Utility vs. Security Token: How Classification Affects Valuation
Author: Redwood Valuation Content Team
Published: July 3, 2026
The label a token carries ("utility," "security," "governance") does not determine how U.S. law treats the offer, sale, or holding. A token called "utility" can still be the subject of a securities transaction. A token called "security" can fail every ASC 350-60 scope criterion and require entirely different accounting. Classification analysis is where those distinctions get resolved, and where the valuation method, the financial reporting treatment, and the tax consequences diverge.
That distinction matters in practice. Classification analysis changes valuation approaches, financial reporting obligations, and tax treatment. This article walks through each of those consequences using the current regulatory frameworks: the Howey test, SEC Release Nos. 33-11412 and 34-105020, ASC 350-60, ASC 820, and IRC Section 83.
The terms "token," "coin," and "cryptocurrency" aren't interchangeable. This article uses "token" to refer to digital assets distributed on a blockchain with specific protocol rights. A token is a non-native digital asset that is issued, transferred, or recorded on an existing blockchain or distributed ledger. Its rights and functions are defined by its terms, smart contract, protocol, or related agreements. "Cryptocurrency" appears only where the underlying IRS guidance uses that term. "Crypto asset" follows ASC 350-60's own language.
This article focuses on U.S. companies and funds holding or issuing digital assets. Specific tax advice, securities offering compliance, and non-U.S. regulatory frameworks require separate analysis.
Understanding what makes an offer or sale a securities transaction starts with the four-prong test established in 1946.
What Makes a Token a Security? The Howey Analysis
Whether a token offer or sale is a securities transaction depends on whether it satisfies the four-prong Howey test: (1) an investment of money, (2) in a common enterprise, (3) with an expectation of profits, (4) derived from the efforts of others. All four prongs must be satisfied. The analysis applies to the specific offer, sale, or transaction, not to the asset's label.
The Four Prongs
1. Investment of money. This prong covers cash, cryptocurrency, and other forms of consideration. It's the narrowest prong and rarely the point of dispute in token cases. When a purchaser exchanges anything of value for a token, this prong is typically met.
2. Common enterprise. Federal circuits are split on what satisfies this prong. Most apply "horizontal commonality," which requires pooling of funds among investors with pro-rata sharing of profits and losses. Some circuits also accept "vertical commonality," where the investor's fortunes are tied to the promoter's efforts; others have rejected it. The applicable test depends on the circuit where the claim arises. In circuits applying horizontal commonality, the prong is more likely to be satisfied where token sale proceeds are pooled and purchasers share pro-rata in the project's economic success. The specific application is fact-driven and circuit-dependent.
3. Expectation of profits. The objective expectation of profits, based on how the token is offered and what purchasers reasonably understand from the issuer's representations, drives this prong. Tokens marketed with price-appreciation language, return-on-investment framing, or pre-functional-network sales are more likely to satisfy it. Consumptive-use tokens, where the buyer's primary purpose is to use the network rather than speculate on appreciation, are less likely to satisfy it. The design of the token influences this analysis, but the design alone isn't dispositive. A buyer purchasing a utility token at a discount before the network launches, primarily for resale, may still satisfy this prong under a facts-and-circumstances reasonableness analysis.
4. Derived from the efforts of others. This is typically the decisive prong in token disputes. Purchasers may be relying on the efforts of others when a central development team, foundation, or promoter controls essential functions such as protocol development, exchange listings, marketing, or delivery of promised network functionality. A sufficiently decentralized network, where no single party controls value creation, reduces that reliance. Decentralization isn't a binary condition; it's a spectrum, and 33-11412 provides guidance on what sufficiency looks like for this analysis.
SEC Release Nos. 33-11412 and 34-105020: The Current Framework
A note on the 2019 Framework: The SEC staff’s 2019 Framework for “Investment Contract” Analysis of Digital Assets has been superseded by SEC Release Nos. 33-11412 and 34-105020. It should not be used as the current statement of Commission-level guidance.
