The analysts at a16z Crypto warn that cryptocurrency startups and their investors must fully understand the level of risk involved before embarking on projects and selling digital assets in the US market. The fundamental disagreement between cryptocurrency creators and the SEC stems from how the regulator views most tokens as securities that necessitate registration under local law.
As a solution, representatives from a16z Crypto propose that aspiring crypto projects explore alternative methods of raising funds, such as private sales and offers conducted outside of the US. They strongly advise against conducting public token sales to raise funds in the United States, as this directly falls under the jurisdiction of the SEC.
“Effective and responsible communication with potential investors is crucial. How a project communicates its tokens and development plans can have significant regulatory implications in the eyes of government regulators. Promises of profits and a centralized development team can attract the attention of the Commission, which, under the Howey test, can easily establish in court that the crypto startup was selling unregistered securities,” warns the a16z Crypto team.
Avoiding most legal pitfalls and regulatory risks can be achieved if a cryptocurrency company showcases its decentralized structure from the beginning. For instance, it is advisable to transfer management and financial control to a decentralized community instead of a central governing body. Strategies like “Protocol Owned Liquidity” and “Bootload Liquidity Pools” should be employed, involving indirect token sales through decentralized mechanisms.
The day prior, the Blockchain Association (AB) and the Cryptocurrency Freedom Alliance of Texas (CFAT) initiated a lawsuit against the US Securities and Exchange Commission (SEC) in a Texas district court.