Andreessen Horowitz’s crypto division, a16z Crypto, is advising startup founders to steer clear of the United States market when conducting token sales. The company’s general counsel and head of decentralization, Miles Jennings, emphasized that public sales of equity and tokens can be done outside the U.S. in a compliant manner without having to adhere to securities laws’ registration requirements. Jennings further warned against public sales in the U.S., calling it an “own-goal” that should be avoided at all costs.
Jennings explained that initial coin offerings (ICOs) often meet the conditions of the U.S. Securities and Exchange Commission’s Howey test, which determines whether a financial asset should be considered a security. If an asset is deemed a security, issuers are subjected to lengthy registration processes, disclosures, and financial requirements, with noncompliance resulting in strict penalties.
In a notable case in July 2023, U.S. District Court Judge Analisa Torres ruled that Ripple’s sale of the XRP token on secondary markets within the U.S. did not qualify as security offerings. However, Torres also ruled that the firm’s sale of XRP to U.S. institutional investors met the Howey test’s securities classification. Ripple is currently disputing a $2 billion fine imposed by the SEC.
Due to increased enforcement actions, some crypto companies have chosen to completely avoid the U.S. market.