Token reading material
52 min read

Token reading material

I aggregated a bunch of token related content earlier this year on a range of token related topics. Figured I'd share it with others.

  • Token Investment Process Due Diligence
  • Token Moats
  • Tokenomics
  • ve(3,3) Token Design
  • Token Launch & Distribution
  • Token Types
  • Token Necessity
  • Token Fundraising Methods
  • Token Glossary
  • Reasons to hold tokens

Token Investment Process Due Diligence




Token Investment Process DD

Casey Caruso @ Paradigm

Diligence Process for early stage Crypto Investments tweet thread

  1. Founder References

  2. Size the Opportunity
    Be generous with your predictions because crypto is one of the fastest growing industries in the world.

  3. Use the Product
    If there’s a product, use it. While painfully obvious, this step is often skipped. It will crystallize the use case, value proposition and product offering. It's also nice for the founder to have investors who understand and use their product.

  4. Customer Calls
    Leverage Discord to do so quickly. Ask: How did you hear about the product? What were you using before? How does it compare to alternatives? How do you think about ROI & value? What would make you churn? NPS? Look for organic & durable usage.

  5. Traction Analysis
    Utilize on-chain data. Look for growth rates of top KPIs (i.e. volume, TVL, wallets). Compare MoM or QoQ growth to competitors.

  6. Ask “Why Now?”
    Many ideas in crypto have been tried before. Think about how many identity products we’ve seen. Timing is key. Try to figure out why past attempts have failed. Consider why now is different e.g. the rise of alt L1s and rotation of capital from DeFi to NFTs.

  7. Community review
    Understanding a community’s sentiment, quality and durability is crucial. Join the community’s Discord and Telegram to assess the quality of members. Use to decipher what % of Twitter followers are bots vs real humans. Humans > bots

  8. Tokens & Value Accrual
    If there's a token, take time to understand the high level token mechanics. The key consideration is how the token will capture value. Assess lockups, issuance rate, release schedule, faucets & sinks, growth loops, memes, etc.

  9. Competitive Landscaping
    Figure out who the top competitors are and how this project is different. Think about their moat today and how that scales. If they aren't the market leader, develop a thesis on why they'll become the leader or why it's not a winner take all market.

  10. Return Analysis
    According to MessariCrypto, there are only 80 assets with a Y2050 marketcap (i.e. marketcap of asset accounting for known issuance until 2050) of > $1B. Make sure the math makes sense.

  11. Be willing to skip steps 1>10
    Sometimes decisions need to be made faster than you’d like. Be willing to flex on the diligence process, recognizing there’s always more diligence that could be done. Be smart with your time and prioritize. Don't discount your intuition.

Tom Shaughnessy @ Delphi Digital

Building Conviction in Founders & Projects

Pillars: Team, Products, Community, Token economics, GTM

Every aspect of a project, team, community, or token econ exists along a spectrum, nothing is binary. As these items come more into focus, you can average up in your position and your winners. If the opposite happens, you can begin to take money off the table.

Value creation doesn't equal value capture. Make sure a token is absolutely critical to a project and currently (or will) capture value in the future.

Making sure incentives (yield farming rewards) go to the correct parties is crucial to attracting those who will help advance a project forward. 

Make sure your treasury is active, not idle, the team is locked up, and rewards are flexible to incentive growth areas.

A dictator doesn't have all the answers. Look for founders who aim to fire themselves as they decentralize to the community who can grow a project faster.

Arca Research

Arca Research Framework Analysis on Digital Assets post

Some components of this analysis include determining the purpose and necessity of the token in the ecosystem, and if necessary, does it accrue value long term? What function does the token serve? Is it a store-of-value/currency, a utility, or a security token? Does the token make sense and serve a purpose in the ecosystem? And if it is necessary for the ecosystem to function, how does it accrue value long term?

Analyze a token’s supply and issuance schedule in order to understand how it might impact price:

  1. Is the token supply fixed to a finite amount? Some tokens, such as Bitcoin, have a fixed supply and issuance schedule, creating scarcity value as there are fixed amount of tokens in existence and the amount of tokens issued decreases over time. 

  2. Is the token supply inflationary? Other tokens, have inflationary mechanics, in which more tokens are issued indefinitely and are awarded in some fashion, usually in PoS networks. 

  3. How are new tokens issued? In mining networks, new tokens are mined (BTC, ETH). In staking networks, new tokens are awarded to users who stake their tokens to secure the network (EOS, NEO). Does a token have a burn mechanism? For example, BNB burns tokens and removes them from circulation forever. 

  4. What is the non-technology contingent supply schedule? Supply is also not just limited to the programmatically determined supply in a token network, but also how the supply was originally issued. If a token project raised funds via an ICO, usually the entire supply of tokens are not sold to the public. Only a portion is sold publicly with the remainder “locked” for the founders, team, and early investors and some saved for future community engagement. Understanding these supply schedules is key to projecting out a token’s performance.

Delphi Digital

Crypto Investing Framework: Why Insurance Is Relatively Undervalued post

Investors in the crypto space must analyze and underwrite a series of stacked risks when investing in projects: 

  1. Will the project create value and attract users?
    Is the product useful? Does it have product-market fit? Is the team experienced and capable?

  2. Will the project be able to capture value from those users and establish a long-term, defensible moat?
    We want projects with multiple, compounding, unforkable moats that cumulatively mean the project has some form of increasing returns to scale, meaning it gets more difficult to unseat the bigger it is. The open nature of the crypto space means only network effects can provide reliable long-term defensibility. 

  3. Will the value captured accrue to the token?
    Unlike equity which is generally likely to be valuable provided the project passes the first two tests, the value of a token depends entirely on how it was designed. While it’s possible to change the token model later, it isn’t always easy to insert a token into an ecosystem after the fact.

Avi Felman @ Blocktower Cap on Derebit Insights

Trading vs. Investing post

Ken Deeter @ Electric Capital

Strategies to find the best projects tweet thread

Check for protectio.

The best projects care deeply about protecting their users. 

Look for code audits. 

Are they using tools like @CertoraInc, @immunefi, @code4rena, @cozyfinance, @nexusmutual and guarded launches to protect their users?

No process is 100% foolproof.. but discipline will help you avoid the worst scams. There will always be outliers and exceptions. We're still so early, the patterns and signals will change over time. But that's what makes it fun.

Token Moats

Token Moats


Token moats and why most projects in DeFi won’t last tweet thread

Most DeFi protocols are not set up to win because they have no sustainable moat.

Here’s a thread on why most things in DeFi probably won't last and 5 examples of moats that do exist even in an open source world.