SEC Release 33-11412 is an interpretive release, not a statute or rule. It's the current Commission-level interpretation of how federal securities laws apply to crypto assets. It does not classify any specific token as a security. It does not rewrite the Howey test. What it does is provide a taxonomy of crypto assets and apply Howey to token contexts, including guidance on when an asset ceases to be the subject of an investment contract as a network becomes sufficiently decentralized.
The Howey test itself (SEC v. W.J. Howey Co., 328 U.S. 293 (1946)) remains the binding Supreme Court precedent. Release 33-11412 interprets how that test applies to crypto transactions.
The CFTC joined this release. In the SEC's press release and in law firm alerts covering 33-11412, the standard phrasing is "an SEC interpretation that the CFTC joined." Securities-law interpretation is the SEC's domain; the CFTC provided concurrence. This distinction matters: the CFTC's participation doesn't give 33-11412 greater legal force than an interpretive release carries on its own.
Bitcoin and Ether have been treated as commodities for CFTC purposes, particularly in derivatives and enforcement contexts. That doesn't remove the need to consider SEC and IRS classifications separately. Commodity status doesn't determine how any specific token offer or sale is treated under the securities laws.
The Ripple ruling made the transaction-by-transaction principle concrete, and showed how the same token can produce different outcomes depending on who is buying and why.
The Ripple Ruling: Same Token, Different Outcomes
In SEC v. Ripple Labs (S.D.N.Y. 2023), the court analyzed offers and sales of XRP transaction-by-transaction and found that some constituted the offer and sale of investment contracts while others did not, depending on whether purchasers had reason to expect profits from Ripple's efforts. The SEC subsequently dismissed its appeal of the district court's ruling. Readers should verify the current procedural posture before relying on the Ripple ruling in any specific matter.
The buyer groups were distinct. The analysis followed.
The court's analysis produced two distinct outcomes for two distinct buyer groups.
Institutional sales. Sophisticated investors received XRP directly from Ripple under contracts. They understood Ripple would use the proceeds to build the XRP network and ecosystem. Purchasers were relying on Ripple's efforts to deliver value, and the "efforts of others" prong was satisfied. These sales were found to be unregistered offers and sales of investment contracts.
Programmatic sales. Retail buyers purchased XRP on secondary exchanges without knowing the counterparty's identity. They had no direct contractual relationship with Ripple and no particular reason to expect profits specifically from Ripple's efforts. They were buying on an open market. These sales were found not to constitute the offer and sale of investment contracts.
The principle the Ripple ruling illustrates is transaction-by-transaction analysis: what the buyer knew, what was promised, and what relationship existed. The Southern District's analysis remains a trial-court decision and is not binding precedent on other courts, but it illustrates the transaction-by-transaction principle clearly. The programmatic-sales analysis should not be relied on as settled law. Apply the same Howey analysis to secondary-market sales as you would to direct sales.
"XRP is not a security" is not what the court held. Certain XRP transactions were found not to involve the offer or sale of investment contracts. The difference matters.
Classification doesn't just determine regulatory exposure. It shapes the valuation analysis in concrete ways.
How Classification Affects Valuation
Token classification affects valuation in three concrete ways: it changes who can hold the token (which affects market liquidity), it determines what regulatory constraints apply to potential buyers, and it shapes what rights the token confers. All three affect which valuation method fits the facts.
Market Liquidity and Investor Access
Securities-transaction classification means the offer or sale must comply with the Securities Act of 1933 by registering or qualifying for an exemption. A Rule 506(c) offering under Reg D, for example, limits buyers to accredited investors (Rule 506(b) permits up to 35 non-accredited but sophisticated purchasers). A smaller buyer pool typically produces thinner secondary markets, and thinner markets affect the ASC 820 fair value hierarchy.
