Token Analysis

The SEC has long taken the position that almost all digital tokens offered at the fundraising stage of a project are securities under US law and, thus, marketing, offers, sales and secondary market transactions involving such instruments are subject to US securities regulations.

In a memorable speech in 2018, Director of the SEC’s Division of Corporation Finance, William Hinman, distinguished tokenized traditional securities from the other type of tokens that are meant to provide some form of utility to token users. He listed some of the factors to consider when making a determination of whether an instrument is a security and pointed out that “the analysis of whether something is a security is not static and does not strictly inhere to the instrument.

This speech and further regulatory developments led to uncertainty about which digital asset is and which is not a security under the US law, and at what point in time the status changes (if at all). Our attorneys at KSTechLaw assist blockchain projects with determining whether the contemplated digital token, and the sale of such token, will be considered a securities transaction.

Conducting a Rigorous Review of Virtual Tokens

What laws govern a token and what they require can be affected by a wide range of facts and circumstances. Our firm takes a holistic approach to token analysis, conducting a rigorous review of all aspects of a digital token, its function within the ecosystem and planned token sale. As part of our review, we:

  • Carefully analyze the attributes of our clients’ digital tokens to determine what state and federal laws and regulations may apply;
  • Review project business plans, white papers and other marketing materials to ensure compliance with state and federal securities and consumer-protection laws;
  • Advise clients on optimal structure and token sale strategy in view of existing regulations and anticipated legal and market developments.

Providing a Comprehensive Overview of the Regulatory Landscape

As part of our standard token analysis, we consider whether the attributes of a token, its developer, or the way in which it is marketed and sold to the public bring it within the federal definition of a security. Moreover, we further analyze whether the virtual tokens can be considered an “equity security”, an “investment contract” or a “debt security” as different rules and regulations apply to different types of securities.

Normally, that occurs when the token meets the Howey test for an investment contract, which uses the following four elements:

  • An investment of money

  • In a common enterprise

  • In which the investor is led to expect profits

  • Predominantly from the efforts of others.

While SEC v. W.J. Howey Co. (Howey) is a landmark case used to determine whether a token is a security under the U.S. laws, there is additional precedent and SEC’s unofficial comments that help us guide clients in their token design and sale strategy. Moreover, we further analyze whether the virtual tokens can be considered an “equity security”, an “investment contract” or a “debt security” as different rules and regulations apply to different types of securities.

We Perform In-Depth Analysis of Your Token and Develop the Token Sale Strategy

When analyzing a new token, we review all applicable federal securities regulations in order to assess the probability of SEC treating the token as a security at the time of issuance and as the network develops. We guide the clients and provide advice as to how to move forward with a token sale in compliance with SEC regulations.

Developing Innovative Strategies for Compliance

The application of existing laws to the context of virtual tokens remains unclear in several important respects when it comes to secondary trading and trasnfers. Our firm designs innovative, robust strategies that help our clients succeed even in the face of legal uncertainties.

We do this by:

  • Maintaining a thorough, up-to-date understanding of the state and federal laws implicated by virtual tokens and token sales;
  • Taking advantage of exemptions from registration under the federal laws;
  • Taking advantage of alternative token sale structures, including dual token sales;
  • Drafting or reviewing terms and conditions to ensure that they are clear and comprehensive, reducing the risk of disputes and the costs of resolving any disputes that do arise.


Represented a blockchain based gaming platform in connection with structuring Regulation D and S offerings, including full review of the project, drafting a private placement memorandum and purchase agreement to launch the sale, guidance through the process of verifying U.S. accredited investors and completing KYC/AML checks, and filing form D with the SEC.

Represented B2B / B2C blockchain freelance platform in the process of raising capital through Regulation D and S offerings to U.S. and non-U.S. investors, including review and analysis of the white paper and the project, preparation of the private placement memorandum (PPM), subscription agreements, guidance regarding the process of investor accreditation as well as AML/KYC checks, and filing Form D with the SEC.

Represented a decentralized crypto exchange platform and advised the company regarding the process of raising capital in the U.S. through SEC Regulation A+ and D offerings, including money transmitting licenses in all 50 states, preparation of all necessary offering documents to launch token sale in the U.S.

Advised real estate development blockchain startup from UAE regarding a pre-ICO sale in the U.S. and compliance with SEC rules and regulations

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