Can equity be linked to tokens to save cryptocurrencies?

Author: Brian Flynn

Translation: AididiaoJP, Foresight News

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Over the past five years, I have been trying to solve the “misaligned incentives” problem in the cryptocurrency space.

Most token designs are set up to make holders compete with each other.

This is completely opposite to the goals they are supposed to achieve. Tokens should originally bring teams, investors, and users together around the same goal. If everyone holds the same asset, then naturally everyone hopes the project succeeds—that idea itself is correct. The problem is that the token models we build make people profit from “selling” rather than “holding.” Just this one design choice has messed everything up.

This article is not about promoting a project I am working on. Instead, I believe the core issue the entire industry needs to address—and what we should be advocating for with regulators—is this.

Eight years in, we keep seeing the same script: project launch, market hype, insiders unlocking, dumping and fleeing, retail investors caught. This pattern is so familiar that we almost don’t see it as a problem—like tokens are inherently supposed to operate this way. But I think we have never honestly faced the root cause of the problem. And I haven’t seen anyone pushing for a truly better token model—a model we can point to and say, “This is what we should be doing.”

Now, we are facing an unprecedented regulatory window. But the problem is, we haven’t even figured out what a “good token” should look like before stepping into this window.

Race to the Exit

When you profit from selling tokens, every other holder is your competitor.

The team issues tokens, early investors come in. The team also holds a large amount, but they unlock gradually. Users buy on the market; on the surface, everyone’s interests are aligned. In reality, everyone is watching each other, pondering when to sell. Investors watch for the first big unlock, insiders look for cash-out opportunities. Users are watching, trying to sell before insiders run away. This isn’t aligned interests; it’s a race to the exit.

Lock-up and unlock mechanisms can’t solve this problem. They only determine who can run first—the answer is always insiders before retail investors. Everyone’s “ultimate game” is no longer “how to grow this project,” but “when should I sell.”

Even “smart” methods are useless

What about buybacks? Burn mechanisms? Staking rewards? These are attempts to solve the problem, but they all share the same flaw: they are too complicated. Buybacks and burns can push prices up—but you still have to sell the tokens to make money. Staking rewards are even more problematic; issuing new tokens as rewards dilutes the token price and creates new selling pressure. This isn’t real yield; it’s a treadmill disguised as yield.

If your token model requires holders to sell tokens to profit, then you have no aligned incentives—you’ve just built a game of musical chairs.

Industry Progress

Indeed, some signs indicate the industry is exploring the right direction. Projects like Aave, Morpho, and Uniswap are pushing to merge equity holders and token holders, bringing insiders and the community to the same table, eliminating opposition. This direction is very important.

But it still doesn’t solve the “race to the exit” problem. Everyone is still playing the same game: making money by selling tokens. Adjustments like fee switches or revenue sharing through governance are steps forward, but still scratching the surface. To truly solve the race to the exit, we need to go all the way.

Effective Models

Imagine this scenario: 100% of the protocol’s revenue is decided entirely by token holders. Not dictated by the team, nor decided behind the scenes. Everyone votes: how much to distribute directly to holders, how much to reinvest in development, how much to put into reserves. Public companies do this—shareholders vote on dividends or reinvestment; the crypto version is just more direct and transparent.

No lock-ups, because everyone no longer plays “who runs first.” You don’t profit from selling tokens; you profit from holding. As long as the protocol generates income daily, you can receive the share decided by voting. Sell, and you stop receiving dividends. Hold, and you keep earning. The math is simple, the strategy is clear: just find ways to help the protocol earn more.

For example, suppose a protocol earns $1 million a year. Holders vote to take 70% for distribution, 30% reinvestment. There are 1 million tokens in total. Each token can earn $0.70 annually, and with funds for development, the protocol can continue to grow. You don’t need to worry about when to buy or sell, or how to outsmart other holders. Just hold and keep earning.

The direction of competition is finally right: your protocol and others compete to attract users and revenue, not holders competing against each other or trying to race ahead.

When everyone can profit from holding, the motivation is no longer “run away,” but “hold and support the project.” Such projects will resemble traditional companies more—focusing on dividends, not hype; revenue, not boasting. This might be exactly what the current crypto space needs most.

Why didn’t anyone do this earlier?

Two reasons, and both are gradually changing.

First, previously, insiders could make money faster by playing the “insider game.” As long as they could hype retail investors and sell for 10x returns, who would bother building a genuinely profitable business? But that era is ending quickly. Retail investors are learning to be smart; on-chain data makes insiders’ moves transparent. The teams that are still working earnestly now are the ones truly wanting to stay.

Second, the issue of securities law. A token that shares revenue with holders looks very much like a security under the “Howey Test.” Because of this, all serious teams in the industry have been afraid for years. Even if founders understand that revenue sharing is a better model, they dare not start because it might be classified as an “unregistered security.”

That’s why many protocols resort to indirect methods like burns or buybacks. Not because they are better, but to avoid direct dividends and find an excuse: “See, we don’t pay out directly.” The current state of token design is largely driven by legal fears, with technical considerations only a secondary factor.

Another practical difficulty: previous infrastructure didn’t support it. To implement large-scale, trustworthy, programmable revenue distribution on-chain requires cheap transactions, reliable smart contracts, and infrastructure that can withstand scrutiny. Five years ago, doing this on Ethereum mainnet would have cost more in fees than most protocols’ revenue. Now, with layer 2 solutions and modern infrastructure, it’s feasible.

Why now is the time

In the past year, the regulatory environment has changed more than in the previous eight years combined. The U.S. Securities and Exchange Commission (SEC) established a dedicated crypto task force in January 2025, led by Commissioner Hester Peirce, with a clear mission: “Define clear regulatory boundaries and provide practical registration pathways.” Peirce also proposed a “token safe harbor” plan, giving projects a buffer period before final classification. The SEC and the Commodity Futures Trading Commission (CFTC) jointly issued statements about coordinating regulation of digital assets. These are not empty words; concrete rulemaking is underway.

But this window won’t last forever. This year is an election year, and the current relatively open political climate may not last until the next cycle. If we just wait, the window might close before we have anything worth supporting. More dangerously, if the industry doesn’t propose credible alternatives, the next wave of token crashes could set regulatory templates—leaving us no room to speak.

That’s why it’s so important to discuss this now. Not passively reacting or fixing after the fact, but proactively engaging. If we don’t tell regulators what a “good token” should look like, they will take the bad cases as templates. Those projects that scam retail investors or pump-and-dump routines will become the “baseline” for regulation, while truly compliant revenue-sharing models might be unfairly penalized.

Projects like Aave, Morpho, and Uniswap—merging equity and token holders—already show the industry’s desire to move toward real economic value. Regulators should support this direction, not oppose it. But we need to clearly articulate and openly communicate these ideas before the window closes.

Every founder should ask themselves

If you are designing a token now, ask yourself: Are your holders making money by selling tokens, or by holding?

If the answer is “selling,” then you’ve just built a game of musical chairs. Some can grab a chair, most cannot. Those who can’t will remember it forever.

If the answer is “holding,” then you’ve built something where everyone can profit by growing the pie. That’s the true “aligned interest” a token should have.

Of course, this isn’t a simple question. Revenue sharing involves complex issues like token classification, distribution mechanisms, governance models, and more. But it’s at least a better starting point than what we have now.

The regulatory window is open, but it won’t stay open forever. Midterm elections will shift the landscape. The next big token crash might happen before revenue sharing models get a fair shot, closing the door on this opportunity. If we want better rules, we need to tell regulators what “better” looks like—now, not later.