Deep Dive

Token Launch Legal Prep Guide (& recommended service providers)

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Bruno Faviero (CEO)
April 24, 2025

Thank you to Orlando Cosme from OC Advisory and Neil Thakur from Teknos Associates for comments and feedback on this post!

Launching a token is an exciting milestone—but the path to launch is full of complex decisions, legal pitfalls, and regulatory challenges that many first-time founders underestimate. This guide distills some of the key steps every founder needs to follow to launch successfully.

Below is a quick summary of the major steps that you’ll need to take prior to launching your token, each of which we will walk through at a high-level in this post.

  • ~4-6 months before launch:
    • Don’t inadvertently price your token
    • Set up any necessary entities
    • Finalize your token tokenomics / token allocations.
  • ~3-4 months before launch:
    • Finalize the token grant tax structure for founders and early employees/contributors.
    • Choose a custody solution
    • Mint the token
    • Get a token valuation
    • Issue necessary restricted token awards or token purchase agreements.
    • Set up token vesting
  • ~1-3 months before launch:
    • Allow investors to exercise their token warrants.
    • Finalize Market Maker and Centralized Exchange arrangements.
    • Finalize distribution plan with your token vesting platform.
  • Now you’re ready to Launch!

This article is provided for informational purposes only and is not intended to be construed as legal, financial, or tax advice. Readers should not rely solely on the information presented herein and should consult with their own legal, financial, or tax professionals regarding their specific situations. The author(s) and publisher make no representations or warranties concerning the accuracy or completeness of the information contained in this article. Reliance on any information provided in this article is solely at your own risk. This article may be updated in whole or in part at any time.

~4-6 months before launch:

(1) Avoid inadvertently “pricing” your token prematurely.

Why it matters

  • In many jurisdictions, receiving tokens as compensation triggers a tax event; the amount of tax due is based on the token’s fair market value at the time.
  • A token’s fair market value can be influenced by investor token deals, contributor token agreements, and liquidity partnerships. While it may seem benign, any arrangement where a percent of a network or a specific number of tokens is promised at a specific fully diluted value or dollar price can negatively affect the valuation methodology.
  • If your token is valued too high too early (e.g., due to active trading, public statements, or “priced” private deals), it can create a large tax burden for employees and contributors receiving tokens, as well as the token or token right issuer, which might face withholding obligations and capital gains taxes (the latter due to the fact that tokens and token rights are created with a 0 cost basis, but then will have capital gains if issued at a valuation).

Key considerations

  • SAFTs (Simple Agreements for Future Tokens), liquidity provisioning deals, or even service provider token agreements could inadvertently establish a non-trivial implied market price, complicating the token valuation.
  • Token warrants typically do not heavily impact token valuation as token warrants are usually issued alongside equity investments, with these deals' economics being centered around the equity instead of the token, but always check with legal counsel and your token valuation provider.

Action items

  • Work closely with both legal counsel and a valuation firm so you understand how your fundraising or partnership agreements might affect your pre-launch valuation.
  • Carefully structure any pre-launch transactions or agreements so you’re not prematurely “pricing” your token.

(2) Set up any necessary entities to support the minting of your token.

Usually done at least ~4-6 months before the launch.

Why it matters

  • Proper entity setup can help separate different aspects of your project (e.g., software development vs. decentralized ecosystem stewardship vs. token issuance), and may offer legal or regulatory benefits depending on your jurisdiction.

Common entities

  1. Labs (Tech Startup): Focuses on writing code and developing IP; typically not directly responsible for token issuance.
  2. Token Issuer (Often BVI-based): Issues, mints, and distributes tokens. Handles any token sale agreements. Often executes an IP assignment agreement with Labs prior to launch and may assume any token rights obligations from Labs.
  3. Foundation (Often Cayman-based): Typically a parent or owner of the Token Issuer. It’s often responsible for governance, long-term stewardship of the project, grants, and holding the majority of tokens. Sometimes, some of the original founders will move from the Labs to the Foundation to keep things separate and independent.

