The U.S. Securities and Exchange Commission has been cutting deals in recent months with cryptocurrency projects it has deemed to be in violation of the so-called Howey test, a rule-of-thumb for determining whether an asset qualifies as a security and, therefore, must be registered with the agency. I spoke with some of the entrepreneurs who ran afoul of the commission to learn what they might have done differently and where they believe the industry is headed.

Victor Santos, CEO of Airfox, a peer-to-peer lender that raised $15 million in a 2017 “initial coin offering,” or ICO, expressed regrets about his company’s fundraising on a call with Fortune. As part of an agreement reached with the SEC in the fall, Airfox agreed to pay the agency a penalty of $250,000, to offer investors a refund of their money plus interest, and to file regular, audited financial statements moving forward, turning the startup into something of a quasi-public company. “What we’re hoping for is by us being compliant,” Santos says, “we’ll be ready when new regulation comes out.”

Santos is hoping his interaction with regulators will “open up the mind of the SEC to create new types of frameworks, like Switzerland has done,” he tells me. Particularly, he would like U.S. regulators to recognize different classes of crypto assets, such as “payment,” “utility,” and “asset” tokens, that fall under different legal regimes, some outside the traditional classification of securities. (For comparison, see this legal brief on the Swiss state of affairs out of PricewaterhouseCooper.) Whichever way the chips fall, Santos says he felt that working with the SEC would be a better bet for his company in the long term than fighting it.

“The golden days of crypto, with free-flowing capital everywhere, without know-your-customer and anti-money-laundering [compliance] anywhere—that’s not gonna last,” Santos says. His advice to peers: “Outside of moving to Switzerland,” he says, “you have to register with the SEC.”

Another cryptocurrency project, Gladius, which raised just under $13 million in a 2017 ICO to build a decentralized content distribution network, also recently settled with the SEC. The outcome was similar to Airfox’s, except Gladius dodged having to pay a financial penalty to the commission. The SEC let the company off the hook with a lesser punishment because Gladius was the first cryptocurrency business to self-report its violation to the agency in the fall—a move that 20-year-old CEO Max Niebylski described on a call with Fortune as “jumping into the jaws of the beast and making it to the other side.”

Now Niebylski says he is offering input to the SEC on ways the commission might update its regulations. One area Niebylski deems to be “grossly outdated,” he says, is a stipulation requiring companies to be able to reissue securities. This condition is, typically, not a problem in a world that transacts in classic equity shares. But as any cryptocurrency enthusiast will tell you, blockchain-land is incompatibly quirky. Investors who lose the private keys to their digital wallets have little recourse to recover their precious cryptocurrency. Once tokens are gone, they’re gone.

It remains to be seen how U.S. regulators will ultimately come to grips with the cryptocurrency question. The Brookings Institute’s Timothy Massad, former chair of the Commodity Futures Trading Commission, is calling on the SEC to take the lead as the industry’s main watchdog. Meanwhile, Ted Livingston, CEO of the Tencent-backed chat app Kik, has pledged to fight an expected SEC enforcement action relating to his startup’s 2017 token sales. The courts may have the final say.

Amid all the uncertainty, at least one thing remains clear: the SEC is willing to forgive the sins of transgressors, at least in part, as the Gladius case shows, as long as they come clean. Regulators have kicked the log, in the other words, and now we must to see what creepy-crawlers slither out from underneath.

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Robert Hackett
@rhhackett
robert.hackett@fortune.com

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