SEC's 400-page Regulation Crypto proposal could dilute XRP, HBAR, XLM edge

The SEC votes August 14 on a 400-page proposal that could erase the regulatory edge XRP, HBAR, and XLM have held since court rulings and staff determinations.

"We view this as the first of several rulemakings the SEC will undertake to provide regulatory certainty for crypto assets after the Senate failed before the August recess to advance the Clarity Act," Jaret Seiberg, managing director at TD Cowen, said in an August 11 research note.

The proposal, dubbed Regulation Crypto, creates three pathways: a startup exemption allowing raises up to $5 million over four years with whitepaper disclosure, a fundraising exemption permitting up to $75 million annually with audited financials, and an investment contract safe harbor letting sufficiently decentralized tokens exit securities classification entirely.

The safe harbor is the crux for the three tokens. XRP's standing rests on a 2023 district court ruling that programmatic sales were not securities, while HBAR and XLM rely on earlier SEC staff determinations. A codified decentralization standard could supersede all three, forcing US institutions to reassess which assets carry the clearest compliance path.

The timing is not coincidental. The Senate left for August recess without voting on the Digital Asset Market Clarity Act, which passed the House 294-134 in July 2025 and cleared the Senate Banking Committee 15-9 in May 2026. Senate Majority Leader John Thune filed cloture for a September 15 procedural vote, but Polymarket traders now price passage this year near 16 percent, down from an 82 percent peak in February. Galaxy Research cut its odds from 50 percent to 30 percent.

Commissioner Hester Peirce, head of the SEC's Crypto Task Force and architect of the safe harbor concept, leaves the agency in November for Regent University School of Law. The three-member commission — Chair Paul Atkins, Peirce, and Mark Uyeda, all Republicans — is expected to vote 3-0 to publish the proposal for public comment.

What the safe harbor changes for XRP, HBAR, and XLM

Each token's regulatory standing rests on a different foundation. XRP trades at $1.00, down 3.2 percent in 24 hours, after a federal judge ruled in July 2023 that Ripple's programmatic sales on exchanges did not constitute securities transactions. HBAR, at $0.0666, and XLM, at $0.1613, benefited from SEC staff determinations that their networks were sufficiently decentralized to fall outside securities jurisdiction.

Regulation Crypto would replace those piecemeal determinations with a single codified standard. An issuer that has completed or permanently ceased all essential managerial efforts can invoke the safe harbor to confirm its tokens are no longer investment contracts. The proposal sets specific criteria for what constitutes sufficient decentralization, turning what was previously a litigation question into a compliance checklist.

The risk for the three tokens is that a uniform standard could be stricter than the individual rulings that gave them their edge. If the SEC's decentralization criteria are more demanding than the facts that underpinned the XRP ruling or the HBAR and XLM determinations, those tokens could lose the clarity that made them attractive to US institutional investors.

The jurisdictional gap remains

Regulation Crypto does not resolve the SEC-CFTC boundary that the CLARITY Act was designed to settle. A token that exits the SEC's safe harbor does not automatically enter a defined CFTC regime. The two agencies issued a joint interpretive statement in March 2026 attempting to coordinate, but joint statements are not binding rules and can be withdrawn by either agency.

The proposal also does not match the comprehensiveness of the European Union's Markets in Crypto-Assets regulation, live since mid-2024, which provides a single licensing regime across 27 member states. Projects that exit the SEC's jurisdiction through the safe harbor could find themselves in a regulatory no-man's land, with neither agency claiming clear authority.

For XRP, HBAR, and XLM holders, the immediate question is whether the safe harbor's decentralization criteria align with the facts that produced their current standing. The comment period following the August 14 vote will be the first test. The final rule is not expected until 2027.

This article is for informational purposes only and does not constitute investment advice.