Where and how to register a crypto company

How do the European Union and the United Kingdom classify tokens?

Other countries do not have a test with the same name, but they solve the same problem in a similar way.

The European Union. In the European Union, MiCA, the regulation on markets in crypto-assets, does not apply to crypto-assets that qualify as financial instruments. If a token meets the definition of a financial instrument under MiFID II, the EU directive on markets in financial instruments, the token falls outside MiCA and comes under ordinary securities law. On December 17, 2024, ESMA, the European Securities and Markets Authority, published guidelines on how to decide whether a crypto-asset is a financial instrument. The guidelines say that the decision depends on the rights that the token gives and on its economic substance, not on its name or on its technology. In borderline cases, the national financial regulator decides how to classify the token.

The United Kingdom. In the United Kingdom, two legal categories of UK financial law play a similar role: specified investments and collective investment schemes. The UK financial regulator applies these categories case by case.

The lesson is the same in all of these systems. A project cannot print any phrase on the description of a token that automatically takes the token out of securities law. The full set of facts around the actual sale decides the outcome.

When is a token really a utility token?

It is important to separate reality from wishful thinking early. Confusion around the term “utility token” costs projects more than almost any other mistake described in this chapter.

The idea behind a utility token is simple. If the token gives access to a product or a service, and not a share of the profit of the company, the token is not an investment contract and does not fall under securities law.

This idea works when three conditions are met.

First, the token is actually usable at the time of the sale.

Second, the project markets the token as a ticket to a specific function, not as something that will rise in value.

Third, the buyers are real users of the product, not speculators who bet that the efforts of the team will push the price up.

The idea stops working, and turns into wishful thinking, when the marketing of the project sells growth instead of function. Typical signs are promises such as “the token will go up because the team is building the ecosystem,” referral schemes, and messages that use limited supply as an investment argument instead of as a feature of the product. A regulator or a court looks at what the project actually promised the buyer, not at the word “utility” in the white paper.

The utility token under MiCA. MiCA has its own definition. Under MiCA, a utility token is a type of crypto-asset that is only intended to provide access to a good or a service supplied by its issuer. MiCA gives a utility token one practical advantage. Suppose the offer concerns a utility token that gives access to a good or a service that already exists or is already in operation. In that case, the project does not need to publish a crypto-asset white paper for that offer. If the good or the service does not exist yet, the offer to the public described in the white paper may last no longer than 12 months. Chapter 23 explains the white paper in detail.

How should a governance token be classified?

A governance token deserves separate attention, because it does not fit neatly into either of the two categories above. A governance token gives voting power over a protocol. A protocol is the set of smart contracts and rules on which a crypto service runs. The holders of governance tokens decide on upgrades, on the structure of fees, and on how the community treasury is spent.

On the one hand, a governance token is not a classic security like a share, because a vote is not the same as a right to dividends. On the other hand, a governance token is not a pure utility token in the narrow sense. The votes of the holders directly shape the future value of the protocol. Through the value of the protocol, the votes also shape what the holders expect the token to be worth.

The question of classification comes back to the same idea of “the efforts of other people.” Suppose that, in practice, a small team of developers makes the decisions, and voting is mostly a formality. Then a regulator will probably see the same signs of an investment contract as in an ordinary token. Now suppose that governance is truly distributed, and the holders make real decisions instead of simply approving the proposals of the founders. Then the case for treating the token as a utility token, or under the new US approach as a token outside the securities laws, gets stronger.

A law rarely draws this line directly. More often, a specific regulator draws the line in a specific case. A new project cannot get a guaranteed answer in advance. Chapter 12 explains the legal status of a DAO and who is liable for its decisions.

What are stablecoins under MiCA?

Payment tokens and electronic money tokens form a separate category. In the European Union, this category has precise legal names and its own stricter requirements under MiCA. MiCA distinguishes two types of these tokens.

An asset-referenced token, or ART. The value of an ART is tied to another value or right, or to a combination of them, for example to a basket of several currencies or commodities.

An electronic money token, or EMT. The value of an EMT is tied to a single official currency, for example to the euro or to the US dollar. An EMT works as electronic money.

