Entrepreneurs are starting to doubt that crypto tokens can be used at all in the U.S.

In fact, according to Simar Mangat, the co-founder of distributed video streaming startup Stream, the current environment of regulatory uncertainty and rumors of subpoenas is putting such a pinch on projects that many are thinking about "moving elsewhere."

But, while that hasn't happened yet for the Silicon Valley-incubated startup, the threat of regulator action is leading it to overhaul its product roll-out – drastically. Announced Tuesday, Stream is releasing a white paper that outlines its token distribution, but the process is on hold until the team knows how U.S. regulators will permit its tokens to be used.

Launched in October, Stream had planned to give live-streamers, vloggers and online video makers a way to break platform lock-in by building a Chrome extension that allowed fans to tip creators wherever a video appeared, but the firm says its whole project has now been thrown into question.

Mangat explained:

The problem for Stream is that its strategy relies heavily on using a so-called "utility token" to fuel a distributed network. Not only that, but the ability of tokens to be distributed and traded easily and converted to fiat currency made them ideal for Stream's business plan.

And this fitted with general industry thinking until very recently.

In 2017, startups generally believed that a utility token would be good to issue so long as the platform went live eventually. Even then, many doubted that they could be sold prior to a platform launch to non-accredited investors, but startups have begun canceling public sales amid the uncertainty.

Now, Stream's counsel is questioning if any tokens at all can be circulated in the U.S. without the full know-your-customer (KYC) and anti-money laundering (AML) registration of anyone that holds them, or if stream tokens must now be registered as securities.

And that determination could dramatically impact Stream's strategy.

According to the white paper, $100 million in tips went to content creators in 2017, but the authors believes more value could have been unlocked through the use of blockchain-based currencies that, like its token, enable tip creators to exchange crypto for real-world value.

In many ways, the idea builds on what YouTube started, giving individual creators a way to build audiences and one-person entertainment businesses. And even Silicon Valley names who have been involved in successful video startups see Stream's model as a natural evolution.

Steve Chen, a YouTube co-founder, is an advisor to Stream today.

"They actually built this idea of a content creator and being able to create that kind of economy," Mangat said of YouTube's originators.

Stream would let creators keep the lion's share of what their tips earned, all driven by the speed and efficiency of the ethereum blockchain. Adoption would take a while with fans, of course, but as long as platforms like Twitch keep 40 percent of tip revenue, creators have an incentive to persuade followers to switch.

However, if Stream can't use its token, it raises questions about whether the company can do anything at all.

Borrowing terminology from GitHub, the founders are now doing what open-source coders call a "rebase," aiming to make the best of a difficult path ahead.

That's not to say Stream hasn't shown a willingness to make key changes in strategy, starting with a shift in CEOs in January, with Mangat stepping in for former exec Ben Yu.

The company has also changed how it would distribute tokens over time. For example, it had originally planned to redistribute its increased market cap to creators based on performance, as CoinDesk previously reported. Instead, Stream later shifted to a scheduled release or "airdrop" of its tokens.

Stream would come to decrease its overall token supply as well, dropping the figure from 12.6 billion to 10 billion as a way to repay early backers for some of the unexpected gains made in the value of ether since those early investments.

Perhaps most importantly, the team cancelled plans for a public token sale, choosing instead to raise all the money they needed in private sales to accredited investors. In order to build adoption and buzz for the project, they planned to do an airdrop to early supporters in their Telegram and other channels, as they described on Medium.

The plan was to distribute 500 million of their total 10 billion tokens with an airdrop to different people who'd already shown their interest, rather than offering it for sale.

With so many changes, though, the company sent out a message to everyone who had invested so far, updating them all on the new course and making sure that they are still comfortable with the strategy.

To that end, Stream also gave previous investors until Friday to request refunds on their investment. Two people who had invested as individuals chose to take back funds, including Stellar founder Jed McCaleb. According to Mangat, the investors pulled out because they didn't think that as individuals they knew how to correctly price the risk of regulatory uncertainty.

Institutional investors like Pantera and FBG Capital (among others) stayed in. Michael Arrington, TechCrunch's founder, also remained.

Finally, late last week, the company decided the uncertainty went further than they thought. The original plan had been to launch the Chrome extension, release a round of investor tokens on the vesting schedule and airdrop tokens to supporters all on the same day later this month.

"It is basically delayed indefinitely with our legal team to make sure we can move forward in the most compliant way possible," Mangat explained to CoinDesk.

The sticking point is whether or not all tokens are securities. If they are, it could be that an airdrop is dangerous. Mangat pointed out that there were cases of companies giving away equity during the dot-com bubble, and securities regulators took action.

As such, the company is in the middle of finding out if all tokens have to be registered or if there's a way they could distribute free tokens under the SEC's "Reg S," which provides for unregistered securities outside the country.

Which raises the question of whether a whole new tech economy could come up outside a firewall around the U.S.

Of course, there is another option. Stream could give up on its own token and just run all the tips on ether, which despite having been issued in an ICO has been free from regulator scrutiny.

Mangat said:

Videomaker image via Shutterstock.