Money is the #1 thing a DeFi protocol needs to grow.

Either in the form of transactions or as deposits (Total Value Locked – hate the term but let's use it for now). 

People deposit money in DeFi because they expect a protocol will help them earn a return.

That return could be via yield farming, trading fees, lending and borrowing, etc. 

Typically the DeFi protocol will charge some fee for their service. 

More TVL = more money being used to generate a return = more fees for the service provider.

You'd think high and growing TVL = successful, right? 

Not the case. 

Most TVL isn’t "locked." It’s a deposit, not much different from a savings account. 

In most cases, TVL is growing or deposited because depositors (you) are paid tokens as a reward.

DeFi protocols are paying users at the expense of investors in the token who are getting diluted and dumped on when rewards are paid. (To be fair, this part is not too different from tech startups receiving VC funding to build products and onboard users.)

Here’s the real issue: DeFi protocols are not being built to last beyond the death of token incentives. They're not being built with the most important thing for *long-term* success – a competitive advantage aka economic moat.

A moat is quite simple in concept – it’s what makes one protocol superior to others for users, allowing for the protocol to maintain value capture (fees) and dominate market share. You have a lot more room to tinker with parameters like fees if you establish and maintain moats.

The challenge DeFi faces is that many of the best traditional moats don’t exist in an open source, globally accessible world. Things like: 

  1. Proprietary tech, patents, etc. 

  2. Product differentiation (see: forks) 

  3. Barriers to entry 

  4. Lower cost of production 

  5. Geography

Forking of open source code eliminates many traditional advantages. The best way to think about moats in crypto is “unforkability” - the aspects of a protocol that can't be forked comprise its moat. 

Here are 5 examples of unforkability:

  1. Community
    High quality, long-term aligned devs and investors - Scale of users and tokenholders - Shared belief in the product and/or team

  2. Utility
    A stand-alone protocol is highly susceptible to being forked and restarted. A protocol w/ actual utility for DAOs & 3rd party services has an advantage over forked competitors who would have to rebuild partnerships or integrations built on top (e.g. CRV-CVX).

  3. Network/Capital Effects
    I like to think of DeFi as having “capital effects” – a network effect induced by having more capital in the system. You’re going to have a hard time successfully forking Aave or Curve who each have $20+ billion in capital in their networks.

  4. Brand
    Trust and recognition. 

  5. Security
    Better perceived security = more whale users = stickier capital at scale. Blockchains are lawless lands and lost funds aren't coming back. With 8-9 fig hacks on the regular, a protocol prioritizing security and not getting hacked is an important feature.

We can apply these to something like Ethereum to see what max success looks like: 

  1. Community - world class devs, investors held thru -90% 

  2. Utility - DeFi, NFTs, etc. 

  3. Network effect - Largest # devs & users 

  4. Brand - #1 decentralized SC chain 

  5. Security: 200K+ validators

Some examples of DeFi protocols that have these competitive moats:

  1. Chainlink (all 5) 

  2. MakerDAO's Dai (2-5) 

  3. Curve Finance (2, 3, 5)

I wrote this thread because it's important to recognize that most things are not being built sustainably and manage your investment time horizon accordingly. 

  • Unsustainable = short-term trade 

  • Moat = long-term potential

Li Jin @ Variant Fund

Token network effects as a source of web3 defensibility tweet thread

Defensibility in web2 comes from proprietary data network effects. Each application is a walled garden, and a bigger user base translates into more utility vs. competitors. 

The social network with the most data, content, users, etc. is more valuable. 

In web3, the situation is different. New marketplaces can aggregate all existing NFTs. New social networks can surface all on-chain activities regardless of whether users ever signed up. 

Tokens can be the answer to developing a moat.

Distributing tokens to consumers & stakeholders allows them to become *owners,* providing a powerful incentive for retention. They’re motivated to stay aligned with that platform vs. jumping to competitors.

Web3 is inherently less defensible than web2 centralized platforms.

Potential Web3 Moats:

  1. Liquidity.
    For web3 exchanges, liquidity isn't just about having more of a given token. It's about having more of every *type* of token, many of which have their own liquidity issues.
    The real winners—opensea or genie, coinbase or ftx, uni or sushi—will feature the most token *types*.

  2. Community.
    You can replicate technology. but you can't replicate people.

  3. Composability.
    Composability is a form of network effects.
    The idea that in open-source environments, one person's product is another's tool.

The best moat is not to have a moat at all. It's to create a sandbox that anyone can play inside—to give everyone else the tools to build.

  1. First-mover advantage (which ties into composability) 

  2. The power of defaults (stickiness in consumer behavior)

Jose Maria Macedo @ Delphi Digital

Unforkable Moatos in DeFi post

Value capture is significantly more difficult since any excess rent extraction will result in a cheaper fork coming to market.

In fact, DeFi seems to fulfill most of the conditions of perfectly competitive markets, including commoditized products, low barriers to entry, perfect information and perfect factor mobility.

Network effects: platforms with many participants enable an exponentially higher number of interactions, leading to higher variety, depth (liquidity) and quality of service at lower prices.

Combining network effects compounds their effects and the defensibility of a project’s moat.

Another way to combine liquidity and community is to give stakeholders the tools to innovate on top of the protocol and operate active ecosystem development funds to incentivise this. This way, rather than fork the protocol and build a competitor, enterprising users are instead encouraged to build on top of the existing protocol, benefitting from the existing community and liquidity.

  1. Liquidity

As we’ve seen with recent vampire attacks by Sushi and others, while liquidity provides a network effect, it is also extremely fluid and likely to flow wherever the highest incentives are. As such, it cannot be used in isolation but must instead be combined with another unforkable attribute to provide a sustained moat.

  1. Security

Security can be seen as the cost of undermining a protocol’s consensus: the higher the cost, the more secure the protocol is.
Higher security protocols attract more demand since they can handle higher capacity in the form of higher value transactions.
Security compounds the network effect of liquidity, providing an additional moat as new entrants struggle to attract high-value supply-siders.

  1. Community
    Strong communities build good products which in turn attracts more high-quality community members, creating the familiar network effect flywheel.
    Strong communities also increase the coordination costs of forking.
    While liquidity mining has shown that at least some community members will defect given sufficiently high incentives, it has also shown that many will not. One example here is Aave which, despite no liquidity mining incentives at all, currently possesses higher TVL and Market cap than COMP which has provided much higher incentives.
    There’s no formula to building a successful community as it takes trust developed through years of hard work, integrity and delivering on promises.
    1 important tool in building a strong community is a well-designed token economic model that adequately aligns incentives and encourages desired behaviors among various stakeholders. An example of this is Synthetix.

