The Regulatory Peril of the 'Active Promoter'

The SEC argued LBRY's open-source development and public discourse constituted an ongoing offer of unregistered securities. The court agreed, setting a dangerous precedent for any team building in public.

• Key Impact: $22M penalty and operational shutdown for a utility token.
• Legal Takeaway: Marketing = Offering. Community updates are now evidence.

Paying for a promotional tweet without disclosing the payment is now a clear securities law violation. This extends to protocols paying influencers for "awareness" or "community" posts.

• Key Impact: $1.26M settlement for a single undisclosed Instagram post.
• Legal Takeaway: Any compensated promotion, even without explicit investment advice, is a target.

The SEC's action against Uniswap Labs, not the UNI token or protocol, proves the strategy: attack the centralized front-end and developer entity. The 'Active Promoter' is the corporate shell funding development and marketing.

• Key Impact: Targets $1.7B+ in protocol fee switch potential and future revenue.
• Legal Takeaway: Decentralization theater fails if a visible team exists to sue.

While not an SEC case, OFAC's sanctioning of Tornado Cash's smart contracts and developers establishes the principle: creators are liable for third-party use. This parallels the 'Active Promoter' risk for privacy or DeFi tools.

• Key Impact: Arrest of core developers and criminal charges for building neutral technology.
• Legal Takeaway: Code is not speech if it enables behavior regulators dislike.

Ethereum's Protocol Guild uses a fully on-chain, non-custodial vesting contract to reward past contributors. It has no legal entity, no promoters, and makes no promises. Funding is a retroactive public good allocation.

• Key Benefit: Dissolves the 'Active Promoter' by eliminating a central, fund-raising entity.
• Key Metric: Distributed $20M+ in ETH with zero regulatory friction.

Uniswap's response to the Wells Notice was to cease all interface marketing and accelerate decentralized governance. By pushing fee-switch decisions to delegated token holders (a16z, GFX Labs), the Foundation steps back from active promotion.

• Key Benefit: Transfers 'promoter' liability from a corporation to a diffuse, global holder set.
• Key Metric: ~$7B UNI now voting through delegates, not Uniswap Labs.

The SEC doesn't need a formal contract to declare your token a security. If your team's public development efforts and marketing create an expectation of profit for token holders, you're an 'Active Promoter'. This applies even to decentralized protocols in their early stages. The legal risk is binary: security or not.

• Key Risk 1: Developer Discord posts and roadmap updates can be used as evidence.
• Key Risk 2: Airdrops to bootstrap a community are a major red flag for regulators.

Structure your fundraising and token distribution to legally separate the investment contract from the functional asset. The goal is to achieve sufficient decentralization before the token becomes liquid for the public.

• Key Tactic 1: Use a SAFT or similar instrument for early investors, clearly defining it as a security.
• Key Tactic 2: Launch the functional, utility-driven token only after network control has demonstrably passed to users (e.g., via governance).

Mitigate 'Active Promoter' risk by architecting genuine, verifiable decentralization into your protocol's core operations. This is a technical and governance challenge.

• Key Tactic 1: Implement permissionless, credibly neutral infrastructure (e.g., L2 sequencer decentralization, DAO-controlled treasuries).
• Key Tactic 2: Cede control of key administrative functions (upgrades, parameter changes) to a broad, active DAO before the token is widely distributed.

Adopt a communication and development strategy that minimizes the founder's role as a profit-promising entity. Frame all public messaging around protocol utility and public good infrastructure.

• Key Tactic 1: Establish a foundation (e.g., Ethereum Foundation, Solana Foundation) to handle ecosystem grants and development, insulating the core team.
• Key Tactic 2: Use objective, on-chain metrics (TVL, unique users, transaction volume) to demonstrate network maturity, not speculative price potential.