The requirements for both types are noticeably stricter than the requirements for ordinary crypto-assets.

Who may issue them. An issuer of an ART needs a separate authorization under MiCA. Only a bank or an electronic money institution may issue an EMT. Both issuers must publish a detailed white paper, and both are under the supervision of a regulator.

The right of redemption. The holders of both types of tokens have a right of redemption at any time. A right of redemption is the right to return the token to the issuer and get value back. However, this right works differently for the two types. The holder of an EMT gets the money back at par value, meaning one euro for one euro token. The holder of an ART gets either money equal to the market value of the assets to which the token refers, or these assets themselves.

Reserves. The issuer of an EMT must safeguard the money that it receives for the tokens. At least 30 percent of this money must always be kept in separate accounts at banks. The issuer must invest the rest of the money in secure, low-risk, highly liquid instruments in the same currency as the token. The issuer of an ART must hold a reserve of assets that backs the token, under separate MiCA rules for this reserve.

Limits on use as a means of payment. MiCA also limits the use of ARTs as a means of exchange. The same limits apply to EMTs in a currency that is not the official currency of an EU country, for example an EMT tied to the US dollar. Suppose that, for such a token in one currency area, the average number of daily transactions is higher than 1 million and the average daily value is higher than 200 million euros. Then the issuer must stop issuing the token. Within 40 working days, the issuer must also give the regulator a plan to bring these numbers back below the limits.

These rules have real consequences. USDT, the largest dollar stablecoin by market value, did not receive authorization under MiCA. As a result, large exchanges stopped offering USDT to their clients in the European Economic Area. For example, the exchange Binance announced on March 3, 2025, that it would remove trading pairs with USDT for its users in the European Economic Area. This change took effect on March 31, 2025.

When is an NFT outside MiCA?

MiCA does not apply to crypto-assets that are unique and not fungible with other crypto-assets, such as digital art and collectibles. These assets are usually called NFTs, which stands for non-fungible tokens. However, this exclusion works only for a truly unique item: one single piece of digital art, or one collectible with no identical copies on the market.

MiCA itself says in three points where the exclusion ends.

First, fractional parts of a unique NFT are not unique and not non-fungible.

Second, if a project issues NFTs in a large series or collection, this is an indicator that the tokens are in fact fungible.

Third, a unique identifier alone does not make a token unique and non-fungible.

In practice, this is the principle of substance over form. Suppose a project gives each token a unique number, but a thousand copies behave identically on the market. Then the tokens are not legally non-fungible. Now suppose a project splits an asset into fractions through NFTs, for example a share in a building sold as a series of similar NFTs. This project should assume from the start that the regulator will treat these tokens as ordinary crypto-assets, not as collectibles outside MiCA. Chapter 13 explains the tokenization of real-world assets.

How do the other countries of this book name tokens?

Each country of this book uses its own names for the types of tokens. A project must use the names from the law of the country where it works.

Kazakhstan. The law of Kazakhstan on digital assets separates unsecured digital assets from digital financial assets. Unsecured digital assets are ordinary cryptocurrencies, such as bitcoin. Digital financial assets include stablecoins backed by money, tokenized real assets, and digital forms of traditional financial instruments. Chapter 1 explains which regulator supervises each type.

Russia. Russian law separates digital currency from digital rights. Digital financial assets are a type of digital right. Since 2021, digital financial assets have been regulated by Federal Law number 259 of July 31, 2020, “On digital financial assets, digital currency.” The circulation of cryptocurrency is regulated by the Federal Law “On Digital Currency and Digital Rights.” The main provisions of this law took effect on September 1, 2026. Chapter 1 explains this law.

The United Arab Emirates. In Dubai, Dubai Law number 4 of 2022 on virtual assets uses the term “virtual asset.” VARA, the Virtual Assets Regulatory Authority, regulates virtual assets in Dubai, except in the Dubai International Financial Centre. Chapter 1 explains the regulators of the UAE.

Can one token have different legal statuses in different countries?

This is the last point, and probably the hardest one to plan around. The same token can have different legal statuses in different countries at the very same time. This is not a mistake in the system. It is a normal result of different regulators applying different criteria to the same set of facts.