  1. Integrations
    If liquidity is unforkable supply, then integrations are unforkable demand. Unlike the other unforkable attributes, integrations can also be proprietary in that they often rely on proprietary relationships (e.g. exchange listings).

A protocol with a significant amount of integrations becomes very difficult to fork since these integrations must be built one by one and require time and trust. At the same time, the protocol which already has the integrations and the trust finds it much easier to continuously grow the number of integrations it already has, providing a strong network effect. 



Onchain Wizard

Tokenomics Thoughts post

When looking at a token, you should be able to map out or answer a few questions to help figure out if your token will make money: 

  • Why people will use the product? 

  • How is this usage being incentivized? 

  • What are the token’s supply side dynamics (lockups, circulating vs. FDV)? 

  • How does the token make money or increase in value based on increased usage? 

  • What are the implied expectations based on its current market cap? 

  • How does liquidity mining or other incentives compare to the liquidity + volume traded of your token? 

  • Is it more than just a fee accrual tokenomic structure? 

  • How does your token flow through its native ecosystem?

What are the key drivers of why the token could go up - which can be loosely broken down into: 

  • Base pairing stabilizes or increases 

  • The token is a value accrual or other tokenomic structure that improves with more usage (and usage is improving or will improve) 

  • There is not a flood of tokens coming to market in the form of LP or other rewards or insider lockups.


How to analyze tokenomics tweet thread

The best tokens are directly linked to value creation by the protocol. These tokens have a real reason to exist and incentivize people to hold. 

Here’s a four-part framework to analyze tokens

  1. Reasons to exist
    Why does this protocol need a token? Does it serve as an important input? Does it provide holders with a return? Is it there for farm and dump? Insider exit liquidity? How does the token fit into the ecosystem?

  2. Reasons to hold
    Why should anyone hold this? Who are the target buyers? Will they buy and hold more tokens or is it purely on reliant on hype and narrative? If inflationary, as most tokens are, are there good reasons for stakers and LPs to hold rewards?

  3. Supply dynamics
    What is the supply schedule of the token and what does it imply for selling pressure? What creates and removes supply? Who has most of it? When are they likely to sell? When do they *have* to sell (e.g. VC fund unlocks)?

  4. Value accrual
    How does the token accrue “value”? Meaning, how does the token benefit when the protocol benefits? How do the various interactions within the protocol impact the price (buying/selling/minting/burning) of a token?

Instead of spending $ to set fake floors on your token price, the focus should be: 

  1. Set up the right tokenomics to benefit from growth 

  2. Allocate all efforts and resources to growth. No one token model works in every case.

5 Examples of tokenomics I like:

  1. $LUNA

  2. $CVX

  3. $TOKE

  4. Dual-tokens: $DPX/$rDPX and $Raider/$Aurum


Everything you need to know about Tokenomics tweet thread

Tokenomics studies the factors that drive the demand for tokens.
It includes: 

  • math 

  • supply vs. demand 

  • incentives 

  • value accrual 

  • Human behavior & game theory 

Tokenomics = Tokens + Economics

Supply Side of Tokenomics 

  • How many tokens are in existence? 

  • How many tokens will there be in total? 

  • Who has the supply? WHEN can they sell? 

  • How will the supply change over time? 

  • What are their policies for changing?

Supply Metrics You Should Know 

  • Supply: How many tokens exist NOW 

  • Max supply: The most that can exist 

  • Market Cap: Current Price * circulating supply

  • Fully Diluted MC: Price * max supply.

Allocation & Distribution 

How are the initial tokens distributed? 

There are roughly 2 ways: 

A. Pre Mined: 

  1. The team distributes tokens to itself. 

  2. Distribution to insiders such as the team and venture capitalists 

B. Fair Launch: 

  1. 100% fair. Everyone has equal access.

The Other Half of the Equation: DEMAND 

Demand: The factors that drive the desire for people to buy, and the price they're willing to pay. 

Despite the inflation, the U.S. $ is in high demand because of its UTILITY. 

What Drives the Demand for Tokens? 

3 broad categories. 

  • Utility 

  • Value Accrual 

  • The Memes and Narratives

Tokenomics DAO

Tokenomics Evaluation Framework doc


Key Question: Based on supply alone, will this token hold or increase it’s value? Or will that value be inflated away?

  • Total Supply

    • How many tokens exist today?

    • How many will ever exist? (eg is there a supply cap)

  • Issuance rate

    • Is the issuance rate fixed or variable? 

    • If variable, what are the factors that determine (and can influence) issuance rate?

  • Allocation/Vesting

    • How was supply initially allocated among investors, community, core team, etc? Are there any group(s) with a significant holding that could drive material selling pressure upon vesting?

    • What is the vesting schedule for the largest holders?


Key Question: Why would someone hold this token?

  • ROI

    • Excluding any price appreciation, what is the return generated by simply holding the token? (eg staking)

    • Is there an opportunity to earn additional return by yield farming?

    • Are earnings/fees generated from the protocol distributed back to token holders? 

    • Does any “rebasing” take place as the protocol inflates? 

      • Rebasing works similar to a stock split, whereby holding and staking the token enables the holder to receive more, thereby offsetting any impact of inflation (eg % ownership remains constant)

  • Community 

    • How active is their Discord/Twitter? 

    • Has an ecosystem fund been announced? Grants? Hackathons? 

    • How is the protocol actively working to drive additional community engagement? 

    • Do one-time + ongoing initiatives drive additional token demand?

  • Lockups

    • Is there a lockup program in place? 

    • If there is a lockup program in place, what is the incremental value of rewards and what are the requirements to earn those rewards?

    • What % of total tokens outstanding are locked up?

    • How much selling pressure is generated upon lockup expiration (and when)?

    • Are there other non-monetary benefits to staking + locking up tokens? (eg increased voting power)

Pat Ackerman

Designing Tokenomics for Customer Loyalty and Holder Value post

The essence of deciding to invest in a token boils down to 4 parts. 

  1. Adoption curve of the project 

  2. User growth projections 

  3. Existing or upcoming token efficiency (Utility and Supply) 

  4. Potential risks of the project

Key tokenomic design aspects to increase customer loyalty:

  1. The structure needs to encourage customers to hold the token. It should be less about spending or transacting in it. Holding more unlocks additional features and creates value for customers. 

  2. Total supply needs to be constrained relative to total or expected users. When done correctly, token holders receive price appreciation. This encourages token holders to get more customers into the ecosystem, and they then are rewarded with more appreciation. 

