Legal Minefield for Crypto Founders: Tokenomics, Marketing, and Surviving US Regulation

Crypto founders today are doing more than just building technology. They are navigating one of the most complex regulatory landscapes in modern business. 

In this Boom Room interview, Arcanum Ventures sat down with Zack Shapiro, Managing Partner at Rains Law and Head of Policy at the Bitcoin Policy Institute, to decode the legal realities around tokenomics, venture fundraising, marketing, and compliance. Zack’s background as both a Yale Law graduate and a former startup operator gives him a rare vantage point. This conversation is essential for any founder planning to launch a token or build a Web3 company in the United States.

Key Takeaways

• Compliance is Strategy, Not Constraint: View legal advice as a risk-adjusted input into business decisions, not a rigid checklist from a compliance department. Good lawyers support your objectives; they don’t block them
• Market the Utility, Not the Price: To mitigate Howey Test risk, focus marketing materials entirely on the token’s use cases (the “positive story”), rather than speculating on future appreciation or development team efforts.
• Beware the Overhang: Be fiercely protective of your Tokenomics. An insider allocation (team/VCs) exceeding 50% often creates a massive overhang that guarantees failure due to constant selling pressure from zero-cost-basis tokens.
• Lockups Protect Founders: Selling to sophisticated investors requires diligence. Enforce a minimum one-year lockup on tokens distributed via warrants to maintain your Regulation D exemption and avoid the entire offering being viewed as an unregistered securities sale by an “underwriter.”
• Go Non-Custodial First: Design your product to be non-custodial from the start. This drastically lowers compliance overhead by circumventing the need for costly and complex Money Transmitter Licenses in dozens of jurisdictions.

Watch the Interview Here:

Zack Shapiro’s Unconventional Path to Crypto Law

Zack’s journey into crypto law was anything but traditional. After graduating from Yale Law School and completing prestigious clerkships, he was drawn to roles where his legal training could amplify business objectives, rather than stifle them.

• The Early Days: Zack first entered crypto at a big international firm, Davis Polk, during the heady 2017 ICO boom. He was on the ground floor, developing early legal theories on novel issues such as whether insider trading on Bitcoin was even possible.
• The Founder Mindset: The critical turning point came from spending a year as the General Counsel and operational co-founder of an e-commerce startup. This experience was crucial, teaching him to treat legal advice not as a constraint, but as a risk-adjusted input into business decision-making.

“My job is not to tell you what to do. It’s to give you all of the information you need to make the decision that you need to make… I am a resource to help you make good decisions. I’m not sort of the compliance department.”

Zack notes that this business-first philosophy is a rarity among lawyers who have only ever worked in large, conservative institutions where the focus is inherently on minute details rather than the broader strategic picture.

The Legal Minefield for Founders: Tokenomics and Marketing

When advising pre-seed crypto startups, a fundamentally different calculus than advising a Fortune 500 giant, Zack tackles the inherent regulatory risk head-on.

1. The Howey Test Dilemma

The plain truth is that anyone launching a token in the US, unless it’s a stablecoin or a pure memecoin, has no absolute assurance they are following securities laws. The Howey Test is a highly subjective, facts-and-circumstances analysis that can make most on-chain assets look like securities.

• Bad Advice vs. Good Advice:
  • Bad Advice is either blanket refusal (“All tokens are securities, so you can’t launch”) or reckless outsourcing (“YOLO, hide in the Cayman Islands,” which fails if US individuals have access).
  • Good Advice means acknowledging the inherent risks, then helping the founder actively control the variables they can.

2. Controlling the Variables

Founders have control over two major variables that influence a token’s legal risk profile:

• Tokenomics: Are you offering features that resemble a dividend or protocol revenue? That will definitely make it look more like a security. He cautions that many projects adopt an inappropriate hard cap simply because Bitcoin did, without understanding if it’s necessary for their specific design.
• Marketing Materials (The Most Important Variable): While lawyers can tell you what not to say (e.g., don’t talk about the price going up), the most critical step is building a credible legal story around what the token is.

The Positive Story: “It can’t be that you say nothing because like, that doesn’t make any sense and no one’s going to buy the token… If you’re going to say this is a utility token, you need to be marketing that token to people who are going to use it conservatively for the right.”

To reduce the attractiveness of an SEC enforcement action, you must actively market the token to its users (e.g., Filecoin for storage credits), not to speculators.

Venture Deals: The Complexity of Crypto Fundraising

Zack emphasizes that early-stage crypto venture deals are much more complicated than their non-crypto counterparts.

