Why the 'Investment Contract' Framework Misinterprets User Acquisition

Enforcement treats a user providing liquidity to a DEX pool (e.g., Uniswap, Curve) as purchasing a security, ignoring its core utility function. This confounds capital formation with operational necessity.

• Key Reality: Liquidity is a real-time service, not a passive security. Providers earn fees from facilitating trades.
• Key Consequence: Applying securities law here would cripple DeFi's $50B+ TVL infrastructure, treating essential network actors as unregistered broker-dealers.

The correct analysis asks if the asset's primary value is derived from the efforts of a common enterprise or from its immediate utility within a functional network. This is the precedent set by cases like Telegram (TON) and applied to Filecoin.

• Key Test: Does the user acquire the token primarily to use the protocol (e.g., pay for storage, compute, governance) or purely for price appreciation?
• Key Benefit: Protects functional networks like Helium (IoT) or Livepeer (video) where token consumption is the primary, non-speculative driver.

Modern protocols like Olympus DAO (OHM) and Frax Finance explicitly design tokenomics where value accrual is tied to protocol revenue and treasury assets, not promoter efforts. This structurally decouples token value from a 'common enterprise'.

• Key Mechanism: Protocol-controlled liquidity (PCV) and buyback/burn mechanisms autonomously support token value based on usage fees.
• Key Impact: Creates a self-sustaining flywheel where user acquisition is driven by utility, aligning with the Hinman speech's decentralization principles.

Liquidity providers (LPs) earn fees for a service, not corporate profits. The protocol's automated market maker (AMM) is a public good, and LP returns are a direct function of capital efficiency and volatility, not managerial effort. The SEC's case conflates passive yield with an investment contract.

• Fee Revenue: Generated from real, on-chain swap volume (~$1T+ annually).
• Effortless Operation: LPs deposit assets; the immutable smart contract does the work.

Liquid staking tokens (LSTs) like stETH or rETH are receipts for a performed service—validating the Ethereum blockchain. Their value accrual is tied to consensus rewards and slashing penalties, not a common enterprise. Regulators mislabel this as a security by ignoring that stakers are active network participants, not passive investors.

• Service Fee: Operators charge for validation (e.g., Lido's 10% of staking rewards).
• Direct Correlation: Yield is a function of Ethereum's base protocol, not Lido's business performance.

Users pay native tokens (FIL, AR) to purchase a verifiable, decentralized storage service. The token's value is a function of supply-demand for storage capacity, not profit-sharing from a central entity. The 'investment contract' framework fails because the primary use is consumption, not speculation.

• Utility First: Tokens are spent to store data, held only to facilitate transactions.
• Market-Driven Price: Storage costs adjust based on network capacity, not corporate dividends.

Protocols like Uniswap, Arbitrum, and Starknet distribute tokens to bootstrap communities and decentralize governance. Regulators misread this as a capital-raising event. In reality, airdrops are a user acquisition cost and a governance distribution mechanism, with zero upfront payment from recipients.

• Acquisition Cost: Replaces traditional marketing spend; valued at hundreds of millions.
• No Investment of Money: Recipients provide historical usage, not capital, breaking Howey's first prong.