  3. It becomes a loop of value for both the company and the customers. It’s a mutual benefit of creating and sharing value. 

  4. As this plays out, these token holders become life-long customers because they have not only participated but received personal monetary value. All of this can be modeled using network economics depending on each business's goal. The complex work is figuring out the holding amounts to unlock features. This usually can be achieved using an optimization model to balance both the company’s goals and the delivered customer value over time. This last step is critical in getting the best value creation for shareholders and token holders.

Token’s Utility and Supply Matter 

  • For security and utility tokens, what token allows you to do (utility) and the overall supply of the token do matter in price. Both utility and supply work in concert to create what I call token efficiency. Token efficiency is the slope of the relationship between user growth and token price. Having a low supply, good reasons to hold the token, and high user growth creates an explosion of token price. 

  • Having a high supply, not many reasons to own, and low user growth creates little to no price action. Remember, as articulated in Designing Tokenomics for Customer Loyalty and Holder Value, price action is the value you want to create for customers to create loyalty. 

  • Striking the balance between supply and incentives to own the token is the essence of Tokenomics. Incorrectly designing tokenomics creates risks for either new or existing customers (which defeats the whole reason of having a token) and benefits are missed. The middle line aligns the token to user growth which creates optimal value for new and existing customers and company shareholders.

TheTie Labs

Token Economics post

(published July 2021) 

Economic Models of the Top 100 Tokens: 

  1. Deflationary Model (Currency) 59%
    Example BTC, LTC, BCH In a deflationary token economic model, there is a hard cap on the number of tokens created which acts as a deflationary mechanism as demand increases over time but supply does not. 

  2. Inflationary Model (Utility) 31%
    Example ETH, DOT, SOL In an inflationary token economic model, there is no hard cap on the number of tokens created. There are various iterations of the inflationary token model with some token issuers limiting token creation to a yearly basis, others going off of a set schedule, and some opting to determine supply based on-demand data.

  3. Duel-Token Model (Other) 3%
    Example VET & VTHO, NEO & GAS, ONT & ONG In a dual-token economic model, two distinct tokens are used in combination on a single blockchain. This generally includes a store of value token as well as a utility token. The purpose of this model is to incentivize users to hold the store of value token to receive returns in the form of the utility token which can be used for transactions on-chain. 

  4. Asset-backed Model (Stablecoins) 7%
    Example PAXG, USDT, USDC In an asset-backed token economic model, an issuer pegs the value of an asset to the token’s underlying assets, similar to an Asset-Backed Security in traditional finance markets. Asset-backed models can rely on assets with fluctuating valuations such as gold or fixed assets such as the US Dollar.

Over the last year inflationary token models such as ETH, DOT and SOL have done very well, returning 2392% in aggregate. Despite the lack of systemic scarcity, the data shows that inflationary tokens without a hard cap have been able to appreciate the most in value in recent years. The relatively small difference in returns between deflationary, inflationary, and dual token models indicates that the economic model may not be a defining factor in a token’s success.

Deflationary PoS has seen the best performance over the past year, seeing over 6000% growth on average, while Inflationary PoW tokens have done the second-best over the past year, seeing over 4000% growth on average. In the case of Deflationary PoS tokens, investors are attracted to token models where they can earn a yield on their assets while still having a hard cap on the total supply.



BNB entitles holders to fee discounts on the Binance exchange and serves as a deflationary token that was one of the first examples of a successful buy and burn program.  Buy and burns are one of the ways in which inflationary (or deflationary) cryptos can encourage price appreciation. By intentionally decreasing the number of tokens in circulation token issuers can limit the market supply creating a supply/demand imbalance that often results in consistent price appreciation. 

In BNB’s whitepaper, the plan outlined was for a hard cap of 200 million BNB with the plan of burning a total of 50% of it, or 100 million BNB through buy and burns over time using 20% of Binance’s profit for each quarter. The results of this program were clear, especially in 2018/2019 when many tokens experienced a bear market, BNB was able to outperform Bitcoin by conducting multi-million dollar buy and burns.


The lack of long-term institutional holders of YFI comes from their pre-mine free launch which led many institutional investors to wait for buying and selling opportunities rather than holding long term. Despite the lack of strong institutional backing, YFI has been able to outperform the market via its deflationary model. With 30,000 YFI outstanding and only 36% of the supply on exchanges according to Nansen, there are less than 11,000 YFI in circulation which has allowed prices to continue moving up despite slow growth in the number of token holders.


Overall, there are a few notable takeaways that can be made from these case studies: 

  1. Users search for yield and look to take advantage of high yield rewards, when rewards drop, demand drops, and thus price drops. 

  2. Buy and burns put upward pressure on asset prices and create an artificial sense of demand 

  3. Institutional investors are more likely to hold onto tokens that generate large amounts of yield or that they were able to buy at presale prices 

  4. Premines, as well as founder and team allocations, do not appear to affect price performance as long as they face lockup periods 

  5. Tokens with very little outstanding circulating supply do better than those with a large outstanding circulating supply (in % terms), 

  6. Fixed yield rewards (inflation) can actually promote long-term growth by incentivizing users to continue holding despite the lack of a hard cap.


Crypto seed investment vesting is broken tweet thread

So far my biggest takeaway from focusing on crypto seed investments is that vesting is completely broken in crypto, favors investors, hurts teams overall, and the community gets the worst of it.

When an investor buys into a seed round, they should be making a "100x upside" type bet.

The investment either fails (you get a 0), or it succeeds (you get multiples) - that's how venture math works.

The investment ONLY succeeds if the business succeeds.

Investors only get liquidity in 2 ways - the business sells or goes public. 

In crypto, "going public" is from the start, which means investors can get liquidity right away and don't have to be aligned for the long term success of the business.

The business doesn't even have to work - it just has to convince enough plebs that it... could work? 

Vesting is some psyop the VCs created to convince us that the terms are fair, but in my opinion they should not be able to sell at all unless the business itself succeeds.

What happens now is even on 1y linear or 4y linear, the VC can sell out within weeks at 10x-100x multiples and get all their capital back. 

It means over the vesting period the VC cares less and less about your success as they're less and less exposed to your business.

It also means the companies have to fight off the very people that were supposed to be helping them succeed. 

Imagine taking money from some smart person, and then instead of spending the next 4 years collaborating on your success, you spend them watching them dump. Worst part of all is the only reason they have those multiples is because your community bought your token, provided liquidity, and gave it to them.

My personal stance on this has been I typically don't sell unless I see other investors selling - then I refuse to be dumped on by them and the project did a shit job choosing their investors. This in a way is a double edged sword - the investors that are willing to give crypto companies the high caps (50M+) are the ones that need to de-risk because they know they bought at a high cap. Taking this money means you're taking money from mercenary capital.

