Fundraising in the US: Avoid Token Sales at All Costs
A lawyer working with the crypto investment arm of venture capital giant Andreessen Horowitz (a16z) advises against publicly selling tokens in the US for fundraising purposes. The general counsel, Miles Jennings, stresses the importance of steering clear of token sales in the United States. Here are the key takeaways from the blog post:
Token Launches and US Securities Laws 🚫
Jennings highlights that the US Securities and Exchange Commission (SEC) considers Initial Coin Offerings (ICOs) as securities transactions. He emphasizes that ICOs, which were once a popular fundraising method, have come under the scrutiny of securities laws as per the SEC’s regulations. Here’s what you need to know:
- ICOs fall under securities laws due to promises of future returns to investors
- The SEC has cracked down on ICOs since the fundraising boom in 2017
New Trends in Token Sales 👀
Despite the decline in public US token sales, Jennings points out that projects are finding new ways to conduct ICOs. He mentions “Protocol Owned Liquidity” and “Liquidity Bootstrapping Pools” as newer methods that could potentially lead to legal issues. Here’s what to watch out for:
- Projects should steer clear of indirect token sales to avoid regulatory trouble
- Consider alternative fundraising methods to stay compliant
Avoiding Legal Complications ⚖️
Jennings advises against public sales of tokens in the US, calling it an “own goal” for projects. Instead, he recommends exploring other avenues for raising funds. Here are some strategies to consider:
- Opt for private sales of equity and tokens outside the US
- Ensure compliance with securities laws to avoid registration requirements
Hot Take: Make Informed Decisions for Successful Fundraising
Crypto projects should carefully navigate the legal landscape when it comes to fundraising through token sales, especially in the US. By heeding Jennings’ advice, projects can steer clear of regulatory pitfalls and explore compliant ways to raise capital.
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