Why Tokenized Research Grants Invite SEC Scrutiny

A direct airdrop of UNI tokens to past grantees created a clear precedent of value transfer. The SEC's argument hinges on the expectation of profit derived from the managerial efforts of Uniswap Labs and the DAO.

• Key Precedent: Airdropped tokens to ~12,000 past grantees.
• Regulatory Trigger: Establishes a direct link between grant receipt and a liquid, speculative asset.
• Critical Risk: Retroactive tokenization of grants paints all future grants as potential securities distributions.

COMP grants are explicitly tied to protocol usage and development, creating an expectation of profit from the ecosystem's growth. The SEC views this as compensation for essential, ongoing managerial efforts.

• Key Mechanism: Grants distributed based on protocol usage & development activity.
• Howey Test Fail: Profit expectation is linked to Compound Labs' continued development and governance.
• Industry Standard: This model is replicated by Aave, MakerDAO, and others, creating systemic risk.

Aave's direct funding of development via its treasury, denominated in AAVE tokens, blurs the line between a grant and an investment contract. The value of the grant is explicitly pegged to the success of the Aave protocol.

• Funding Model: Treasury funds grants in native AAVE tokens.
• Value Correlation: Grantee payout is directly tied to AAVE's market performance.
• SEC Focus: This creates a common enterprise where grantees' work directly impacts the asset's value.

Some protocols have explored selling tokens earmarked for a future grants treasury. This is the most blatant security offering, as capital is raised upfront with the promise of future ecosystem development driving token value.

• High-Risk Model: Sale of tokens for a future, unspecified grants pool.
• Pure Howey Violation: Clear investment of money in a common enterprise with an expectation of profits from others' efforts.
• Historical Parallel: Mirrors the DAO Report logic, where token functionality is secondary to investment intent.

Grant tokens almost always satisfy the Howey Test's four prongs: an investment of money (purchase/contribution), a common enterprise (the research DAO or protocol), an expectation of profit, and reliance on efforts of others (the researchers/developers). This creates a prima facie case for securities law violation.

• Key Risk 1: Retroactive enforcement on past token distributions.
• Key Risk 2: Crippling fines and mandatory registration under the Securities Act of 1933.

The SEC's 2023 Wells Notice against Uniswap Labs targeted the UNI governance token and the protocol's overall function as an unregistered securities exchange. This establishes a clear playbook for targeting tokenized grant systems.

• Key Risk 1: Protocol treasury and governance tokens become primary targets.
• Key Risk 2: The "utility" defense is systematically dismantled by regulators focusing on secondary market trading.

The primary regulatory trigger is not the initial grant distribution, but the creation of a secondary market (e.g., on DEXs like Uniswap or SushiSwap). Liquidity pools transform grant tokens into speculative assets, guaranteeing SEC jurisdiction.

• Key Risk 1: Mandatory delisting from centralized and decentralized exchanges.
• Key Risk 2: Permanent impairment of token utility and community exit liquidity.

VCs and LPs funding these protocols face direct liability as unregistered securities dealers or for aiding/abetting violations. This chills institutional capital, the lifeblood of serious R&D.

• Key Risk 1: "Venture Partner" liability under the Securities Act.
• Key Risk 2: Forced clawbacks of invested capital and disgorgement of profits.

The only viable path is structuring tokens as pure "work tokens" with no profit entitlement, or using a SAFT (Simple Agreement for Future Tokens) for accredited investors only. This aligns with the Framework for ‘Investment Contract’ Analysis of Digital Assets.

• Key Benefit 1: Clear, pre-emptive regulatory classification.
• Key Benefit 2: Enables compliant capital formation before network maturity.

Implementing grants as non-transferable Soulbound Tokens (SBTs) on networks like Ethereum severs the link to secondary markets. The token represents pure reputation/access within the protocol, not a financial instrument.

• Key Benefit 1: Eliminates the "investment contract" premise entirely.
• Key Benefit 2: Preserves incentive alignment and governance rights without regulatory baggage.

The SEC views token grants as securities if they meet the Howey Test's four prongs. A grant's promise of future protocol utility or governance rights often constitutes an expectation of profit derived from the efforts of the grant issuer (the core team). This is the primary legal vulnerability for projects like Uniswap (UNI airdrop) and Optimism.

The SEC's 2023 Wells Notice against Uniswap Labs explicitly cited the UNI token airdrop as an unregistered securities offering. This sets a critical precedent: distribution method is irrelevant. Whether sold or freely airdropped, if the token's value is tied to the managerial efforts of a centralized entity, it's a security. This directly implicates grant programs that vest tokens over time.

The only viable defense is proving the network is sufficiently decentralized, removing reliance on a central promoter. This requires: \n- Fully live, functional protocol with no essential upgrades pending. \n- Developer & governance independence from the founding team. \n- Token utility that is operational, not speculative. Most grant programs fail this test, as they vest tokens to fund a core team's ongoing development.

Projects attempt to use Simple Agreements for Future Tokens (SAFTs) for grants, believing it provides a regulatory shield. This is flawed. A SAFT is a security sold to accredited investors. The subsequent token distribution to the public (or grantees) is a separate offering that must itself be registered or exempt. The SEC's action against Telegram (GRAM) proved this distinction, halting a $1.7B project.

The compliant path is to structure grants as service agreements for fiat or stablecoins, decoupling compensation from the project's native token. Token rewards can be a discretionary bonus post-service, not a contractual promise. This mirrors how traditional R&D grants operate and avoids creating an investment contract. It shifts the regulatory risk from the issuer to the individual grant recipient.

Venture capital funds receive token warrants and SAFTs routinely. The regulatory disparity exists because VCs are accredited investors participating in private placements. Retail-facing grant programs lack this exemption. This creates a perverse incentive: projects can raise capital from VCs via tokens but cannot use the same mechanism to incentivize ecosystem builders without inviting public market scrutiny.