This outline provides an overview of the most common structure for incorporating a decentralized blockchain network or decentralized application.
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The outline as follows is specifically tailored for Cosmos projects and assumes that the network is launched and tokens are issued in a decentralized manner opposed to a centralized process. On a high level, this means:
- Token minting protocol and launch is carried out by a set of validators, not the founding team
- The initial token distribution at genesis is carried out via smart contracts according to the Genesis File
The following structures are aiming to optimize the networks decentralization to avoid risks of falling under securities regulations.
Depending on the jurisdiction the typical structure consists of either 2 or 3 entities. The main differentiator is between teams who are based in the US and non-US teams. The main reason the structures differ is due to regulations in the US where the initial company, the Developer Company should avoid any association with a project’s token sale and token distribution. Therefore US teams are advised to set up an additional entity, the Token Issuer/ Token SPV which handles the sale of tokens to investors and all aspects of the token distribution that is handled off-chain. Setting up these entities is usually done step by step, as the latter stages require the project to have sufficient funds to cover the setup costs.
Why A Legal Structure Is EssentialLegal Structure for US-TeamsLegal Structures for non-US ProjectsDecentralized Decision making