An active Level 1 market may not exist if a token has been sold primarily to restricted investors. Depending on the facts, classification may push the valuation analysis toward Level 2 inputs (other observable market data) or Level 3 inputs (unobservable, model-based). This relationship is indirect and conditional, not deterministic. The ASC 820 hierarchy level is determined by the availability and observability of inputs, not by regulatory classification alone.
Tokens with broad retail distribution may have active exchange markets that qualify as Level 1 evidence. Under ASC 820, an "active market" has a specific meaning: quoted prices must be readily and regularly available from an exchange or dealer market, and those prices must represent actual and regularly occurring transactions. A thin or infrequent market doesn't qualify as Level 1 even if a price is technically quoted.
Valuation Methods by Context
Valuation method selection depends on what evidence is available and what rights the token confers, not on whether the token is labeled "utility" or "security." The following table maps common token contexts to starting methods. None of these is a default for a token type.
| Context | Starting Method | Notes |
|---|---|---|
| Active, accessible market for the token | Market approach (Level 1) | Principal market, the accessible market with the greatest volume and activity for the token, must be identified. Aggregator prices are not a substitute for principal-market evidence |
| Thin secondary trading with some observable data | Level 2 inputs with market approach | Adjustments permitted for asset-characteristic restrictions only |
| Restricted or vesting tokens (lockup, legal restriction) | Level 3 with discount for lack of marketability (DLOM) | DLOM applies to asset-characteristic restrictions; position size is not a basis for DLOM |
| Pre-TGE tokens | Level 3: comparables, option pricing models, scenario analysis | No authoritative guidance prescribes a method; industry practice only |
| Fee-generating protocol where holders have an identifiable economic claim on cash flows | Income-style approach | Only appropriate where a legal or economic claim on cash flows exists |
When an active, accessible market exists, quoted market evidence is usually the starting point under ASC 820. This isn't "the most reliable method" as a categorical statement; it's where the analysis begins when Level 1 inputs are available.
A discounted cash flow analysis treats expected network revenue as token-holder income. That framing is only appropriate where the token gives the holder a legal or economic claim on those cash flows. Many tokens, including many labeled "security tokens," give no such direct claim. Applying a discounted cash flow analysis without establishing a holder claim on cash flows is a method error.
For pre-TGE tokens, no authoritative guidance prescribes a valuation methodology. Industry practitioners commonly use comparable transaction analysis, option pricing models, and scenario analysis. [INTERNAL LINK: pre-TGE token valuation]
Financial reporting adds another layer of complexity, one that turns on whether the token satisfies six specific criteria under GAAP.
Financial Reporting Under GAAP
Under ASC 350-60 (codified from FASB ASU 2023-08, effective for fiscal years beginning after December 15, 2024), companies that hold qualifying crypto assets must measure them at fair value through net income. Six criteria determine whether a token qualifies, and a token issued by the reporting entity or its related parties is automatically out of scope.
The Six Scope Criteria for ASC 350-60
An asset is in scope only if it meets all six criteria:
Meets the definition of an intangible asset
Does not provide the holder with enforceable rights to, or claims on, underlying goods, services, or other assets
Is created or resides on a distributed ledger or blockchain
Is secured through cryptography
Is fungible
Is not created or issued by the reporting entity or its related parties
Any single failure removes the asset from ASC 350-60's scope. Three of these criteria deserve specific attention for companies dealing with digital assets.
Criterion 6: Issuer exclusion. ASC 350-60 governs how companies report tokens they hold. It does not apply to tokens the reporting entity itself issued. ASC 350-60 is explicit: the standard covers holders, not issuers. If your company issued the tokens your balance sheet reflects, criterion 6 fails and ASC 350-60 does not apply to those holdings. Deloitte's analysis confirms this interpretation, noting that issuers must look to other GAAP frameworks for their own token obligations.
