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Is Crypto a Security? Part VI
The opinion editorial below was written by Alex Forehand and Michael Handelsman for Kelman.Law.
With the legal landscape still fragmented and formal rulemaking lagging behind technological evolution, compliance in 2025 is less about “checking boxes” and more about maintaining defensible processes rooted in transparency, decentralization, and careful communication. This Part offers practical guidance for token issuers, exchanges and trading platforms, and developers/ DAOs navigating U.S. regulatory expectations.
Guidance for Token Issuers
Token issuers face the highest regulatory exposure, particularly during early-stage development and distribution. The most important principle is that compliance begins before launch, not after. Addressing securities-law risks early—through careful drafting, controlled marketing, and intentional structuring—avoids the far greater costs of restructuring a token, unwinding sales, or defending an enforcement action.
Issuers should aim to launch tokens with actual, functional utility, not promises of features that will arrive later. Selling tokens before the network works is one of the strongest indicators of reliance on future managerial efforts, which drives Howey analysis.
Equally important is communication: promotional statements, roadmaps, and white papers should avoid any suggestion that token value will appreciate or that purchasers should expect speculative returns. Communications must be factual, careful, and non-promotional, focusing on what the product does—not on what the token might someday be worth.
If fundraising is unavoidable, issuers should raise capital through established securities exemptions—Reg D, Reg CF, Reg S, or similar structures. Crucially, issuers must avoid the misstep of registering the token itself as a security, which locks the asset into securities status indefinitely. Remember: tokenized securities are still securities. The proper approach is to register or exempt the fundraising instrument, not the token that may later circulate in a decentralized ecosystem.
Projects should also pursue real decentralization where possible. This includes distributing governance in a way that is meaningful, not cosmetic; documenting development milestones; and maintaining clear records of decentralization progress. These materials are often critical in enforcement investigations or exchange listings, where auditors or counsel may need to show how reliance on a core team diminished over time.
Guidance for Exchanges and Trading Platforms
Exchanges, both centralized and decentralized, often sit at the center of regulatory scrutiny. Their compliance function now mirrors that of traditional financial institutions in several ways.
Platforms should maintain robust token-classification frameworks that assess factors such as issuer conduct, governance structure, marketing materials, network decentralization, and token utility. Classification should not be static: exchanges must conduct ongoing monitoring of issuer statements, codebase changes, roadmap updates, and public marketing to ensure that a token’s risk profile has not shifted.
Reviewing promotional materials—white papers, social media posts, investor communications—is essential. Exchanges have often been criticized for listing assets marketed with explicit or implicit profit promises.
Finally, exchanges should maintain clear delisting procedures and on-chain/off-chain surveillance tools. The ability to identify manipulative activity, respond to red flags, or delist tokens that later show securities characteristics is increasingly a regulatory expectation.
Guidance for Developers and DAOs
Developers and decentralized organizations face a different challenge: balancing innovation with legal risk without undermining decentralization goals. The key is reducing the industry’s most common enforcement trigger—dependence on a small, identifiable team.
Projects should minimize reliance on centralized development groups by transitioning responsibilities to community governance, distributing operational authority, and reducing unilateral control. One of the most important steps is transitioning admin keys to multisignature arrangements or decentralized governance modules, ensuring no single actor or entity holds privileged power over protocol parameters.
Governance structures should also be transparent and procedural, not ad hoc. Clear voting rules, published upgrade pipelines, conflict-of-interest policies, and well-documented governance decisions help demonstrate that value is not driven by a small promoter group.
Reward structures, while often desired, require particular caution. Tokens that distribute ongoing payments resembling dividends or revenue shares invite securities analysis, especially if framed as part of an investment thesis. Instead, reward mechanisms should be algorithmic, utility-driven, or tied to protocol participation, not passive financial return.
Finally, DAOs and developers should maintain careful documentation of decentralization timelines, including public explanations of how control is reduced, milestones achieved, and governance expanded. Courts and regulators increasingly expect evidence—rather than assertions—that decentralization has occurred.
Conclusion
In the absence of comprehensive federal legislation, compliance in 2025 hinges on operational discipline, transparency, and adherence to the principles courts repeatedly emphasize: economic reality, investor expectations, and the degree of reliance on identifiable managerial efforts.
Token issuers, exchanges, and developers who build with these principles in mind are better positioned not only to mitigate regulatory risk but to create durable, credible ecosystems that can thrive regardless of shifts in agency posture or political cycles.
Staying informed and compliant in this evolving landscape is more critical than ever. Whether you are an investor, entrepreneur, or business involved in cryptocurrency, our team is here to help. We provide the legal counsel needed to navigate these exciting developments. If you believe we can assist, schedule a consultation here.