Example: A project might have a U.S. company (“Labs”) that develops the software, a BVI company that mints and distributes the token, and a Cayman Foundation that oversees the entire ecosystem. This is probably the most common structure. Some less-commonly-used jurisdictions for foundations include Panama, St Kitts, Gibraltar, Malta, and others.

Key Consideration: It’s best practice to keep operations and management of the various entities separate and to keep up distinct corporate formalities. Some jurisdictions may “pierce the corporate veil” and collapse the entities into one for purposes of legal liability and entities in tax favorable onshore jurisdictions may end up being subject to tax liability in less favorable onshore jurisdictions if their operations are too entwined with the Labs company. You should work closely with your legal counsel upon setting up the project legal entities to ensure separation.

Service providers that protocols may engage with for this:

  • External Law Firm: Familiar with crypto regulatory issues and can help oversee the entire process across all entities. Popular US law firms include Fenwick, Cooley, Latham & Watkins, as well as smaller firms like OC Advisory and Day One Law.
  • Local (Offshore) Law Firm: Handles jurisdiction-specific entity formation and legal agreements. Popular Cayman law firms include Walkers, Carey Olsen, and Ogier.
  • Offshore Foundation Admin or DAO Admin: Manages operations, backoffice, and compliance for the Foundation (e.g., accounting, governance, and grants). Typically physically located in the jurisdiction. Popular Cayman admins include Autonomous, Lemma, and Webslinger (full list of service providers at the bottom).
  • Independent Directors: Provide legal independence and oversight for the Foundation or Token Issuer. Popular Cayman director companies include Leeward, Hash Directors, and Marfire.

Action items

  • Engage with experienced legal counsel to decide how your specific jurisdiction and business goals affect which structures to form and when.

One note on service providers. It is not uncommon for these different service providers to have “sister companies” with whom they work closely together and sometimes also have common ownership. Some founders like having everything under one roof, while other founders prefer to maintain a degree of separation between these different service providers.

(3) Finalize your tokenomics.

Why it matters

  • You need a clear picture of how many tokens exist in total, who holds them, and over what vesting schedule. This is critical for fair distribution and for building trust with your community and investors.

Key steps

  • Decide on total supply and inflation or emissions plan, if applicable.
  • Determine the breakdown of allocations (e.g., X% for investors, Y% for team, Z% for community incentives).
  • Outline vesting and unlock schedules (e.g., a 1-year cliff for founders, followed by monthly unlocks over 3 years).
  • Have your legal counsel conduct a regulatory assessment of your protocol design, token launch mechanisms (airdrop, liquidity pool provisions, etc.), and potentially provide an opinion letter on the token itself.
  • Schedule any security audits you might need before launch - Audits often take months to get scheduled and completed, so don’t wait procrastinate on this.

Action items

  • You may want to consider engaging with a tokenomics advisor, especially if the token mechanics are complex.
  • If you plan future fundraising or liquidity programs, ensure there’s a reserve or treasury set aside.

~3-4 months before launch:

(4) Finalize the token grant structure you will use for contributors

Ideally 90+ days prior to launch (for token valuation reasons).

Why it matters

  • From a U.S. tax perspective, employees and founders often want to minimize their up-front tax bill. Structures like a Restricted Token Award (RTA) with an 83(b) election can be beneficial (covered in our token compensation structures blog post).
  • Token grants will almost always require a token valuation to determines the value of the grant (which can have tax consequences for the recipient). Valuation providers usually require a “cool-off” period of at least 90 days (but typically no less than 45 days) between the valuation and the launch, in order to provide a proper token valuation.

Key options

  1. Restricted Token Awards (RTAs):
    • The tokens are subject to vesting.
    • With an 83(b) election, you pay tax on the (ideally low) value at grant, and not again at each vest.
    • Often requires the token to be minted ahead of time.
  2. Future Token Interests:
    • Some law firms use these to grant the right to future tokens, which become exchanged for real tokens at TGE. FTIs are used by only a few law firms. If you are using FTIs, you generally won’t need to mint the token prior to issuing them.
  3. Token Purchase Agreements (International):
    • For contributors outside the U.S., an agreement to purchase tokens at a low price, with a “repurchase plan” that mirrors vesting.

