Why the SEC's Focus on 'Marketing Promises' Is a Founder Trap

The SEC uses marketing promises to retroactively prove a token was a security at launch, regardless of current decentralization. This creates a no-win scenario for founders who must market to survive but are punished for doing so.

• Legal Precedent: The Howey Test's 'common enterprise' prong is satisfied by promotional efforts.
• Founder Consequence: Creates permanent liability, chilling innovation and honest communication.

Promising future utility or an airdrop to bootstrap a network is now a primary enforcement trigger. This traps projects between needing a community and creating a 'common enterprise'.

• Case Study: The Uniswap UNI airdrop was a masterclass in growth but would be a high-risk action today.
• Market Impact: Forces teams towards opaque, VC-heavy launches, harming fair distribution.

Core technical claims—like sub-second finality or near-zero fees—are being construed as profit promises from the efforts of others. This criminalizes technical benchmarking.

• First Principles Risk: Describing your L1's performance advantages can be deemed a security offering.
• Industry Chilling Effect: Forces teams into vague, non-technical messaging, harming informed adoption.

The SEC's core argument hinges on Uniswap Labs' public framing of UNI as a governance token with future utility, transforming a technical tool into an investment contract. This sets a precedent for how protocol marketing is scrutinized, not just the underlying code.

• Key Hazard: Promising 'ecosystem growth' and 'fee switches' creates an expectation of profit.
• Industry Impact: Forces a reevaluation of all token launch communications and roadmap disclosures.

The SEC alleged Coinbase's staking service involved an investment contract, citing marketing that emphasized predictable returns (e.g., 'earn up to 5% APY'). This turned a core blockchain function into a regulated product based on communicative framing.

• Key Hazard: Quantifying yields and marketing 'programs' implies a managerial effort from the promoter.
• Protocol Lesson: Delegated Proof-of-Stake (DPoS) and liquid staking protocols (Lido, Rocket Pool) must decouple promotion from promise.

The court's partial ruling created a fatal distinction: institutional sales with promotional promises were securities, while programmatic sales on exchanges were not. This legal wedge is entirely defined by the nature of the communication and the buyer's expectations.

• Key Hazard: Direct pitches to VCs and funds with slideshows are Exhibit A for the SEC.
• Founder Mandate: Token distribution strategy (SAFTs, public sales, airdrops) must be designed with this communicative firewall in mind.

The SEC successfully argued LBRY Credits (LBC) were a security because the company repeatedly stated the token was essential to using the network. This created an expectation of value appreciation tied to LBRY's managerial efforts, regardless of the token's technical function.

• Key Hazard: Framing a token as 'the fuel' or 'required for access' is a direct legal risk.
• Architectural Defense: Protocols must ensure core functionality is permissionless and token-optional, separating utility from speculative value.

The Howey Test's 'common enterprise' prong is now triggered by founder marketing, not just code. Promises of future upgrades, fee burns, or treasury management can create an implicit investment contract, even for a technically decentralized protocol like Uniswap.

• Key Risk: Retroactive liability for past statements in Discord or blog posts.
• Key Action: Audit all public communications for forward-looking promises about token value or protocol development.

Active management of a community treasury or proposing governance votes can be framed as 'managerial efforts' by the founding team, undermining decentralization claims. This directly implicates DAOs like Arbitrum or Optimism.

• Key Risk: Founder-led governance proposals are seen as central control.
• Key Solution: Institute fully anonymous, multi-sig governed funding mechanisms (e.g., Gitcoin Grants) and avoid directing treasury allocation.

A founder's public influence (e.g., Vitalik Buterin, Hayden Adams) can be construed as a centralizing force whose statements guide ecosystem development, creating a 'common enterprise' around their vision. This is a legal gray area expanding beyond formal roles.

• Key Risk: Personal brand becomes a protocol liability.
• Key Action: Decouple founder identity from protocol roadmap; empower anonymous core dev teams and decentralized technical steering committees.

On-chain proof of decentralized governance (e.g., Snapshot votes, Tally activity) and immutable, versioned documentation (like Ethereum's EIP process) are critical forensic evidence. Contrast with opaque 'leaderboards' or off-chain promises.

• Key Benefit: Creates an immutable record of community-led evolution.
• Key Action: Implement and rigorously document a transparent, on-chain governance process from day one, even for parameter tweaks.

Free token distributions are not a safe harbor. The SEC assesses post-distribution behavior. If the team markets the airdrop as a way to 'participate in governance' or 'share in future fees,' it can establish an investment contract expectation for recipients, as seen in cases against decentralized exchanges.

• Key Risk: The marketing around the drop matters more than the drop itself.
• Key Solution: Frame airdrops purely as 'usage rewards' or 'gas fee subsidies' with no promise of future utility or value.

The winning legal strategy is to demonstrate the existence of multiple, independent, and competing entities building on your protocol (like the L2 ecosystem on Ethereum). This proves the network effect is organic, not founder-driven.

• Key Benefit: Creates a 'network of networks' defense against common enterprise claims.
• Key Action: Actively fund and support independent dev teams, avoid exclusive partnerships, and foster client diversity (e.g., multiple execution clients).