Section IV — baseline, effects, alternatives

The economic analysis is the longest single section of the paper and the one most commenters will skip. Do not skip it. OIRA reads it. The Commission’s lawyers will answer your legal comment with a sentence from IV.D. The baseline is current offering practice plus the 2026 Interpretation’s five-way classification (digital commodities, collectibles, tools, stablecoins, digital securities) and its attach/detach mechanics. The analytical claims: a CIC can cease, so existing rules that assume a permanent security are a mismatch; crypto value depends on utility, security and network effects rather than cash-flow claims, so S-K is the wrong elicitation; existing exemptions restrict resales and retail, which impedes those network effects.

What the Commission thinks it is buying

• Startup exemption: a cheap public path for ≤ $5 million of development-stage distribution, including the airdrop/reward residual the Interpretation does not already clear.
• Fundraising exemption: a Reg A-shaped public path up to $75 million with CIC-specific disclosure, unrestricted resale, and both-tier preemption.
• Rule 400: an administrable off-ramp so the Commission, issuers and intermediaries can treat an asset as not subject to an investment contract without waiting for a district court.
• Rule 500: the network-effects half of the design — tokens can actually move across state lines.

Efficiency, competition, capital formation

Efficiency: less legal uncertainty, more comparable CIC disclosure, secondary markets that can function. Competition: smaller issuers get a tool that currently exists, in a clunky form, only for those who can pay for a 50-state process or a 506(c) stack. Capital formation: some issuers will switch from existing exemptions; some will raise more; some will come onshore. The Commission is candid that it cannot separate those three. That candor is an invitation to give it a number.

The alternatives, so you do not reinvent them

• More prescriptive 103 — better comparability, worse tailoring, more immaterial pages.
• Restricted securities — stronger anti-distribution protection, lethal to network effects, illiquidity discount on primary.
• Mandatory related-person lockup — Howell/Davydiuk ICO evidence on failure rates; cost is founder/employee exit optionality and talent reallocation.
• Disqualification lookback on, or narrowed — consistency with 262 won.
• Startup clock: none / 2–3 years / 5 years. Cap: $10 million or $1 million. A no-capital-raising airdrop-only version.
• Fundraising: ongoing reports only on Tier 2; $50 million or $150 million Tier 2 cap.
• Rule 400: add a time limit; replace promises-completed with specified functionality and decentralization criteria.
• Preemption: none; primaries only; secondaries only.

• Howell, Niessner and Yermack, and the Davydiuk study, are the ICO-lockup papers the Commission is willing to be cited back to.
• Easley & O’Hara (2004) on information and the cost of capital — the insider-selling alternative.
• Jensen & Meckling (1976) — the alignment chestnut, used in the related-person discussion.
• Baseline offering data: 2024 Reg D / A / CF crypto offerings, sliced at $5 million and $75 million, produce the 99 / 31 split. If your trade association has a different 2024 census, this is where it goes.

• RFC 145 asks what types of companies would use the exemptions. Answer with a table: entity type, last raise, exemption used, size, what you would do on day 1 of a final rule. Ten tables beat a hundred adjectives.
• The restricted-securities alternative is how you lose the whole design. If you are an investor-protection commenter who wants seasoning, put it on related persons (RFC 35), not on the sold tokens.
• Offshore substitution is asserted. A listing of 2023–2026 token generations that geo-blocked the U.S., with size, is the missing exhibit.
• Do not propose a sixteenth alternative without saying which of the fifteen you are replacing. Staff will map you onto IV.D regardless.