Action items

  • Coordinate with your legal counsel and tax advisors to choose the right structure for each contributor’s jurisdiction.
  • If using RTAs, be sure employees/founders know about 83(b) filing deadlines (30 days from receipt of tokens).

(5) Choose a custody solution to store the tokens you are about to mint.

Why it matters

  • Once tokens are minted, you must store them securely. Custody solutions protect against key mismanagement, hacks, or insider threats.

Key custody types

  1. Self-Custody
    • Multisig (e.g., Gnosis Safe on Ethereum, Squads on Solana): Typically free or low-cost, but you manage private keys.
    • MPC (Multi-Party Computation) (e.g., Fireblocks): Offers more sophisticated key management and transaction policies; usually more expensive than basic multisig.
  2. Third-Party Custodian
    • Often provide different custody technologies (hot wallets, cold storage, MPC) and additional services (OTC, staking, trade execution etc.)
    • Qualified Custodians (e.g., Anchorage, Coinbase Custody, BitGo, HexTrust) are regulated institutions with additional oversight around security, compliance, and corporate structure.
    • Custodian fees run in the range of 12–30bps on AUC annually (paid in cash), with QCs being on the higher end (20+).

Action items

  • Evaluate your project’s budget, security needs, expected FDV, and investor requirements.
  • Consider setting up separate custody solutions for each entity (Labs, Token Issuer, Foundation) to keep operations distinct.


Consideration: Do investor or employee tokens need to be specifically with a custodian or in unique custodial wallets?

  • Investors who are Registered Investment Advisers (RIAs) might require tokens to be stored with a qualified custodian due to the SEC’s Qualified Custody Rule. But there is some industry disagreement about whether these guidelines apply to tokens that projects argue are not securities, and whether locked tokens are truly in the investors’ possession (and therefore whether they are subject to the custody rule at all).
  • For employees’ tokens (especially under 83(b)), some law firms insist on individual custody wallets for each recipients’ locked tokens, though we have observed in practice that is a minority opinion not widely adopted (We discuss this in our  token compensation structures blog post).

(6) Mint the token

Why it matters

  • If you’re granting tokens via RTAs or purchase agreements, you typically need to mint the token prior to grant (so that the “property” being granted actually exists).
  • This needs to be done in accordance with any cool-down periods needed around the subsequent token valuations and grants (e.g. 90+ days before launch).
  • Note: If your structure will contain multiple entities, such as offshore entities, these entities will need to be setup before the token is minted, which may take a few weeks. Make sure to account for more time than expected to ensure that you have enough time for a cool-down period (typically 90+ days or at least 45+ days at a mininum).

Practical tips

  • Some founders physically travel to the jurisdiction where the Token Issuer is domiciled to sign and perform the mint for legal reasons (consult local counsel).
  • Once minted, distribute relevant portions to the appropriate entities (e.g., the Foundation’s treasury, the Labs, or the Token Issuer for investor distributions).

Action items

  • Before minting, double-check the smart contract code (especially if it has advanced functionality like mint/burn, upgrading, or governance hooks).
  • Get an audit of your token contract if you haven’t already to reduce the risk of bugs or exploits.


Side Note: Engage a token vesting provider

  • This is a great time to engage a vesting platform like Magna to track and automate distributions for investors, employees, advisors, or ecosystem participants.
  • Having a centralized dashboard for all token holders can streamline compliance, transparency, and distribution logistics.
  • Token vesting platforms like Magna integrate well with many different custody solutions (including multisigs, MPCs like Fireblocks, as well as Custodians like Anchorage), and allow for both “off-chain” distributions (directly from custodians) as well as fully “on-chain” vesting automation via vesting smart contracts.