2 solutions for this:

  1. Remove vesting completely and unlock investors based on success. "If we get to x profits per year, y tokens unlock". At this point the business would be doing so well that the investors wouldn't sell since they would buy at this cap given its profits.

  2. Normalize investor histories across crypto - we should publicly document all businesses given funds invested in, companies dox their addresses, and we create on-chain records of how they acted so future companies know who to take money from.

Also a little more cynical but beware teams do it too. 

In typical startups the founders don't get liquidity unless they actually succeed as well.

Teams should have the same terms around unlocks for success and not arbitrary time passing (unless it's some small amount for employees).

Takeaway: Sensical! Aligns well for folks like us who will only consider partnering with teams who are in it for the long haul and right reasons. 


All You Need to Know About Tokenomics post

  • Check Circulating, Total and Max Supply. This data will give you some basic idea about supply and demand. 

  • Check if your coin has some “burning” or similar policies to combat inflation? This data will complement your findings from supply metrics. 

  • Check the “monetary policy” behind the project. Educate yourself on “Consensus Mechanisms” and always follow the official announcements and news around the project. 

  • Check the “token distribution” to find out how fair the allocation of the coins? 

  • Check if the project has some ways to incentivize its users and give them some passive income?

Nat Eliason

Tokenomics 101: The Basics of Evaluating Cryptocurrencies post

It all comes down to Supply & Demand.

Supply: Emissions, Inflation, and Distribution

Key questions:

  1. How many of these tokens exist right now? 

  2. How many will ever exist? 

  3. How quickly are new ones being released?

Demand: ROI, Memes, and Game Theory


  • How much income or cash flow the token is able to generate for you simply by holding it?

  • ROI is important to consider because if a token has no intrinsic ROI or cashflows, then it’s harder to justify holding it.


  • You can call it faith, conviction, or memes, but, whatever you call it, the machine that generates belief in the growth of future value is always going to be an important consideration.

  • This is one that requires you to hop into the community and get a feel for it.

  • Belief in future value is often one of the most powerful drivers of demand. Bitcoin has no cash flow, no staking rewards, nothing

Game Theory

  • Consider what additional elements in the tokenomics design might help increase the demand for the token. This is where tokenomics can get particularly complex.

  • One common version of good tokenomic game theory is lockups. The protocol creates an incentive for locking your tokens in a contract, usually in the form of greater rewards.

By reading the docs or whitepaper, you should get a good sense of how the supply is going to be managed, and what forces will drive demand for the token or cryptocurrency.

Most crypto assets are highly correlated and move together, and if you’re holding anything besides the big foundational coins, it should be based on some belief that its tokenomics and incentives will result in it outperforming the base currencies it's built on.

Nat Eliason

Tokenomics 102: Digging Deeper on Supply post

What We Care About with Supply

The important aspect of supply isn’t necessarily the total number of tokens. It’s where the supply of tokens is right now, where it will be in the future, and how fast it will get there.

The main things we’re trying to figure out are: 

  1. Where is the supply right now? 

  2. Where will it be in the future? 

  3. When will it be there?

  4. How will it get there?

Market Cap & Fully Diluted Valuation

  • The two easy initial metrics for assessing the value of a cryptocurrency or token.

  • Market cap is the circulating supply of tokens multiplied by the token price.

  • FDV is the current price multiplied by the max supply, if all tokens were in circulation.

  • So if a token has a price of $10, a circulating supply of 10,000,000, and a max supply of 100,000,000, then the Market Cap would be $100,000,000 and the FDV would be $1,000,000,000.

  • These two metrics can be helpful when combined with the other variables we’re going to cover because they give you an idea of how the market is valuing a project today, and how that project needs to grow in the future to justify its current price.

Circulating Supply & Max Supply

  • Circulating Supply is where things get trickier. How many of a given token are circulating? For Bitcoin it’s easy, just subtract how many haven’t been released from the max supply and you have your number. Other L1s like Ethereum and Solana either self-report it or there are APIs available that monitor it.

  • But it can quickly get complicated with project tokens. Coingecko and other APIs will try to subtract out “inactive” tokens from the circulating supply, even if those tokens have been released to the market previously.

Emissions Schedules

  • One sub-topic you want to consider for the emissions schedule is what the percentage changes look like. Even if there’s a gradual 4-year emissions schedule, if it starts from a very small percent of the tokens unlocked, that could be harmful to early buyers.

Initial Distribution & Farming

  • Most protocols will allocate a decent chunk of their token emissions to lp rewards. If you provide liquidity for the protocol, you can stake that liquidity to earn a steady stream of tokens. On the surface this appears to be very community oriented, because anyone can buy the tokens, create liquidity, and stake it to earn more tokens. But depending on how it’s done, this could be a subtle way for the initial team or insiders to dramatically increase their share of the tokens.

  • What you want to see are at least three to six month lockups for teams and investors, with linear vesting after that.


  • The last important thing to watch is when large amounts of tokens might come unlocked. So if you’re buying a token with a veCRV style lockup, or any other locking mechanism, it’s good to be aware of when there might be a large unlock of the circulating supply.

ve(3,3) Token Design



WTF are veTokens - the essential rundown on the rise of veTokens post

Valueless governance tokens are what most DeFi protocols used to rise to prominence in 2020. Token holders strictly have governance rights. Nothing else.

The giants like Uniswap and Compound used this model to fuel their growth to billions. But COMP and UNI are “valueless” governance tokens. There’s no direct economic benefit—like a right to cash flows—for holding them. 

The model isn’t ideal, but was necessary to avoid regulatory scrutiny. And it allowed these protocols to tokenize faster. 

Of course, most valuation models assume token holders will eventually vote in cash flows. We still subscribe to this thesis. But even so, the valueless governance model has diminishing returns. It lacks fundamental demand drivers. Worse, valueless governance tokens paired with large token emissions are a recipe for disaster for stakeholders. 

Price will go down. This is playing out now. 

It doesn’t take a PhD in economics to see why DeFi tokens would underperform: They have a massively inflating supply with no demand to help offset this.

But there’s a new token model in town: veTokens. 

Pioneered by Curve’s CRV, veToken model is instilling value into valueless governance tokens.

“ve (vote-escrowed) model. Pioneered by Michael Egorov of Curve Finance, the ve-model involves token-holders taking on the risk of locking their tokens in exchange for specific rights, such as governance power, within a protocol.

As a result of this outperformance, DAOs across DeFi already have or are planning to overhaul their tokenomics to pivot to a veModel.

