1/ Trump launched a memecoin that ran to over 70bn from the US of A. Is crime legal now? Are my offshore advisors grifting me with Cayman structures?
TLDR: The law has literally not changed and what Trump has done has always been legal.
Memecoins and Securities Law
It sounds insane but memecoins have become the safest tokens to launch from a securities law perspective.
Securities laws don’t outlaw tokens. They regulate the marketing and sale of securities. Not all tokens are securities but some tokens can be classified as securities.
The Howey test is how one determines whether an investment contract and thus a security. To make this lawyer friendly, I’ll simply provide two examples.
If I came to you and asked you to buy my token which I will use to fund development of a protocol which will earn fees and you will receive a portion of those fees… the token is clearly an investment contract. You are investing in my work and in return you get part of the upside. This is a security.
The memecoin analysis is very different. If I asked you to buy a memecoin, we aren’t expecting the proceeds to go towards any project. It simply goes to the seller who sells it because he thinks price will go down. You are simply buying it because you think there’s a next marginal buyer who will take it from you at a higher price. There is no investment contract. There is no underlying value. It’s pure speculation on attention. Thus - not a security.
So memecoins are fair game - at least from a securities law perspective. Fraud etc can probably bite given how shady most memecoins are but that hasn’t been properly pursued consistently yet.
Now not being a security is awesome. It means no disclosure rules apply by default. No broker dealer rules. No marketing restrictions etc. This is why Coinbase easily lists memecoins but takes time to list “real projects”.
So yeah memecoins look like the absolute worst of our industry but unfortunately what Trump did has always been legal.
“Real Projects” and Securities Law
This has and will come at a cost to blockchain projects looking to build actual value.
As above, revenue accrual mechanics will easily lead one to fall within the remit of US securities laws. This has not changed. In fact a lot of the hatred towards Gary Gensler isn’t because he enforced securities laws, it’s because he claimed everything was a security even though they may not have been.
“lol r u stupid the President launched a memecoin nobody is enforcing…”
Look at Trumps other project. World Liberty Finance.
It specifically states (a) governance rights only and (b) no economic rights. Exactly the same shit every other project tells you. And you know what the US company is operating?
“The $WLFI Token and WLF Governance Platform are distinct from WLF Protocol.”
Yep - President Trump isn’t operating a DeFi protocol from the USA. He’s operating a “Governance Platform” for the company that does development work for the DeFi Protocol from the USA.
That means you get to vote. In a non-binding manner at the development company level. And they will maybe or probably take your votes into account when building the DeFi Protocol. Which will prob be operated offshore (probably not even Cayman-BVI bc of VASP laws).
Let’s look even deeper. All the WLFI tokens are non-transferable. Let’s quote from their terms again.
If transferability of $WLFI is sought to be unlocked in the future through protocol governance procedures, such unlock would only be permitted if determined not to contravene applicable law, which in any case would be more than 12 months after completion of the Token Sale. You should assume that the Tokens are non-transferable indefinitely.
Yep tokens are non transferable. For at least 12 months. Know why that’s the magic number?
Because these are designed to be Reg D and Reg S compliant. Or in layman’s terms - securities law compliant (sales to US accredited investors and sales to non US persons.
TLDR: The law has literally not changed and what Trump has done has always been legal.
Memecoins and Securities Law
It sounds insane but memecoins have become the safest tokens to launch from a securities law perspective.
Securities laws don’t outlaw tokens. They regulate the marketing and sale of securities. Not all tokens are securities but some tokens can be classified as securities.
The Howey test is how one determines whether an investment contract and thus a security. To make this lawyer friendly, I’ll simply provide two examples.
If I came to you and asked you to buy my token which I will use to fund development of a protocol which will earn fees and you will receive a portion of those fees… the token is clearly an investment contract. You are investing in my work and in return you get part of the upside. This is a security.
The memecoin analysis is very different. If I asked you to buy a memecoin, we aren’t expecting the proceeds to go towards any project. It simply goes to the seller who sells it because he thinks price will go down. You are simply buying it because you think there’s a next marginal buyer who will take it from you at a higher price. There is no investment contract. There is no underlying value. It’s pure speculation on attention. Thus - not a security.
So memecoins are fair game - at least from a securities law perspective. Fraud etc can probably bite given how shady most memecoins are but that hasn’t been properly pursued consistently yet.
Now not being a security is awesome. It means no disclosure rules apply by default. No broker dealer rules. No marketing restrictions etc. This is why Coinbase easily lists memecoins but takes time to list “real projects”.
So yeah memecoins look like the absolute worst of our industry but unfortunately what Trump did has always been legal.
“Real Projects” and Securities Law
This has and will come at a cost to blockchain projects looking to build actual value.
As above, revenue accrual mechanics will easily lead one to fall within the remit of US securities laws. This has not changed. In fact a lot of the hatred towards Gary Gensler isn’t because he enforced securities laws, it’s because he claimed everything was a security even though they may not have been.
“lol r u stupid the President launched a memecoin nobody is enforcing…”
Look at Trumps other project. World Liberty Finance.