Criterion 2: Enforceable rights. A token that provides the holder with enforceable rights to, or claims on, underlying goods, services, or other assets fails criterion 2 and falls outside ASC 350-60. This is where a "security token" design most often creates an exclusion. Depending on the specific rights the token confers, it may be accounted for under ASC 606 (revenue), ASC 310 (receivables), or another framework. Criterion 2 applies to any token with enforceable claims on underlying assets, regardless of its marketing label.
Criterion 5: Fungibility. Tokens that aren't fungible with one another fail criterion 5 and fall outside ASC 350-60 scope. The codification doesn't use the term "NFT"; the basis for exclusion is the failure of the fungibility criterion. Tokens excluded on this basis may fall under existing intangible-asset guidance, though the specific treatment depends on the entity and the purpose of holding.
Fair Value Measurement and the Blockage Prohibition
ASC 820 [INTERNAL LINK: ASC 820 fair value measurement] governs how fair value is measured for in-scope tokens. Three points are critical for companies with material crypto holdings.
Principal market. Under ASC 820, fair value is measured using the price in the principal market for the asset, meaning the market with the greatest volume and activity that the reporting entity can access. If there is no principal market, the entity looks to the most advantageous market. An index price or aggregated price from multiple exchanges is not a substitute for identifying the principal market. The specific exchange or venue should be named, and the selection should be documented.
Blockage prohibition (ASC 820-10-35-44). ASC 820-10-35-44 prohibits a blockage discount at every level of the fair value hierarchy, including Level 1. A blockage discount is a reduction off the quoted price on the theory that selling the full position would move the market. That adjustment isn't permitted regardless of position size.
The prohibition can't be worked around by dropping to a lower hierarchy level. Moving a token from Level 1 to Level 2 or Level 3 because the position is too large to liquidate at the quoted price imports the same prohibited logic. Hierarchy level is determined by input observability, not position size.
In practice, this means a fund holding 10 million tokens at $0.50 per token carries the position at $5 million, even if the fund knows that selling 10 million tokens at once would push the market below $0.50. That's the measurement. Position-size considerations (what the holder could realize on liquidation) do not enter the fair value measurement under ASC 820.
Asset vs. holder restrictions. What may legitimately affect fair value is a restriction that is a characteristic of the asset itself: a legal lockup, a contractual prohibition on transfer, a protocol restriction built into the token. These asset-characteristic restrictions travel with the token regardless of who holds it. Under ASC 820, a restriction that is a characteristic of the holder (including the size of the holder's position) may not reduce fair value. ASU 2022-03 codified this asset-vs-holder distinction specifically for equity securities subject to contractual sale restrictions. The same principle (that the restriction must be a characteristic of the asset, not the holder) is the operative standard for token fair value under ASC 820. The distinction is the test: does the restriction travel with the asset, or does it exist only because of who the holder is? Tax fair market value (FMV) vs. ASC 820 Fair Value
Tax FMV and ASC 820 fair value aren't the same standard. ASC 820 fair value is an exit-price concept between market participants. Tax fair market value uses a willing-buyer/willing-seller standard. A token valuation for IRC Section 83 purposes uses the tax standard, not ASC 820. These are different standards applied in different contexts, and they can produce different results for the same token on the same date. Using the wrong standard for the wrong purpose is a precision error auditors and tax counsel will flag.
Reporting is one challenge. Tax treatment is another, particularly for companies granting token compensation to employees or contractors.
Tax Treatment and Token Compensation
The IRS has treated convertible virtual currencies as property for U.S. federal income tax purposes since Notice 2014-21, with subsequent guidance (including Rev. Rul. 2019-24) extending the property treatment to broader categories of digital assets. Most tokens used in a service-compensation context are treated as property under this framework, though the specific characterization depends on the token's terms. When a company grants tokens to an employee or independent contractor in connection with services, IRC Section 83 governs the timing and character of income, regardless of whether the token's offer or sale is a securities transaction. Section 83 governs because the tokens are property transferred in connection with services.