For example, a token can be a security in the United States under the Howey test because of how the project sold it. In the European Union, the same token can be an ordinary crypto-asset, neither an ART nor an EMT, if it does not meet the MiFID II definition of a financial instrument. The reverse can happen just as easily.

In practice, this means that a project cannot plan a token launch around one classification that works everywhere. The project needs a separate legal opinion for each target country. The project must also word its marketing materials differently for different markets because of this gap, and not simply translate them into different languages.

This approach works for projects that plan a budget for a separate legal opinion in each market from the start. It does not work for projects that hope for one universal legal opinion that covers all countries. That hope usually forces a costly restructuring after the launch, when fixing the problem costs much more than getting it right at the start would have cost.

Token classification checklist

Before the launch, answer eight questions for each country where the project will sell the token.

Question one. What exactly does the buyer get: a right to profit, a right to vote, access to a service, a payment function, or a unique item?

Question two. Is the product or the service already working at the time of the sale?

Question three. What does the marketing promise: a function, or a rise in price?

Question four. Who makes the real decisions after the sale: the team or the holders?

Question five. Is the value of the token tied to one currency, to a basket of assets, or to nothing?

Question six. If the token is an NFT, is it truly unique, or is it part of a large series or a fraction of an asset?

Question seven. Under which name does the law of this country classify the token?

Question eight. Does the project have a written legal opinion for this country?

If you are planning a token now, answer these questions in writing before you write the white paper or start any marketing. Chapter 5 explains how to raise money for a crypto project legally, and Chapter 6 explains the legal requirements for listing a token on an exchange.

Chapter 5. How to raise money for a crypto project legally: SAFT and token sales

The short answer. A crypto project can raise money legally in several ways, but the line between a private round and an illegal public offering is not where most founders think it is. The name of the round does not matter. What matters is who received the offer, how many people received it, how the project found these people, and what the project promised them. This chapter explains what a SAFT is and why courts in the United States did not accept it as a shield, the US rules for private placements and crowdfunding, the new US crypto exemptions that the SEC proposed in 2026, the EU rules for token offers and crowdfunding, the special terms of investor agreements for crypto startups, why vesting needs a legal agreement and not only a smart contract, and how a regulator decides that an offer is public.

Where is the line between a private round and a public offering?

There are several legal ways to raise money for a crypto project. However, the line between a private round and an illegal public offering is not where most founders think it is. The line has nothing to do with the name of the round in the emails to investors, or with the word “private” in the pitch deck. What matters is who actually received the offer, how many people received it, how the project found these people, and what exactly the project promised them.

A mistake here usually does not look like fraud. Most of the time, the mistake is a good-faith attempt to raise capital that still breaks the rules because of how the project structured the round.

What is a SAFT, and why did it fail in US courts?

Start with a tool that once looked like a universal solution to this problem: the SAFT, which stands for Simple Agreement for Future Tokens. The idea of a SAFT was to split the deal into two steps, and the next two paragraphs describe them.

The first step of a SAFT. The investor does not buy the token itself. The investor buys a promise to receive a token later, after the network of the project is live. At this step, both sides openly agree that the promise is an investment contract, meaning a security, and the project sells the promise only to accredited investors under an exemption from registration.

The second step of a SAFT. After the network launches, the promise turns into an actual token. The idea was that at this moment the token stops being a security and becomes a plain piece of software, a utility token that its holders can freely pass on to other people, including through exchanges.

Projects used this approach widely in 2017 and 2018, and for a while it worked. Then the US Securities and Exchange Commission, known as the SEC, challenged it directly in two well-known cases in the US District Court for the Southern District of New York.

The Telegram case. In 2018, Telegram raised about 1.7 billion US dollars through private placements. In exchange, Telegram promised to deliver 2.9 billion tokens called Grams. On March 24, 2020, the court granted the SEC a preliminary injunction that blocked the delivery of Grams to the first buyers. The court did not look at the purchase agreements and the tokens separately. The court treated the purchase agreements, the expected delivery of the tokens, and their expected resale as one transaction: part of a larger scheme to distribute the Grams into a public secondary market. The court saw the first buyers as underwriters, meaning channels through which the tokens would reach the public. The court treated the whole arrangement as a de facto indirect public offering.

