A lawyer from the crypto investment division of venture capital firm Andreessen Horowitz (a16z) has stated that web3 projects should refrain from publicly selling tokens in the United States as a means of raising funds.

In a recent blog post, Miles Jennings, the general counsel for a16 Crypto, explains that the U.S. Securities and Exchange Commission (SEC) has made it evident that Initial Coin Offerings (ICOs) fall within the purview of securities laws.

Jennings emphasizes that many ICOs involved token issuers making explicit representations and promises to investors, assuring them that the proceeds from the token sale would be used to fund their operations and generate future returns. Consequently, these cases were unequivocally classified as securities transactions, regardless of whether the instruments being sold were digital assets or shares of stock.

Amid the popularity of ICOs as a fundraising method in 2017, the SEC subjected them to securities laws. Although the industry has since moved away from publicly selling tokens in the U.S., ICOs continue to re-emerge in different forms.

Jennings highlights that some projects devise new schemes, hoping that minor alterations in their approach will yield different outcomes. He mentions “Protocol Owned Liquidity” as an example, which involves indirect token sales by decentralized autonomous organizations (DAOs) that then control the resulting proceeds through decentralized governance. Another example is “Liquidity Bootstrapping Pools,” which refers to indirect token sales via liquidity pools on a decentralized exchange.

Jennings advises projects to steer clear of these schemes, as there are alternative ways to raise funds without running the risk of legal trouble with the securities regulator. He states, “Public sales in the U.S. are detrimental to the project. They should be avoided at all costs. Public sales of equity and tokens outside the U.S., as well as private sales of equity and tokens, can all be executed in a compliant manner without being subjected to the registration requirements of securities laws.”

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