(7) Get a token valuation

Why it matters

  • For tax and accounting purposes, you’ll need a formal valuation of your token. This helps define the fair market value of the token for employee grants, IP transfers, or even estate/gift planning. This process can take ~2 weeks.
  • While equity 409a valuations have an official tax safe harbor of the sooner of 12 months or a material event for stock option grants, tokens don't fall under that rule. And, for 83b elections, in general, the idea is that a valuation, for equity or tokens, needs to be as close to the valuation date as possible. So it is typically advised that companies get a token valuation as close to the mint date as possible, and that the report date be at least 90 days away from TGE ideally, if not at least 45 days away from TGE at a minimum.
  • While these are frequently used for the purposed of US token grants and 83(b) elections, token valuations are often done in other jurisdictions like UK and Singapore. For foreign-based projects/teams, having a conversation with local tax advisors could be helpful.

Action items

  • Get a token valuation report as close to the token mint date as possible. Start early (90+ days before launch) to accommodate the “cool-off period” that most providers recommend. Some valuation firms may accommodate cool-off periods as short as 45 days. Anything beyond that is usually tricky.
  • Provide the valuation firm with all relevant documents (like your tokenomics, private fundraising terms, etc.).
  • Note that if your structure will contain multiple entities, such as offshore entities, these entities will need to be setup before the token is minted, which may take several weeks. Make sure to leave more time than you think you would need to ensure that you have enough time for a cool-down period.
  • Make sure you’re working with a firm that specializes in token valuations (not just any valuations or equity valuations). There are a handful that are widely used such as Teknos Associates.
  • Where a protocol’s software or trademark is licensed or transferred to the foundation, an intangible-asset valuation or transfer pricing study can be necessary for both legal and tax reasons—particularly if the foundation eventually monetizes that IP.


Note: token valuations post-launch:

  • After the token launch, token valuations can be relevant for acquisitions, OTC deals, large multi-jurisdictional transfers, gift and estate tax purposes, giving or receiving large grants, and even in cases where individuals might be extraditing from countries.
  • In these instances, even with a post-launch market price, if liquidity is thin, a traditional open-market quote may not be representative. A deeper analysis by a valuation specialist can help determine whether that market price should be adjusted for lack of liquidity or slippage.

(8) Formalize token grants to founders and early employees.

Why it matters

  • After you have the valuation, you can legally finalize restricted token awards, token purchase agreements, or other forms of token grants.

Action items

  1. Execute the agreements (and have the board approve them if required).
  2. Recipients pay any purchase price required (sometimes nominal).
  3. Anyone receiving an RTA will likely want to file their 83(b) election within 30 days of the grant date.

Example: A U.S.-based founder who has an RTA for 1,000,000 tokens at a low valuation of $0.0001 each pays $100 total up front. By filing an 83(b), the founder locks in tax liability at that $100 value instead of on future vesting events.

~1-3 months before launch:

(9) Allow investors to exercise their token warrants

Why it matters

  • Investors with token warrants generally have a contractual right to exercise them for a nominal fee. Founders are typically required to notify investors of an exercise window within a certain time period before launch.
  • Exercising usually happens before the token lists publicly, so investors become official token holders by launch (though the tokens may be subject to an unlock schedule).
  • Some service providers will recommend the exercising of token warrants as close to the mint date (and valuation date of the valuation report) as possible.

Action items

  • Send out formal notices to investors. Token Warrants have very strict and formal notice procedures. Work with legal counsel to make sure that you appropriately satisfy them within the correct time period.
  • Track who exercises and update your cap table/vesting platform accordingly.

(10) Finalize token ecosystem arrangements

Why it matters

  • Many project choose to engage with Centralized Exchanges (CEX’s) for broader market distribution (exchanges often have huge communities and can bring increased trading volume to a token). Project will also commonly engage market makers for their post-launch liquidity.

Key considerations

  • Market Makers: Typically trading firms that focus on specific venues (e.g. DEXs, CEX’s, or specific CEX’s). These contracts often involve maintaining a certain liquidity depth and a certain spread on markets they take on the responsibility for for that token.
  • Centralized Exchanges (CEXs): Often require extensive diligence (KYC, compliance). They might also request listing fees or tokens.
  • Decentralized Exchanges (DEXs): You may need to create your own liquidity pools (e.g. on Uniswap or Raydium). Certain market makers or service providers may also offer the setup and maintenance of these as a service.
  • Price Trackers: Reach out to CoinMarketCap and CoinGecko to list your CA and track your locker wallets so that your audience can monitor the price, volume, and circulating supply from day 1.