The Kik case. Kik sold its tokens, called Kin, in two stages: first a pre-sale to accredited investors under a SAFT, and then a public sale. On September 30, 2020, the court granted summary judgment to the SEC. The court found that the SAFT pre-sale and the public sale were parts of one integrated offering. For this reason, the pre-sale could not rely on its exemption from registration, and the whole offering broke the registration requirement of the Securities Act of 1933.

The practical lesson is that a SAFT does not protect a project automatically just because the project signed it. Suppose the token still reaches the open market through the SAFT holders, and not through a working decentralized network with its own independent value. In that case, the regulator can look at the whole chain of events, not only at the first step. Chapter 4 explains how the Howey test decides whether a token is a security.

How do private placements work in the United States?

The rules for a public round and for a private round are truly different. In the United States, this difference is clearest in Regulation D. Regulation D is a set of SEC rules that lets a company sell securities in a private placement without the standard SEC registration. Regulation D has two different paths.

Rule 506b. Under Rule 506b, the company may not advertise the offering publicly. The company may sell to an unlimited number of accredited investors and to up to 35 investors who are not accredited but are financially sophisticated. An accredited investor is an investor who meets certain tests of income or wealth. For example, an individual is an accredited investor if the individual earned more than 200,000 US dollars a year in each of the last two years, or if the individual has a net worth above 1 million US dollars, not counting the value of the home where the individual lives. Under Rule 506b, the company only needs a reasonable belief that each investor qualifies.

Rule 506c. Rule 506c works the other way around. The company may advertise the offering openly, but every buyer must be an accredited investor. The company must take reasonable steps to verify the status of each buyer, for example through tax documents, bank statements, or similar proof. The word of the investor alone is not enough.

A simpler way to verify under Rule 506c. On March 12, 2025, the staff of the SEC issued a no-action letter that made verification under Rule 506c simpler. A no-action letter is a letter in which the staff of the SEC says that it will not recommend enforcement action if a company acts in the way described in the letter. Under this letter, the company may rely on a high minimum investment: at least 200,000 US dollars for an individual and at least 1,000,000 US dollars for a legal entity. The company must also get a written statement from each investor. In the statement, the investor confirms that the investor is accredited and does not use financing from someone else to pay the minimum amount. The company must not know of any facts that suggest the opposite.

The choice between these two paths is a choice between staying quiet with lighter checks and advertising openly with stricter checks. A company cannot mix the logic of both paths in one round. If a project advertises a token sale publicly but checks its buyers only loosely, the project breaks exactly the rule that it is trying to rely on.

Is there a new US path for raising money with tokens?

The rules described so far come from the general securities law of the United States. In 2026, the SEC started to build a separate path for crypto projects. On March 17, 2026, the SEC and the Commodity Futures Trading Commission issued a joint interpretation that explains which crypto assets are not securities and when an investment contract around a token ends. Chapter 4 explains this interpretation.

On August 18, 2026, the SEC proposed new rules called “Regulation Crypto Assets.” The proposal would create special exemptions for raising money through investment contracts tied to crypto assets that are not securities themselves. An investment contract in this sense is the promise of the team to do the work that gives the token its value. The proposal has three main parts.

The startup exemption. A project could raise up to 5 million US dollars, and it could use this exemption only once in a period of four years. Before any sale, the project would have to file a notice with the SEC on a special form. In this notice, the project would certify that it intends to finish the work that it promised within four years. When the work is finished, the project would file a transition report. The startup exemption would not require financial statements or regular reports.

The fundraising exemption. A project could raise up to 75 million US dollars in any 12-month period, in two tiers. In the first tier, the project could raise up to 20 million US dollars and could use financial statements without an audit. In the second tier, the project could raise up to 75 million US dollars and would need audited financial statements. In both tiers, the project would file regular reports, and an investor who is not accredited could invest no more than 10 percent of the greater of the annual income or the net worth of that investor. This exemption would be available only to a company organized in the United States whose business is managed mainly from the United States. Most of its executive officers or directors would have to be US citizens or residents, and more than half of its assets would have to be in the United States.