A lawyer with the crypto investment arm of venture capital giant Andreessen Horowitz (a16z) says web3 projects should not publicly sell tokens in the US to raise funds.
In a new blog post, a16 Crypto general counsel Miles Jennings says that the U.S. Securities and Exchange Commission (SEC) has made it clear that Initial Coin Offerings (ICOs) fall under the ambit of securities laws.
“In many ICOs, token issuers made clear representations and promises to investors that they were going to fund their operations with the proceeds from the token sale and deliver a future return to investors. Those cases were securities transactions regardless of whether the instruments being sold were digital assets or shares of stock. Case closed.”
The SEC subjected ICOs to securities laws amid the popularity of this fundraising activity in 2017. Jennings says that while the industry has since moved away from public US token sales, ICOs still re-emerge in new forms.
“Some invent new schemes, hoping that a slight change in facts warrants a different outcome. ‘Protocol Owned Liquidity’ (indirect token sales by decentralized autonomous organizations, or DAOs, who then control the resulting proceeds via decentralized governance) and ‘Liquidity Bootstrapping Pools’ (indirect token sales via liquidity pools on a decentralized exchange) come to mind.”
Jennings says that projects should avoid these schemes as there are alternative ways to raise funds sans the risk of legal trouble with the securities watchdog.
“Public sales in the US are an own-goal. Avoid at all costs.
Public sales of equity and tokens outside the US and private sales of equity and tokens can all be done in a compliant manner without being subject to the registration requirements of securities laws.”
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