Action items

  • Start the Market Maker RFQ process early (at least 2-3 months before TGE).
  • Start discussions with CEX’s early (at least 2-3 months before TGE).
  • Align your market maker choice with your targeted CEX listing strategy.
  • Sometimes, a launch may be blocked until a major CEX agrees to a listing, at which point the CEX may dictate the launch timing.

(11) Finalize your distribution strategy with your token vesting platform.


Why it matters

  • You’ll soon be distributing tokens to multiple stakeholders. Doing it manually can lead to errors, confusion, or security risks.
  • Regardless of what is used for custody, a token vesting platform can help with tracking and visualizing token vesting and unlock schedules, creating test transactions and settlement transactions, and more.

Key approaches

  1. On-chain vesting via smart contracts. These smart contracts can often be managed by a custodian or MPC solution.
  2. Off-chain distributions initiated directly from custody (multisig or custodian).

Action items

  • Decide on the approach for each stakeholder: employees/founders, investors, advisors, or community.
  • Consider how distribution approaches may differ depending on token grant types (RTUs, RTAs, etc.), and whether tax withholding may be needed on token distributions.

Token vesting platforms like Magna support both off-chain token vesting as well as fully on-chain distributions, and intermediate solutions like vesting smart contracts that are partially topped up with 1- or 3-months work of tokens at a time. Tools like Magna can also integrate with your HRIS, Payroll, or EOR solution like Rippling, Toku, or Deel to ingest tax withholding calculations and do net-of-withholding distributions.

(12) Now you’re ready to launch!

You’ve done all of the above steps, and are ready to go!

Now you’re ready to launch!

  1. Do final checks
    • Final checks on smart contracts, treasury wallets, exchange accounts, and distribution schedules.
  2. Announce TGE
    • Coordinate announcements (social media, community channels, press releases) to ensure clarity on token utility, vesting, and total supply.
  3. Continue Building
    • Post-launch is not the end: you must deliver on product milestones, maintain community engagement, and monitor legal/compliance obligations.

Post-Launch Checklist:

  • Ongoing Compliance: Keep track of your foundation’s and labs’ financials, file any necessary reports (e.g., in the U.S., ensure your accountants know about crypto transactions).
  • Governance: If your token grants governance rights, enable a governance forum or on-chain voting process to empower your community.
  • Analytics & Security: Monitor trading activity, watch for suspicious wallet movements, and maintain open communication channels with your market maker and community.

Conclusion

Launching a token is a multi-month journey that spans legal, technical, financial, and operational domains. By following the recommended steps—from setting up appropriate entities and finalizing tokenomics to choosing custody solutions and managing a smooth distribution at TGE—you’ll be far better prepared to navigate complexity, regulatory challenges, and community expectations.

If you need help tracking and distributing tokens or syncing your vesting schedules across multiple platforms and custody solutions, Magna is here to help. Feel free to reach out to us at launch@magna.so for more info or a referral to any of the service providers above.

Good luck with your launch! And remember: This post is not legal or tax advice—consult professional counsel to tailor these steps to your unique situation.

About Magna

Magna is a token management platform that helps projects and DAOs manage their token cap tables, automate vesting schedules, and seamlessly distribute tokens to employees, contributors, and investors.

Service Provider Directory

Below is a list of service providers that we view as widely-used or recommended in the crypto space. Magna can provide a recommendation or referral to any of these, just reach out to us at launch@magna.so!

Legal Counsel (US)

Legal Counsel (Cayman)

^ $30k-$75k for offshore structures + employee/investor docs

Foundation / DAO Admin:

^ $10k-$25k/month + sometimes a token grant

Legal Counsel (BVI)

Independent Director (Cayman)

^ $30k-$50k+/year

Token Valuation Firms

^ ~$10k per valuation

Custody Solutions:

Market Maker Management

Photo of Bruno Faviero as Avatar Image
Bruno Faviero (CEO)
April 24, 2025

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