At a high level the ve-model is relatively simple: Holders are trading short-term liquidity in exchange for benefits within a protocol.

Lockers are issued veCRV (vote-escrowed CRV) which represents a non-transferrable claim on CRV, meaning their holdings are illiquid for the locking period. Although holders are giving up liquidity, they are being compensated for this risk by being awarded special privileges within the protocol, as veCRV holders are entitled to a share of the fees generated from swaps made on Curve, boosted CRV emissions when providing liquidity, and as previously mentioned, governance rights.


  1. Encouraging Long Term Oriented Decision Making

  2. Greater Incentive Alignment Across Protocol Participants

  3. Improved Supply & Demand Dynamics


  1. Lack of liquidity

  2. Vote-selling

Despite coming with clear tradeoffs which we’ve yet to see the full extent of, such as illiquidity and vote-selling, the ve-model feels like a step in the right direction for DeFi token design. While we’ve yet to see how ve(3,3) will play out, it’s highly encouraging to see some of the spaces brightest minds tinkering with these tokenomics ideas. Yes—DeFi tokenomics have stunk. But while ve-tokenomics are no silver bullet, it seems to be a step in the right direction for DeFi protocols.

Juan Pellicer @ The Block

Understanding veNomics post

Sandra Leow @ Nansen

ve(3,3) tweet thread

Jack Niewold 

ve(3,3) tweet thread

Token Launch / Distribution

Token Launch / Distribution


All You Need to Know About Tokenomics post

“Token Distribution” is absolutely an essential factor you need to check when investigating about tokenomics of a project. More specifically, you have to find out: 

  • How initially were tokens distributed (pre-mining, ICOs, etc.)? 

  • What percentage of the tokens are owned by owners, funders, developers, or partners of the projects? 

  • What is the maximum percentage public investors like you and me can own? 

  • Are there any locked-up tokens reserved for future distribution? If yes, what are the plans for making that happen? 

  • Are there some big wallets holding the majority of the tokens? And at what percentages? 

  • Is it possible that at some point, a big wallet sells its tokens and manipulates the market?

Delphi Digital

Introducing Lockdrop + LBA: A Novel Token Launch Mechanism

The goal of any token launch mechanism is to distribute tokens to the protocol’s users and community in a fair, transparent way.

There are two main ways projects currently do this, and both have flaws.

  1. Giving tokens to users.
    Main ways: Airdrops and Ongoing Incentives.

    Airdrops distribute tokens to users based on their past actions, either because they used the protocol before or were high value users of other protocols.

    While this seems like a good idea, airdrops reward past behavior rather than future commitments and thus aren’t guaranteed to benefit the protocol going forward.
    In fact, our research shows the majority of airdrops simply get dumped.

    Ongoing incentives instead aim to reward ongoing participation in the protocol (generally some form of liquidity provision) and have become the preferred method of distribution for most projects.

    However, relying solely on this also comes with a few drawbacks.

    Firstly, ongoing incentives can only be used to reward use that can be represented by an on-chain action such as providing liquidity, collateral, or completing trades.
    This benefits whales who have more capital and thus earn a higher share of rewards.

    It also excludes a variety of other stakeholders who add value to protocols such as community members, third-party integrators or even projects building on top of protocols.
    For these stakeholders, acquiring the token on the market may be the only way to align incentives.

    Secondly, simply handing out the token to supply-siders results in additional problems like low initial float, low initial liquidity and lack of a mechanism for price discovery.

    This harms non-users who want to buy tokens on the open market and either can’t do it in size or get rekt by low liquidity price moves and/or continuous selling pressure from token emissions on low float.

  2. Selling tokens to the public.
    Many projects try to solve these issues by having some kind of public sale which helps establish a price and, if properly designed, gives everyone the chance to buy the token on equal terms.
    Unfortunately, this has its own set of problems.

    Firstly, all public-sale-type mechanisms expose the projects to heightened regulatory risks.
    Sales involve a clear “investment of money” and early-stage protocols are most likely to depend on the efforts of a small group under the “Howey test.”

    Secondly, public sales don’t solve the low-initial-liquidity problem.
    While projects can add initial liquidity themselves, this requires significant capital and also exposes them to regulatory risk since they’re establishing the market and setting a price for the token.

    Thirdly, many sale and auction structures are vulnerable to bot frontrunning attacks (e.g. $ANC, $VKR) which result in supply being concentrated among a few whales with the technical skills and capital to take the entire sale.

We wanted to create a token launch mechanism that achieves all the below objectives.
At the highest level, it is a two-phase process which works as follows:

  • Phase 1 (Lockdrop): Distribution 

  • Phase Phase 2 (LBA): Price Discovery + Liquidity Phase

Read the full post for more on the strategy. But my main purpose for including this was for the understanding of the current 2 distribution methods.

Ashwath Balakrishnan @ Delphi Digital

Token distribution and ideas for how token incentives can be improved because we need to fix the way token incentives work in DeFi tweet thread.

Token incentives are a popular way to distribute ownership to people that provide a useful service.

But as we've seen, some of these distributions are easy to game and are less effective in hitting their key objectives.

It's worth asking ourselves what are some things we want to promote and hinder with a token distribution.

  • Promote: new users, reward ppl with conviction, incentivize contribution 

  • Hinder: sybil-farming, distribution to minimal LTV entities, rewarding mercenaries over believers

Some ideas for improvement:

  1. Make retroactive airdrops smaller.

  2. Volume weighted distros.

  3. Off-chain snapshots.

  4. Vested rewards.

  5. Tiered LM.

Token Types

Token Types

Patrick Rivera @ a16z

Designing Internet-Native Economies: A Guide to Crypto Tokens post

Equity Tokens

Equity tokens are fungible tokens that represent ownership in an asset or a pool of assets. These tokens are used to incentivize participants to provide a scarce resource to a network. In cryptonetworks, scarce resources include capital, developers, customers, creators, and computing power.

An example of how a protocol uses equity tokens to incentivize stakeholders to provide a scarce resource is Uniswap, a decentralized exchange for swapping tokens on the Ethereum network.
The protocol incentivizes LPs by giving them a proportional share of trading fees for any pool they’re an LP in. In this case, LPs are incentivized through equity tokens (e.g. pool tokens) to offer their scarce resource (e.g. capital) to improve the network.

Utility Tokens

Utility tokens are fungible tokens that unlock functionality in a smart contract or off-chain system (like a Discord community). Utility tokens are difficult to enforce off-chain, so they tend to be most valuable when their functionality is enforced purely on-chain, through smart contracts.