IRC Section 83 for Token Grants
The mechanics of IRC Section 83 turn on whether the tokens transferred are restricted or unrestricted.
Unrestricted tokens (immediately vested, no substantial risk of forfeiture): the service provider recognizes ordinary income at grant, measured at fair market value (FMV) on the grant date.
Restricted tokens (subject to a substantial risk of forfeiture such as a vesting schedule): the service provider recognizes ordinary income at vesting, measured at FMV on the vesting date, unless a valid 83(b) election has been filed.
The 83(b) election allows a restricted-token holder to elect to be taxed at grant rather than at vesting. The income amount is the FMV at grant. The election must be filed within 30 days of the property transfer date, which is the grant date for restricted tokens, not the vesting date. The 30-day deadline is statutory and cannot be extended. The election is effectively irrevocable. Revocation requires IRS consent under Treas. Reg. §1.83-2(f), which is rarely granted.
The 83(b) election makes sense when the token's value is expected to rise significantly between grant and vesting: the service provider locks in a lower taxable amount at grant and any subsequent appreciation is capital gain rather than ordinary income. It creates a risk when the token loses value before vesting: the service provider has already paid tax on a value that was never realized, and the subsequent loss on disposition is capital, not ordinary.
For restricted tokens subject to a lockup or legal transfer restriction, a discount for lack of marketability (DLOM) may be applied in the FMV determination used for IRC Section 83 purposes. This is because the restriction is a characteristic of the asset, not the holder's position size. Industry practitioners commonly use option pricing models, including the protective put option model and the Ghaidarov model, for high-volatility tokens. DLOM is a valuation judgment, not a legal requirement, and no specific percentage is standard. [INTERNAL LINK: token compensation and IRC 83]
Token compensation structures differ in their 83(b) treatment:
| Token Type | Description | 83(b) Eligible? |
|---|---|---|
| Restricted tokens | Actual tokens transferred subject to a substantial risk of forfeiture | Yes, if filed within 30 days of transfer |
| Unrestricted tokens | Tokens transferred immediately vested | No (already taxable at grant) |
| Restricted Token Units (RTUs) | Promise to deliver tokens in the future | No (not a property transfer at grant) |
| Token options | Right to acquire tokens at an exercise price | No at grant (may apply at early exercise of unvested options) |
RTUs are often used pre-TGE when no token exists yet to transfer. Because an RTU is a promise, not a property transfer, no 83(b) election is available at grant. The service provider is taxed when the tokens are delivered.
The Missing Safe Harbor
Companies familiar with IRC 409A for stock options often assume an equivalent valuation framework exists for tokens. It doesn't.
The assumption is incorrect, and it creates real audit exposure. A 409A valuation conducted by an independent appraiser generally supports the rebuttable presumption of reasonableness for grants made within 12 months following the valuation effective date, absent intervening material developments. See Treas. Reg. §1.409A-1(b)(5)(iv)(B)(2)(ii). That 12-month presumption period does not extend to token valuations. There's no IRS safe harbor prescribing a validity period for token valuations.
Industry practice treats a token valuation as valid for approximately 30 days. In our practice, the 30-day refresh cycle tends to surface itself naturally: CFOs managing token compensation programs often discover they need a fresh valuation shortly before a grant event, and building that cadence into the calendar in advance is significantly less expensive than commissioning rushed work. This isn't a regulatory requirement. It reflects the market volatility of digital assets relative to private-company equity. The Tax Adviser has noted that professionals in the space commonly apply this 30-day refresh as a practical matter. No authoritative guidance prescribes this period.
The practical implication: a CFO can't rely on a token valuation dated two months ago for a current IRC Section 83 event the way they might rely on a recent 409A for a stock option grant. Document the FMV contemporaneously.
With the regulatory and tax frameworks clear, CFOs and token issuers can build a documentation protocol that holds up to audit scrutiny.