It specifically states (a) governance rights only and (b) no economic rights. Exactly the same shit every other project tells you. And you know what the US company is operating?
“The $WLFI Token and WLF Governance Platform are distinct from WLF Protocol.”
Yep - President Trump isn’t operating a DeFi protocol from the USA. He’s operating a “Governance Platform” for the company that does development work for the DeFi Protocol from the USA.
That means you get to vote. In a non-binding manner at the development company level. And they will maybe or probably take your votes into account when building the DeFi Protocol. Which will prob be operated offshore (probably not even Cayman-BVI bc of VASP laws).
Let’s look even deeper. All the WLFI tokens are non-transferable. Let’s quote from their terms again.
If transferability of $WLFI is sought to be unlocked in the future through protocol governance procedures, such unlock would only be permitted if determined not to contravene applicable law, which in any case would be more than 12 months after completion of the Token Sale. You should assume that the Tokens are non-transferable indefinitely.
Yep tokens are non transferable. For at least 12 months. Know why that’s the magic number?
Because these are designed to be Reg D and Reg S compliant. Or in layman’s terms - securities law compliant (sales to US accredited investors and sales to non US persons.
2/ This is made incredibly clear given they literally ask you if you are a US or non US person.
In other words Trumps DeFi project is playing the same game every non memecoin blockchain project is playing.
Clearly - crime has not been legalised. So if you are building a “real” project - even the POTUS is setting up his own DeFi project token to be securities law compliant so you probably should too.
That said - if you are building something that is pure governance / utility and has less security-like functions, a non-Gensler SEC is less likely to randomly claim you are a security and try to destroy your project.
Offshore Structures
Believe it or not - offshore structures aren’t build to evade securities laws. Securities laws are territorial, so you can set up in whatever dogshit jurisdiction you like but as long as your tokens are sold within a jurisdiction, those laws apply.
Regardless of whether you are set up in USA, Cayman or Timbuktu - if you sell tokens to Americans US securities laws apply.
Offshore Structures are largely set up for governance and tax. I’ve written a fair bit previously about the unique features of Cayman foundations for decentralised protocols so will not repeat here.
But the other huge advantage is tax (which I previously omitted to not balloon that post). The generation of tokens and their subsequent disposal create taxable events that could lead to sizeable tax bills. An American tax lawyer would likely be able to opine further.
Setting up offshore allows zero tax treatment of these token related transactions until they become onshored to be taxable in the applicable jurisdiction. This remains a huge advantage unless Trump makes crypto tax free (which I doubt he will).
How I am advising my clients
Memecoins are very cool but no fraud please. Securities analysis should be sensible but can be a bit more relaxed (i.e we don’t have to immediately assume it’s always a security because Gensler will). We still have to be careful when selling tokens with security like features and follow the usual frameworks for such.
Would still recommend Cayman-BVI governance and minting structures for top tier projects. Still best and cleanest from governance and tax perspective.
Delaware was always fine but now will encourage US based founders to use Delaware more when they get spooked (they won’t anymore).
Disclaimer
Not legal or financial advice. Im a Wassie in a suit.
In other words Trumps DeFi project is playing the same game every non memecoin blockchain project is playing.
Clearly - crime has not been legalised. So if you are building a “real” project - even the POTUS is setting up his own DeFi project token to be securities law compliant so you probably should too.
That said - if you are building something that is pure governance / utility and has less security-like functions, a non-Gensler SEC is less likely to randomly claim you are a security and try to destroy your project.
Offshore Structures
Believe it or not - offshore structures aren’t build to evade securities laws. Securities laws are territorial, so you can set up in whatever dogshit jurisdiction you like but as long as your tokens are sold within a jurisdiction, those laws apply.
Regardless of whether you are set up in USA, Cayman or Timbuktu - if you sell tokens to Americans US securities laws apply.
Offshore Structures are largely set up for governance and tax. I’ve written a fair bit previously about the unique features of Cayman foundations for decentralised protocols so will not repeat here.
But the other huge advantage is tax (which I previously omitted to not balloon that post). The generation of tokens and their subsequent disposal create taxable events that could lead to sizeable tax bills. An American tax lawyer would likely be able to opine further.
Setting up offshore allows zero tax treatment of these token related transactions until they become onshored to be taxable in the applicable jurisdiction. This remains a huge advantage unless Trump makes crypto tax free (which I doubt he will).
How I am advising my clients
Memecoins are very cool but no fraud please. Securities analysis should be sensible but can be a bit more relaxed (i.e we don’t have to immediately assume it’s always a security because Gensler will). We still have to be careful when selling tokens with security like features and follow the usual frameworks for such.
Would still recommend Cayman-BVI governance and minting structures for top tier projects. Still best and cleanest from governance and tax perspective.
Delaware was always fine but now will encourage US based founders to use Delaware more when they get spooked (they won’t anymore).
Disclaimer
Not legal or financial advice. Im a Wassie in a suit.
• • •
Missing some Tweet in this thread? You can try to
force a refresh