Some example use cases of utility tokens — and their resulting cryptoeconomies — include: 

  1. Automated and trust-minimized loans. Tokens used as collateral for decentralized loans are an example of a utility token because they unlock automated functionality in a smart contract. Like Compound. 

  2. Access to a community. Like FWB. Equity tokens incentivize participation in a protocol, and utility tokens unlock functionality in a protocol while easing coordination among participants.

  3. Governance Tokens. Governance tokens represent percentage ownership over voting rights. It’s difficult for most community members to keep up with the latest developments for specific protocols, so most protocols allow token holders to delegate their votes to trusted representatives. 

Non-Fungible Tokens

NFTs are unique digital tokens stored on a blockchain. We’ve seen a lot of activity and excitement in this space, but to focus on the bigger picture here, people value virtual goods for six main reasons: 

  • Identity and belonging 

  • Status 

  • Personal meaning 

  • Relationships

  • Collecting 

  • Superpowers


On the immaturity of tokenized value capture mechanisms blog post

Token types:

Usage tokens are based on services where ownership is required to use the service. Bitcoin and Ether are the best examples of usage tokens — token ownership does not give you any specialized rights within the network, but it does give you access to the service (the Bitcoin payment network and the Ethereum Virtual Machine in the case of BTC and ETH). Scarce tokens combined with a useful service can create massive value for token holders and entrepreneurs. 

Work tokens are tokens that give individuals rights to contribute work to aDAO (and earn value) to help it function properly. That work can be serving as an oracle (in the case of Augur), being the backstop in a collateralized debt system (in the case of Maker), or securing the network (in the case of Ethereum when it switches to proof of stake). 

These two types are not mutually exclusive and there are tokens that serve as both usage tokens and work tokens. An example of a token with both characteristics will be ETH when Ethereum transitions from proof of work to proof of stake.

Token Necessity

Token Necessity


Tokenomic Design Explorations tweet thread

Currently, tokens are used primarily as a growth marketing tool. Via liquidity mining, protocols spend 'equity' in return for bootstrapping initial adoption. 

This has been wildly successful, with Compound's LM event kickstarting the original DeFi Summer last year.

LM programs have been the bread & butter growth hacking mechanism for new protocols. 

However designing LM programs are extremely tricky. Give away too much, and you'll have little left in the tank for the future. Too little, and competitors will overshadow you.


Only launch a token when you’ve figured out… tweet thread

Tokens act as incentives for network participation.
Core thesis behind a token network is fair participation = fairly rewarded.

Only launch a token when you have figured out: 

  1. How the community can participate towards meaningful objectives for the network (give tokens for work to be done). 

  2. Who to distribute ownership to (making sure you are distributing ownership to those that create the most value).

To get to a level of understanding around points 1 & 2, you need data and a community first. 

Hard to predict those network behaviors/dynamics without launching a product and building a community first.


How to analyze tokenomics tweet thread

  • Why does this protocol need a token? 

  • Does it serve as an important input? 

  • Does it provide holders with a return? 

  • Is it there for farm and dump? 

  • Insider exit liquidity? 

  • How does the token fit into the ecosystem?

Arca Research

Arca Research Framework Analysis on Digital Assets post

Determine the purpose and necessity of the token in the ecosystem.

  • What function does the token serve? 

  • Is the token necessary for the ecosystem to function?

  • Is it a store-of-value/currency, a utility, or a security token? 

  • Does the token make sense and serve a purpose in the ecosystem? 

Patrick Rivera @ a16z

Designing Internet-Native Economies: A Guide to Crypto Tokens post

  • Tokens are a mechanism for incentivizing open network participants, including users, developers, investors, and service providers.

  • As more economic activity moves online, we need internet-native tools for building productive economies. Many people don’t have a bank account but do have a mobile phone with internet access. This is where cryptonetworks come in.

  • In addition to serving as a form of internet-native money, the programmable nature of ERC20 tokens enables three other use cases: equity, utility, and governance.

Maggie Hsu @ a16z

Go-to-Market in Web3: New Mindsets, Tactics, Metrics post

Tokens are a GTM catalyst.

Web3 changes the whole approach to bootstrapping new networks, since tokens offer an alternative to the traditional approach to the cold-start problem

Rather than spending funds on traditional marketing to entice and acquire potential customers, core developer teams can use tokens to bring in early users, who can then be rewarded for their early contributions when network effects weren’t yet obvious or started. 

Not only are those early users evangelists who bring more people into the network (who would like to similarly be rewarded for their contributions), but this essentially makes early users in web3 more powerful than the traditional business development or salespeople in web2.

For example, lending protocol Compound [full disclosure: we’re investors in this and some of the other organizations discussed in this piece] used tokens to incentivize early lenders and borrowers by providing extra rewards in the form of COMP tokens for participating, or “bootstrapping liquidity,” with a liquidity mining program.

Organizations in the top right quadrant follow a decentralized model (although they usually start with a core development team or operational staff) and use token economics to attract new members, reward contributors, and align incentives among participants.

The fundamental difference between the web3 organizations in this quadrant and those using a more traditional GTM model involves the key question: What is the product? Whereas web2 companies and those in the lower-left quadrant largely must start with a product that will attract customers (“come for the tools, stay for the network”), web3 companies approach go-to-market through the dual lenses of purpose and community.

Quao Wang @ Alliance Dao

Common pitfalls for Web3 Founders post

Unhealthy Obsession with Token Economics

Before diving into token economics, I’d like to point out another common mistake that Web3 founders make: they are too obsessed with token economics.

I’m not saying tokens aren’t important. After all, tokens as a go to market strategy are one of the key value propositions of building on Web3. With token incentives, it has never been easier for networks to solve the chicken-egg problem and to bootstrap the critical mass.

But “go to market strategy” is the key word here. Again, most startups don’t even have a great product to go to the market with! If you use tokens as a user acquisition strategy without a great product, you are essentially wasting your marketing budget. And it’s a very expensive marketing strategy because the supply is limited and mistakes are irreversible.

Moreover, the danger with launching token incentives too early is that you will never know whether or not you have real product-market fit. You don’t know if users come for the product or for the monetary incentives. You will have a moment of glory as all your user metrics will go up, but it will be transient.

During DeFi summer 2020, many of the best products, such as Uniswap and Curve, found product-market fit before they even had a token. There were also a few great products that had a liquid token before product-market fit. But they did not use token incentives.

So it’s far better to try to prove product-market fit without a token.

  • See if you can make 100 users really happy without giving them token incentives.

  • If your product is based on network effects and has a cold-start problem, consider conventional, Web2 growth hacks first.

