Crypto Launchpads – Legal Structure

Legal Assessment of a Crypto Launchpad

To help you launch your crypto launchpad legally, the first step our team will take is assessment. We’ll begin by examining the operational framework of your launchpad, but also the projects it aims to promote. Our team of experienced lawyers will then identify all applicable regulations and outline the steps you need to achieve full compliance. If you’re based in Europe for example, you’ll receive detailed guidance so you can adhere to MiCa’s regulations as well as AML and KYC requirements. With this approach, you’re certain to avoid legal issues in the future thanks to a launchpad that operates within the right legal framework since day one.

Drafting the Legal Documents of a Crypto Launchpad

Proper documentation is essential to comply with crowdfunding, crypto, intellectual property, and the General Data Protection Regulation (GDPR). LegalBison’s team can create and prepare all documents that you will need to meet regulatory standards. This would include drafting terms and conditions, privacy policies, and agreements depending on your project’s needs. In that sense, documentation has two main goals: safeguarding your launchpad but also building its credibility.

Company Registration for a Crypto Launchpad

The type of legal entity chosen by a business is very critical. This impacts liability protection, compliance, and operational efficiency. We at LegalBison will guide you through incorporation processes for services like liability protection and a formal business presence. If your launchpad is catering to several jurisdictions, you could definitely benefit from our advice. We can help you incorporate your launchpad in the best region so you can optimize tax obligations while complying with international laws. This step is vital for a launchpad that’s both trustworthy and sustainable.

Licensing Requirements for a Crypto Launchpad

If you want to gain the trust of your community, you’ll have to get the necessary licenses. At LegalBison, we can help you secure a crypto license and/or a crowdfunding license easily. This way, you’ll be able to protect your launchpad’s reputation, legitimize your activity, and attract both high-quality projects and serious investors. Of course, proper licensing also ensures compliance with legal standards, reducing the risk of fines and legal issues.

Raising Funds

Respecting AML and KYC protocols is a must when you’re planning to launch your own crypto launchpad. In that sense, being aware of the policies that apply to your jurisdiction will be essential for the success of your project. Unfortunately, it’s often easier said than done: each jurisdiction has its own requirements. That’s why understanding the regulations that apply where you plan to operate is extremely important. For example, if you’re planning to launch your launchpad in Europe, the EU’s Markets in crypto-assets regulation, which you might know as “MiCA”, requires that all crypto service providers implement AML/KYC procedures and obtain licenses so they can operate.

Once you’ve got a good understanding of how you’ll manage AML and KYC processes, you’ll have to make your first important decision: raising funds in fiat or crypto. Bearing in mind that either solution comes with its own set of regulatory considerations. Raising funds in fiat involves respecting traditional financial regulations, which often require more extensive and complex documentation. Typically, you would have to obtain licenses from financial regulatory authorities and allow all your financial transactions to be easily traceable. On the other hand, raising funds with crypto can be more flexible, but comes with its own challenges. If you’re choosing to go that route, you’ll have to care about more complexity, as you’ll have to navigate a more ambiguous legal landscape and manage crypto volatility.

One of the most popular ways to raise funds for a crypto project is to opt for an Initial Coin Offering (ICO). Basically, ICOs allow new projects to sell their tokens directly to investors, before the official launch of a token, app, coin, or even service. Initial coin offerings were particularly popular in 2017-2018, where crypto investors who would buy tokens early would do so, hoping that the tokens would increase in value later on. Unfortunately, ICOs from this period were also a breeding ground for many deceptive - and sometimes straight-up scammy - projects. As a response, launchpads emerged, and are now considered a much safer alternative to ICOs. Popular platforms like Binance Launchpad, for instance, make sure that any project that they promote for their users meets the legal standards before they’re allowed to raise funds.

Dealing with Security Tokens

Security tokens are important for many GameFi launchpads, offering both investment opportunities and regulatory challenges. You most likely don’t know yet if securities will apply to your launchpad project. But even so, having a plan in mind for securities tokens is an important step to take. Security tokens are digital assets that use blockchain technology to represent ownership or stakes in real-world assets, such as equity, debt, or even real estate. But most importantly, because of their nature, they are treated like traditional financial securities. Now, issuing securities without proper authorization is illegal virtually everywhere in the world. Getting legal statements might be a good idea to make sure the tokens your launchpad issues are of the right type.

Even if your initial plan doesn’t include any security tokens, you might find that regulatory bodies classify some of your tokens as securities. This is particularly relevant for launchpad ICOs, where tokens can easily fall under securities laws. For example, in the case of the US, the SEC has required any token resembling a security to comply with the Securities Act of 1933. On the other hand, the European Securities and Markets Authority interpreted that any token resembling a financial instrument in Europe should be consistent with the Markets in Financial Instruments Directive, which means getting licenses and authorizations as an investment firm.

At LegalBison, our job is to guide you through these complexities. We will check whether your tokens can be treated as securities or not, and structure the offering in a way to make it remain compliant. It involves drafting legal documents, compliance with AML and KYC procedures, and guiding on licensing procedures. This approach ensures that your launchpad is compliant and trustworthy.

Compliance with Crypto Regulations

When running a crypto launchpad, compliance with AML and KYC regulations is non-negotiable. The protocols are aimed at preventing fraudulent activities and building trust with regulators, investors, and users.

AML laws’ objective is simple: it aims to stop criminals from using crypto to launder money. Although, contrary to popular belief, only 1% of all money laundering is carried out using cryptocurrencies. This involves implementing measures to detect and report activities deemed suspicious. On the other hand, KYC regulations are meant to check the identity of your users to prevent fraud and/or identity theft. Normally, KYC verification includes information such as someone’s legal name, official ID, and proof of address. KYC has become a standard of security in the crypto world and is already well-known by most users.

Non-compliance can attract very severe penalties and pretty dramatic consequences. For example, Bittrex was fined over 53 million dollars when it failed to comply with AML laws in 2022. Surely, you don’t want this to happen to you. LegalBison is here to help you make sure that your launchpad stays compliant and secure.

Legal Entity

Choosing the right legal structure for your launchpad will enable you to build a solid foundation for your project. This choice will impact your legal protection, your launchpad’s compliance, and your overall day-to-day efficiency.

Most of the time, choosing a corporation will be most advantageous. Indeed, incorporating your launchpad prevents your business assets from impacting your personal assets. In practice, it means that in case your launchpad ever faces legal or financial issues, you’re certain to stay protected and safe. Moreover, a corporation can help you be more credible to investors, as it gives your business a formal and official entity. Corporations are required to keep detailed financial records and to go through audits, and this transparency usually comes with more trust. Moreover, on a more practical side, a corporation could also mean tax benefits, depending on your jurisdiction.

The more innovative and decentralized governance structure used with crypto-related projects is that of a Decentralized Autonomous Organization or DAO. Simply put, it’s like a charity or an association running on blockchain technology: DAOs operate with smart contracts, and there isn’t a central governing body. While this might sound attractive at first glance, a DAO also means more regulatory uncertainties and potential liability issues. Even though DAOs are praised in the crypto community for their democratic nature, the lack of legal recognition might make things more complicated (and potentially more dangerous) than they should be.