entity typically makes ongoing disclosures to the agency, but with digital assets that might end if it graduates out of security status.

What we're watching: If the SEC got to work today on a new regime specific to digital assets — Vollmer called it "Reg-DA" — it would, optimistically, take two years for it to be promulgated.

• But our sources noted that many people are likely to be dissatisfied with whatever comes out of such a process, which would likely mean lawsuits.

The bottom line: In the end, this matter might better be one taken up by Congress, rather than the agency.

• "Congress understands the importance," Vollmer said. "It's ten years late, but that's basically how Congress works."