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Crypto Law/Level V · Builders and launchers/5.1 Launching a token/Lesson 2

Team allocations, vesting and disclosure

How tokens reserved for founders, staff and advisers are treated under US securities and tax law, why vesting and lockups matter, and what regulators now expect issuers to disclose about insider holdings.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Pay the team in tokens instead of selling them: Ripple (S.D.N.Y. 2023) held that tokens given as pay involve no investment of money, but later insider sales into a market relying on the team are still exposed.
  2. Grant team tokens at genesis, when they are worth almost nothing, and file a §83(b) election (free IRS Form 15620) within 30 days, so income is taxed near zero; it is irrevocable and gives no deduction if the tokens are forfeited.
  3. Without an 83(b) election, §83(a) taxes vesting tokens at their value when they vest. One year after vesting, gains become long-term, so plan sales to fall after that date.
  4. Enforce vesting and lockups in a public on-chain contract and publish team wallet addresses. It costs only network fees, and buyers can check it. A false allocation table remains wire fraud, as the SafeMoon sentence of 100 months showed.
  5. EU: list insider holdings and release schedules in the MiCA white paper. Under Article 15 the offeror’s management is liable for misleading omissions, and no contract term can exclude that liability.

MaterialsSEC proposed Regulation Crypto Assets (Release No. 33-11434, 18 August 2026), proposed Rule 103(b)(4) and (b)(7)26 U.S.C. §83 and its 30-day election in §83(b)The project’s allocation table alongside the on-chain addresses that hold team tokensThe IRS-CI announcement of the SafeMoon sentencing (10 February 2026)

Wonder

  1. Does handing tokens to my team count as selling securities?
  2. When does a team member owe tax on tokens that vest over time?
  3. What must be disclosed about insider holdings, and what happens if the disclosure is wrong?

Explore

  1. A team allocation is the share of a token’s supply reserved for founders, employees, advisers and contractors. Vesting means the tokens are earned over time, often with a ‘cliff’ before anything is released; a lockup means tokens already held cannot be sold or moved until a set date. Either can be enforced by a smart contract or rest only on a written promise. In law an allocation raises three separate questions: whether handing out the tokens is a securities transaction, when it is taxed, and what buyers must be told about it.
  2. Tokens given as pay are usually not an investment of money by the recipient. In SEC v. Ripple Labs (13 July 2023) the court held that XRP distributed to employees and companies as payment, which Ripple booked at about $609 million, failed Howey’s first element because the recipients paid Ripple nothing (lesson 3.1.2). The SEC’s 2026 interpretation, in its section on airdrops, expressly does not cover tokens handed out in return for services. The larger exposure comes later: when insiders sell into a market that depends on the team’s promised work, buyers carry the risk that insiders know more and plan to leave sooner (lesson 3.1.4).
  3. For US federal tax, tokens transferred to someone in connection with services fall under Section 83 of the Internal Revenue Code. If the tokens are subject to a substantial risk of forfeiture, meaning full rights depend on future substantial services, their value, minus anything paid, is generally included in income in the first year they become transferable or stop being forfeitable. Under Section 83(b) the recipient can instead elect to include the value at the time of transfer, but the election must be made within 30 days and cannot be revoked without IRS consent. With prices that can move by orders of magnitude, the choice matters (lesson 2.2.4).
  4. Disclosure is where the SEC’s proposed Regulation Crypto Assets (18 August 2026) is most specific. Proposed Rule 103(b)(7) would require issuers using its exemptions to describe the token’s supply, pricing, lockups, distribution methods, holdings by related persons and release schedules, how tokens are created and destroyed, and how to verify transaction history. Rule 103(b)(4) would require disclosure of whether related persons face transfer or resale restrictions, and on what terms. ‘Related persons’ would include founders, promoters, employees, affiliates, directors, officers, consultants, contractors and advisers, with immediate family. The SEC asked whether to require a minimum holding period, such as one year. It remains a proposal.
  5. Whatever the regime, a false statement about insider holdings is classic fraud. In the SafeMoon case, federal prosecutors in Brooklyn said executives publicly denied that the developers held or traded the token while in fact repeatedly buying and selling it, sometimes near the price peak. Chief executive Braden John Karony was convicted by a jury in May 2025 and on 10 February 2026 was sentenced to 100 months in prison and ordered to forfeit about $7.5 million. An allocation table is a representation of fact, and the federal wire fraud statute applies whether or not the token is a security (lesson 5.1.7).
  6. In the European Union, a MiCA white paper must describe the offeror, the project, the offer and the rights attached to the token; it must be fair, clear and not misleading, with no material omissions, and the offeror’s management body must confirm this. Under Article 15, the offeror and its management are liable to holders for losses caused by incomplete or misleading information, and contractual exclusions of that liability have no effect. A practical check: for each team or adviser wallet, record the amount, the vesting and lockup terms, whether they are enforced in code or only on paper, and where buyers can verify them (lesson 6.3.4).

Key facts

  • In SEC v. Ripple Labs (S.D.N.Y. 13 July 2023), XRP distributed to employees and companies as payment was held not to involve an investment of money.
  • Under 26 U.S.C. §83(a), property transferred in connection with services is generally taxed in the first year it becomes transferable or is no longer subject to a substantial risk of forfeiture.
  • A Section 83(b) election to be taxed at the time of transfer must be made no later than 30 days after the transfer.
  • Proposed Rule 103(b)(7) of Regulation Crypto Assets would require disclosure of a token’s supply, lockups, holdings by related persons and release schedules.
  • The proposal defines ‘related person’ to include founders, promoters, employees, affiliates, directors, officers, consultants, contractors and advisers, together with immediate family members.
  • Former SafeMoon CEO Braden John Karony was sentenced on 10 February 2026 to 100 months in prison after a jury convicted him in May 2025.

Exercise nine, six, three, one

9CollectList up to 9 allocations in a token you know or can look up (some lists will be shorter), such as founders, early staff, advisers, investors, treasury, community rewards and liquidity.
6ClusterSort them into 6 categories: vested by smart contract, vested only on paper, locked by smart contract, unlocked from day one, disclosed with wallet addresses, and not disclosed at all.
3DistillReduce the 6 to 3 groups: allocations a buyer could verify on-chain, allocations a buyer must take on trust, and allocations a buyer would not know about.
1CrystallizeWrite 1 sentence stating which single insider allocation in your example would most change a buyer’s decision if it were misdescribed, and why.

Fact check

Dates, figures and claims checked against the published sources listed below.

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