Why 'Building in Public' is an Invitation for an SEC Subpoena

The SEC's case against Uniswap Labs was built on public statements defining the UNI token's governance role and the protocol's profit model. Publicly documented fee switches and governance proposals became direct evidence of a securities framework.

• Key Evidence: Blog posts and forum discussions detailing fee switch mechanisms and treasury management.
• Regulatory Trigger: Public framing of UNI as an investment contract tied to protocol profits.

Do Kwon's prolific social media presence and public interviews were systematically cited in the SEC's complaint. His definitive claims about UST's stability and LUNA's burn mechanism established the 'reasonable expectation of profits' from a common enterprise.

• Key Evidence: Tweets and conference talks promising price stability and sustainable yields.
• Regulatory Trigger: Publicly disputing regulatory classification while detailing an economic model reliant on new entrants.

Coinbase's direct listing and subsequent SEC lawsuit demonstrate how exhaustive public disclosures (S-1 filing) can be weaponized. The SEC used Coinbase's own descriptions of staking services and asset listings to argue they were operating as an unregistered securities exchange.

• Key Evidence: S-1 filing detailing staking-as-a-service revenue and asset listing process.
• Regulatory Trigger: Public documentation of a brokerage model for digital assets deemed securities.

The SEC v. Ripple case hinged on internal communications, but the public narrative Ripple cultivated around XRP's utility for banks was used to contextualize the alleged security. Public-facing 'use case' documents were contrasted with private chats to show discrepancy.

• Key Evidence: Whitepapers and promotional materials positioning XRP for bank settlement.
• Regulatory Trigger: Public utility claims versus private discussions on price speculation and market-making.

The SEC successfully argued LBRY's LBC token was a security based primarily on the company's public statements about building the network and increasing token value. Even without a direct ICO, promotional blog posts and roadmap updates established investment intent.

• Key Evidence: Company blog posts linking development progress to future token value.
• Regulatory Trigger: Public fundraising rhetoric and ecosystem growth promises.

Projects like Ethereum survived regulatory scrutiny by achieving credible neutrality, but later projects (e.g., many DeFi tokens) publicly claim 'decentralization' while maintaining clear development/treasury control. This public contradiction is a gift to regulators.

• Key Evidence: Public governance proposals where core teams retain veto power or large token allocations.
• Regulatory Trigger: The gap between marketing narrative and on-chain/operational reality.

Every commit, issue, and PR comment is a discoverable artifact. The SEC's enforcement against LBRY set the precedent: public repos were primary evidence of an unregistered securities offering.\n- Key Risk: Developer discussions about "token utility" or "investor returns" are now exhibits.\n- Key Action: Implement strict commit hygiene; separate internal design docs from public repos.

Community calls and team AMAs are recorded and archived. Statements about future roadmap, token burns, or governance votes can be construed as promises to investors.\n- Key Risk: "Vibes-based" marketing is legally interpreted as promotional material.\n- Key Action: Treat all public comms as a regulated disclosure channel; legal review for major announcements.

Treasury movements, team token unlocks, and pre-launch airdrops are permanently visible on-chain. Regulators use chain analysis to map control and intent, as seen in the Terraform Labs case.\n- Key Risk: Wallet linkages can prove team control and disprove decentralization claims.\n- Key Action: Use privacy-preserving treasury management and delay public association with key wallets.

The Howey Test focuses on the expectation of profits from a common enterprise. Public builder activity (e.g., core dev salaries funded by treasury) can be used to argue ongoing central control, negating decentralization defenses.\n- Key Risk: Protocol upgrades and grants managed by a foundation are a central point of failure.\n- Key Action: Accelerate credible neutrality; delegate core functions to DAOs or immutable smart contracts early.

Investor updates and pitch decks, even if private, are subject to subpoena. Sequoia's FTX memos became public in litigation. Alignment with a16z, Paradigm, or Polychain creates a regulatory nexus.\n- Key Risk: VC communications can establish timeline of intent and marketing coordination.\n- Key Action: Assume all investor materials are discoverable; maintain legal counsel on all fundraise comms.

Adopt a phased transparency model. Treat the early build phase like a stealth startup, using internal tools and legal privilege.\n- Key Tactic: Delayed open-sourcing post-network launch and legal structuring.\n- Key Tactic: Use attorney-client privilege for all design discussions concerning tokenomics and governance.

Every tweet, Discord message, and GitHub comment about token price, staking yields, or governance as an 'investment' is direct evidence of a security. The SEC's case against LBRY was built almost entirely on public statements.

• Key Risk: A single developer's optimistic post can implicate the entire protocol.
• Key Action: Enforce strict internal vs. external comms policies. Technical docs discuss utility; marketing avoids future value promises.

The SEC's jurisdiction hinges on a 'centralized common enterprise.' True technical and governance decentralization is a legal defense, but it must be provable and built from day one.

• Key Risk: Relying on a foundation or core dev team for critical upgrades paints a target.
• Key Action: Architect for permissionless participation and irreversible governance from genesis. Document decentralization milestones objectively.

There is no bright-line legal test. The SEC uses a sliding scale, and their interpretation is what matters in court. Projects like Ethereum achieved this status over time, but the path is retroactively judged.

• Key Risk: Assuming your token will 'grow into' non-security status is a dangerous gamble.
• Key Action: Structure initial token distributions as utility access keys, not investment contracts. Engage counsel pre-launch to model the Hinman Speech factors.

Transparency in code is good; transparency in business strategy and financial engineering is dangerous. The Algorand and Filecoin launches were carefully structured to avoid securities law, despite being open-source.

• Key Risk: Public roadmaps with monetary milestones and vesting schedules are exhibits A-Z.
• Key Action: Separate repositories: public for client code, private for treasury management and operational planning. Use legal entities as firewalls.

Free token distributions are not a free pass. The SEC analyzes recipient expectations and secondary market creation. The Uniswap airdrop survived scrutiny due to its retroactive, non-speculative nature.

• Key Risk: Airdrops tied to KYC, future work, or marketing hype can be deemed investment contracts.
• Key Action: Frame airdrops as retroactive rewards for past usage, not incentives for future promotion. Avoid any whiff of a fundraising substitute.

Investment rounds with promises of listings, market making, or ecosystem development create a paper trail of a common enterprise. The SEC's case against Telegram's TON centered on its contracts with large investors.

• Key Risk: Your SAFT or token warrant documents are the first thing subpoenaed.
• Key Action: Negotiate investment terms that emphasize technology development grants, not token economics. Insist investors understand and publicly support the decentralization thesis.