Documentation Checklist for CFOs and Issuers
In our experience, the teams that struggle most in audit aren't missing knowledge about what's required. They're missing documentation to prove what they already knew.
An auditor reviewing token holdings or a token-compensation program will ask for documentation in each of these areas. Preparing it before the audit request arrives is significantly less expensive than reconstructing it under deadline.
Document the asset's rights. Describe what the token actually entitles the holder to. Are there enforceable claims on goods, services, or assets? Does the token confer governance rights? This analysis determines criterion 2 of the ASC 350-60 scope test and sets up the valuation method selection.
Confirm the issuer/holder relationship. Verify whether the reporting entity is also the token issuer or a related party of the issuer. If yes, criterion 6 fails and ASC 350-60 does not apply to those holdings. Document this conclusion and the applicable alternative framework.
Write the ASC 350-60 scope memo. Apply each of the six criteria to the specific token. State whether the token is in scope or out of scope and why. Document the analysis for each criterion, not just the conclusion.
Identify the principal market. Name the specific exchange or market used as the principal market. Document why it has the greatest volume and activity for this token. Note the measurement date, time, and the quoted price observed.
Document the ASC 820 hierarchy level and inputs. Record whether the token is Level 1, Level 2, or Level 3. For Level 2, identify the observable inputs used. For Level 3, document the unobservable inputs, assumptions, and the model applied.
Classify each restriction. Document whether any restrictions on the token are asset-characteristic (a legal lockup, contractual prohibition, or protocol restriction that travels with the token) or holder-characteristic (including position size). Cite ASU 2022-03 for the framework. Only asset-characteristic restrictions may affect fair value.
Record the tokenomics assumptions. For pre-TGE tokens and Level 3 valuations, document the token-specific factors that affect the analysis, including the supply schedule, vesting and unlock schedule, inflation or burn mechanics, governance rights, and fee rights.
State the method and run the sensitivity. Identify the primary valuation method, explain why it was selected given the available evidence and the token's rights, and document what the valuation output looks like under alternative assumptions.
Support any marketability adjustment. If a DLOM or similar adjustment is applied, document the basis. The adjustment must be grounded in an asset-characteristic restriction, and the analysis must distinguish it from a prohibited blockage discount.
Define the reassessment triggers. Specify in writing when the valuation will be refreshed. Note that industry practice is approximately 30 days for volatile tokens (not a regulatory requirement). Identify specific events that would trigger an earlier reassessment: a material change in tokenomics, a material change in market activity, or a significant corporate event affecting the token.
Some of these documentation tasks require judgment calls that go beyond standard financial reporting work. That's when an independent valuation firm adds the most value.
When to Engage a Valuation Firm
Most token-holding companies can handle routine fair value measurement in-house when the token trades on an active market and the accounting is straightforward. When these conditions appear, an independent valuation firm becomes the better choice:
Material crypto holdings requiring a written ASC 350-60 scope analysis and fair value documentation that will be reviewed by auditors
Illiquid or restricted tokens with no active principal market (Level 2 or Level 3 analysis)
Pre-TGE tokens requiring a Level 3 valuation under conditions with no authoritative guidance
SAFTs and token options requiring IRC Section 83 or 409A analysis
Stablecoin holdings with redemption uncertainty that affects the fair value conclusion
Wrapped or tokenized real-world assets where the asset-characteristic restriction analysis is non-trivial
Audit pushback on existing token valuations
Significant quarter-end price movement that may require reassessment before financial statements close
The situation that triggers the most engagement requests we see: a company that issued restricted tokens as compensation two years ago, never documented the FMV contemporaneously, and is now facing an audit. Reconstruction is possible but expensive. Contemporaneous documentation avoids it entirely.
An independent token valuation becomes most valuable when the token is illiquid, restricted, pre-launch, or the subject of audit scrutiny: the situations where management's own judgment is most likely to be challenged.
