1. Effects of Pricing the Token

During the early stages of development, particularly in the pre-seed and seed stages, careful consideration is usually given to token pricing. Historically speaking, many founding teams have raised through fundraising instruments that set a price on the token, which has played right into the “expectations of profits” criterion in the Howey Test.

Setting a fixed token price can create the perception that investors expect profits primarily from the efforts of the project's founders or team who made the decisions on the price and therefore assume that a group of individuals hold central control over the token. This perception of centralization and dependence on others, coupled with the expectation of profit, increases the likelihood of the token being classified as a security.

More recently, we’re seeing that fundraising documents are being structured to offer token options to investors, granting them future discounts on the token price. This can be achieved through the use of SAFEs (Simple Agreements for Future Equity) in combination with Token Warrants or Token Side Letters. These mechanisms enable the team to sell equity in their initial company, which can later be converted into tokens or provide investors with the right to purchase tokens.