The Future of the 'Common Enterprise' Doctrine in Crypto

The SEC's case against Kraken and Coinbase staking relied on a custodial, centralized model of profit pooling. Modern protocols like Lido and Rocket Pool are architecturally different.\n- Direct Validator Control: Users delegate specific ETH to specific node operators, breaking the 'horizontal commonality' of a single pool.\n- Non-Custodial Slashing: Risk is borne by the individual staker/operator, not a central promoter, undermining 'reliance on the efforts of others'.

Tokens like UNI and MKR have matured into pure governance instruments with no profit entitlement. The DAO structure itself is the counter-argument.\n- Protocol Treasury Control: Governance votes direct funds, but profits accrue to users, not token holders.\n- Efforts of a Diffuse Network: Development and upgrades are proposed and executed by a global, permissionless community, not a central 'promoter'.

The 'common enterprise' fails when the underlying asset is a functional commodity, not an investment contract. Ethereum post-Merge and Filecoin storage are prime examples.\n- Consumptive Utility First: ETH is 'gas', FIL is storage space. Their value is derived from network usage, not promotional efforts.\n- Decentralized Physical Infrastructure (DePIN): This model explicitly ties token rewards to provable, real-world work, aligning with commodity frameworks, not securities law.

The SEC's application of Howey is inconsistent, treating sufficient decentralization as a mythical, undefined state. This creates a permanent gray zone where builders can never be certain of compliance.\n- Risk: Projects like Uniswap and Ethereum remain under perpetual regulatory scrutiny despite high decentralization.\n- Consequence: Legal defense costs can exceed $10M+, chilling innovation for all but the best-funded teams.

Framing a token as a pure utility asset for a neutral protocol, not an investment in a managerial team, is the primary legal defense. This requires architecting for credible neutrality from day one.\n- Strategy: Implement on-chain governance with broad, passive delegation (e.g., Compound, MakerDAO).\n- Action: Eliminate foundational team control over treasury and protocol upgrades post-launch, moving to executable DAO proposals.

Retaining >20% of the token supply for the team/foundation or conducting a marketing-heavy airdrop to 'create a community' can legally establish the expectation of profits from others' efforts.\n- Precedent: The SEC vs. Kik case hinged on the creation of a secondary market.\n- Solution: Structure distributions as retroactive rewards for verifiable past work, not future promises. Model after Ethereum's validator rewards or CowSwap's solver incentives.

The legal risk shifts from the builder to the most active governance participants. Large token holders and delegates who propose and vote on lucrative treasury allocations could be deemed 'active participants' under a new Howey interpretation.\n- Emerging Risk: DAOs like Arbitrum face pressure after contentious treasury votes.\n- Mitigation: Develop legal wrappers for delegate liability and promote hyper-distributed, sub-DAO specific governance to dilute individual responsibility.

With the U.S. adopting a hostile stance, the builder diaspora to clear jurisdictions accelerates. Protocols are incorporating in Switzerland (AG), Cayman (FOUNDATION), or Singapore.\n- Tactic: Establish a non-U.S. foundation as the protocol steward and token holder.\n- Trade-off: Accept limited U.S. user access via geo-blocking to achieve regulatory clarity, following models like dYdX's corporate structure.

The only definitive shield is unstoppable, immutable code where the founding team has zero ongoing operational role. This is the Bitcoin and Ethereum L1 precedent.\n- Reality Check: Few applications can be truly immutable; most require upgrades.\n- Pathway: Use timelocks, multi-sigs, and eventual self-destruct mechanisms to credibly commit to a roadmap to irrelevance, aligning with Vitalik's 'd/acc' (decentralized acceleration) philosophy.

The SEC argues that protocol governance tokens create a 'common enterprise' because holders rely on the core dev team's efforts. This turns decentralized coordination into a legal liability.

• Key Risk: Any centralized development, marketing, or treasury control can be used as evidence.
• Key Precedent: The Ripple (XRP) case hinged on whether sales were to institutional vs. retail investors.
• Impact: $10B+ in token value across major L1/L2s is under direct legal threat.

The legal off-ramp is to prove a protocol is no longer dependent on a single, central 'effort.' This is a technical and governance design challenge.

• Key Tactic: Sunset dev team control via immutable smart contracts and on-chain, permissionless governance.
• Key Benchmark: The Ethereum transition from the Ethereum Foundation to a credibly neutral base layer.
• Tooling: Use DAO frameworks (Aragon, DAOstack) and multi-sig sunset clauses from day one.

Uniswap Labs received a Wells Notice in 2024, making it the highest-profile test case for a mature DeFi protocol. The outcome will set the practical bar for decentralization.

• Key Defense: Uniswap's fully permissionless protocol and UNI token's limited governance rights.
• Key Risk: The SEC is targeting the interface (uniswap.org) and token listings, not just the core contracts.
• Architectural Takeaway: Decouple front-end from protocol layer legally and technically.

The doctrine's evolution forces a choice: build a sovereign system with its own legal framework or a neutral tool that explicitly disclaims any common enterprise.

• Sovereign Path: Cosmos Hub's ATOM 2.0 and optimistic governance models that internalize coordination.
• Tool Path: Lido's dual-token model (stETH vs. LDO) and MakerDAO's Endgame Plan to fracture governance.
• VC Warning: Early-stage investments that demand equity-like control directly contradict this legal necessity.

Chain analytics will be used in court to prove or disprove decentralization. Protocol architects must instrument for legal defense from day one.

• Key Metric: Nakamoto Coefficient for validator/governance power distribution.
• Key Metric: Developer Diversity (Git commits from independent contributors).
• Key Metric: Treasury Control (multi-sig signer independence, spend transparency).
• Tooling: The Graph for querying decentralization stats; Tally, Boardroom for governance transparency.

While the US defines the doctrine, global protocols can structure to limit exposure. This is a core infrastructure and entity design problem.

• Entity Strategy: Swiss Foundation (Ethereum, Solana) or Singaporean DAO LLC for limited liability.
• Technical Strategy: Geographically distributed node infrastructure to resist jurisdictional takedowns.
• Comms Strategy: Explicit, legally-reviewed disclaimers that tokens are utility/ governance instruments, not investment contracts.