Classification as a utility token or a security token is a starting point for analysis, not a conclusion. The valuation method, financial-reporting framework, tax treatment, and documentation requirements all turn on the same underlying facts: what the token actually does, who holds it, what was promised in the offering, and whether any restrictions travel with the asset. Those answers should be documented before an audit request arrives, not reconstructed after.
Redwood provides independent token valuations, pre-TGE and post-TGE, ASC 350-60 scope analysis, and audit-ready documentation. [Contact Redwood / link to services page]
Frequently Asked Questions
Is a utility token a security?
Whether a utility token’s offer or sale is a securities transaction depends on the Howey analysis applied to that specific offer or sale, not on the label “utility.” A token designed for consumptive use may still be offered or sold in a way that satisfies Howey. Under the SEC’s current Commission-level interpretation in Release Nos. 33-11412 and 34-105020, the analysis turns on the transaction, the token’s characteristics, and the issuer’s representations or promises. A token marketed with price-appreciation language, sold before the network is functional, or sold under conditions where buyers reasonably expect profits from the issuer’s essential managerial efforts may be part of an investment contract regardless of what the whitepaper calls it.
How does token classification affect valuation?
Classification affects valuation in three ways: it can change who can hold the token, which affects market depth; it can limit the buyer pool through regulatory constraints, which affects secondary-market activity; and it reflects the rights the token confers, which determines whether an income approach is even applicable. Method selection is fit-based: the analysis starts with what evidence is available and what rights the token gives its holder. The label "utility" or "security" doesn't determine the method.
What are the six ASC 350-60 scope criteria for crypto assets?
Under ASC 350-60 (from FASB ASU 2023-08), an asset is in scope only if it meets all six criteria: (1) meets the definition of an intangible asset; (2) does not provide the holder with enforceable rights to, or claims on, underlying goods, services, or other assets; (3) is created or resides on a distributed ledger or blockchain; (4) is secured through cryptography; (5) is fungible; (6) is not created or issued by the reporting entity or its related parties. All six must be met. A failure on any single criterion removes the asset from scope. Criterion 6 means token issuers can't apply ASC 350-60 to their own token holdings; the standard covers holders, not issuers.
Do I need a new token valuation every month?
No authoritative guidance prescribes a specific validity period for token valuations. Industry practice treats a token valuation as valid for approximately 30 days, given the market volatility of digital assets. This is industry practice, not a regulatory requirement. The 12-month safe harbor that applies to 409A valuations for stock options doesn't extend to tokens. Industry practitioners commonly treat 30 days as a practical maximum age before refresh, but the specific reassessment trigger should be defined in writing based on the token's characteristics and the purpose of the valuation.
Can I apply a blockage discount to a large token position?
No. ASC 820-10-35-44 prohibits a blockage discount for position size at any level of the fair value hierarchy, including Level 1. Position size isn't a permissible fair value adjustment. A company holding a large token position can't apply a discount on the theory that selling the full position would move the market. What may legitimately affect fair value is a restriction that is a characteristic of the asset itself, such as a legal lockup or contractual transfer restriction, not the size of the holder's position. Moving the token from Level 1 to Level 2 or Level 3 on the grounds that the position is too large to sell at the quoted price imports the same prohibited logic and isn't a permissible workaround.
What tax rules apply to token grants to employees?
The IRS has treated digital assets as property for federal income tax purposes since Notice 2014-21, extended through subsequent guidance. IRC Section 83 governs token grants because tokens are property transferred in connection with services. Unrestricted tokens are taxable as ordinary income at grant, measured at FMV on the grant date. Restricted tokens (those subject to a substantial risk of forfeiture) are taxable as ordinary income at vesting, measured at FMV on the vesting date, unless a valid 83(b) election is filed within 30 days of the property transfer date. That 30-day deadline runs from the grant date, not the vesting date. It is statutory and cannot be extended. No IRS safe harbor exists for token valuation; the 409A safe harbor for stock options doesn't extend to tokens.