• Traditional Path: Non-crypto startups typically follow a standard path: SAFE (Simple Agreement for Future Equity) for early rounds, followed by a Price Round using standard NVCA documents.
• Crypto Complexity: While early-stage crypto funds might gain a higher valuation, the downside is the number of bespoke terms. Founders are often confronted with complex, unique language in Token Warrants (or SAFTs), Side Letters, and token distribution terms.

Funding Red Flags

Zack revealed a critical, often misunderstood regulatory red flag concerning fundraising instruments:

• Regulation D: All early-stage instruments (SAFETs, Token Warrants, SAFEs) are securities by definition and rely on Regulation D for exemption from SEC registration. Reg D has two major rules: You must sell to Accredited Investors, and you cannot sell to an underwriter. An underwriter is generally defined as a party that buys a security with the intent to resell it to the public.

“This is a little-known thing… but if you’re selling to a sophisticated investor and they’re not a hedge fund and they’re a company that’s in the business of reselling your token, which maybe some crypto VCs do, that can be interpreted as underwriting.”

If an investor is interpreted as an underwriter, the entire Regulation D exemption could be voided, resulting in an unregistered securities sale, which is a major compliance risk for the founder.

Essential Advice for Day-One Founders 

Zack provided four pieces of “hard-lined” advice for founders setting up their crypto companies:

1. Engage Legal Counsel Early

• The Cost-Saving Strategy: “Get a lawyer involved as early as possible. I promise you everything will be easier and cheaper.” The cost of fixing mistakes made via self-service tools or accepting VC terms without counsel is almost always higher.

2. Be Protective of Tokenomics

• Avoid Guaranteed Failure: “Be very, very careful with what percentage of your token supply you’re allocating to the team and to investors.” A majority allocation to insiders creates a massive overhang that dooms the project due to constant selling pressure.

3. Incorporate in Delaware (The Status Quo)

• Delaware C Corp: Unless you have a particular reason, Delaware is still the best place to incorporate. It has the most robust case law protecting property rights, and investors want to see a Delaware C Corp as part of the mix.

4. Prioritize Non-Custodial Design

• Compliance Overhead: If you can design your product to be non-custodial, your compliance overhead will be “way lower,” as it sidesteps the painful process of obtaining Money Transmitter Licenses in multiple states.

Zack notes that the compliance threat for token launches in the US is shifting from the SEC (government prosecution) to plaintiffs’ lawyers (private lawsuits), underscoring the need for a bulletproof strategy.

The Future of Bitcoin and Digital Asset Custody

In the final tradition of the show, Zack was asked for his most bullish pick for the next 12 months.

• Broad Pick: Bitcoin (“I think it’s still structurally undervalued, like it’s changing what money is in specific”).
• Specific Pick (with Disclosures): Anchor Watch, a company focused on cold storage insurance. Zack is a venture investor in the company and is excited because they have created what he believes is “pretty close to the best custody stack… I can imagine.”

Zack Shapiro’s unique perspective, bridging the strictures of Yale Law with the brutal realities of startup life, offers an essential blueprint for navigating the volatile crypto landscape. The key lesson here is that in the fight for regulatory clarity, founders aren’t just building technology; they’re engaging in a sophisticated legal strategy. By being maniacally focused on controlling variables like token allocation and marketing narratives, and by prioritizing non-custodial design from day one, builders can significantly de-risk their projects and focus on what matters: shipping world-changing products. The battle against political opposition remains, but with sound legal advice and an unyielding commitment to decentralization, the path forward is clearer than ever.

If this content interests you, be sure to follow Arcanum Ventures on our social media channels. If you have questions about your fundraising or token design & economic modeling, and how to prepare your technology startup for success, reach out and speak with the Arcanum Ventures team.

About Rains Law

Rains is a modern law firm specializing in serving tech companies, startups, and crypto businesses. Combining big-law expertise with cost-effective rates, Rains helps clients navigate complex legal, regulatory, and corporate challenges to achieve their business objectives. Their services include M&A, financings, corporate governance, and regulatory compliance with a tech-forward approach.

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About Bitcoin Policy Institute

The Bitcoin Policy Institute (BPI) is a leading nonprofit, nonpartisan think tank dedicated to advancing sound Bitcoin policy through research, education, and direct engagement with policymakers. Based in Washington, DC, BPI bridges the knowledge gap between Bitcoin’s technical realities and policy, influencing legislation, regulatory decisions, and public understanding.

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