  • If you arrive at a point where you really need tokens to bootstrap the network effect, don't use them too lavishly. Don't try to engineer a multi-year incentive program (like Satoshi did with Bitcoin, which is an exception rather than the rule). Drop incentives sparingly and intermittently.

  • It's futile to try to engineer a sophisticated algorithmic multi-year incentive program because you will inevitably make mistakes. Heck, even Ethereum is still changing their token economics 8 years after the white paper. When theory meets practice, practice wins.

In short, prioritize your product over your token. (The obvious exception to the rule is if the token IS the product itself or is an integral part of the product. For instance, Maker. And to a lesser extent, Axie.) 

Have a rough plan for how to distribute tokens among the team, investors, community, and treasury. Have some rough ideas for what utilities you want the token to have. But don’t over-engineer it until you have a product that 100 users love.

When you are finally ready to spend time on token design, it will seem like a daunting task. You wonder, “is there a playbook?”

The short answer is no, there is no playbook.

Tokens should absolutely be designed from first principles, according to the unique needs of your product. Every product is different, so every token should be designed differently. Remember, tokens are a go-to-market strategy, so whether or not a particular go-to-market strategy makes sense depends on the particular product.

I will point founders to leaders of their particular category. For instance, I will ask a DeFi founder to study Curve. I will ask a game developer to study Axie. But their models should not be blindly copied. Use them purely for inspiration, because their product is different from yours.

When it comes to industry standards, I can tell you, for instance, what the average token distribution between team, investors, and community looks like, and what the average vesting schedule looks like. But the average is not necessarily the optimal. What is popular is not necessarily what is right. For instance, I have long criticized the ridiculously short vesting time (1-2 years) many projects have implemented. It’s a horrible misalignment of incentives.


  • Begin the conversation with top exchanges for listing as early as possible. They all have different requirements and their requirements evolve a lot over time. Their requirements often directly impact your token design.

  • On that note, while you should not be obsessed about the price of your token and where it is listed (because once again, your product is more important), getting listed on a top exchange is hugely valuable. It helps widen token distribution and improves liquidity, and as a result is basically free and ongoing marketing.

  • This is a very popular meme, but I don't necessarily buy the idea that the community should be given a far larger allocation than investors and the team. (I don't agree with the opposite either for what it is worth.) Tokens should be distributed to each group according to their current and future level of contribution to the network. Most projects reserve anywhere between 20% and 60% of their tokens to the team and the investor, with 40% being maybe the average. But once again, you should reason from first principles.

  • Don't be too stingy with your early hires. Be ready to pay a lot of tokens for top talents. I would argue that a top early employee owning up to 1/5 of what a founder owns is not too crazy. I have had multiple founders come to me and agonize about this, but you should focus on growing as big of a pie as possible rather than a couple of percentage differences in how much you own of that pie.

  • If you really want to inspire confidence and show that you are in it for the long haul, then your token vesting schedule should reflect it. If you shorten it or give preferential treatments to yourself and/or investors, you will self-select yourself into some of the worst investors. The top investors rarely care that much about vesting, but the worst investors want to dump quickly.

One final piece of advice. If you decide to launch a token, securities laws will come into play. (Even if you are not a token project, AML, derivatives, and tax laws may be relevant for you.)

Oftentimes, if you talk to 10 different lawyers about a particular topic, you will get 15 different answers. This is because many lawyers are new to this space and don't actually know what they are doing. But also due to regulatory uncertainties, even the best lawyers may have different viewpoints as they have different levels of risk tolerance and different interpretations of the law.

Fortunately, we have an experienced internal legal team who also happen to be token experts. They cannot represent you, but they can give you valuable business advice and connect you to the best lawyers in this space who can represent you. Then your job will be to talk to a few of these and to make the best legal decisions by triangulating their views.

Token Fundraising Methods

Fundraising Methods

Decentral Park Capital

DAO and Decentralized Legal Structures - 101 newsletter

Cooley Doc Generator

SAFTs have fallen out of favor over time, and the SAFE + Warrant is increasingly used as a way to preserve optionality where there is regulatory uncertainty.

The SAFE and KISS will battle it out more so (prediction) if/as the market cools off, where the primary difference between these two is forced conversion where the SAFE is more founder friendly when the conversion mechanism makes the KISS investor friendly, and both make funding fairly frictionless until subsequent rounds.

  • Purchase Agreement (Tokens)

  • SAFE - Simple Agreement for Future Equity

  • SAFT - Simple Agreement for Future Tokens

  • SAFE + Warrant - Simple Agreement for Future Equity plus a Warrant to Purchase Tokens

  • SAFET - Simple Agreement for Future Equity and Tokens

  • KISS - Keep it Simple Security

Robin @ LiquiFi

Crypto / web3 Fundraising with Token Side Letters or Token Warrants post and tweet thread

Token Side Letter has emerged as the preferred strategy

  • Token side letter represents a right, but not the obligation, to receive future tokens. Tokens you receive is proportional to your equity allocation via SAFE.

  • Investors are primarily investing in the equity of the company via the SAFE or equity agreement, with an optionality for future tokens.

Three main types of managing the pro-rata rights of the token supply:

The SAFT and SAFTE (simple agreement for future tokens or equity) have largely fallen out of favor in the United States due to legal risk and violations of securities laws.


The Evolution of Token Distribution Models post

  • 2009 — “Fair” Bitcoin Mining.

  • 2013-2017 — Initial Coin Offerings & SAFT Sales.

  • 2019 — Auctions.

    • CoinList introduced a Dutch auction mechanism to facilitate a more fair and accurate price discovery.

    • In a Dutch auction, the seller sets an initial price per token and then units are sold beginning from the highest bidder downward until the auction “clears.”

    • Two standout examples were the Celo and Solana auctions on CoinList that exposed the projects to thousands of bidders across 130+ countries.

  • 2020 — Liquidity Farming, Stakedrops, and Community Sales.

    • From stakedrop distributions such as NuCypher and Oasis, to community sales from Near and Flow, it was exciting to be in the trenches of token issuance in 2020.

    • Many projects, however, particularly in the red-hot DeFi sector, chose to bypass token sales entirely and instead experiment with a novel class of distribution models. Led by Compound, several DeFi projects launched and distributed their tokens directly into the hands (wallets) of their protocols’ users. Uniswap, 1inch, Compound together airdropped more than $1B in tokens to their users in 2020, simultaneously incentivizing usage and giving users a say in governance.

  • 2021 — A Cornucopia of Issuance & Fundraising Strategies

    • It is likely that token distribution in 2021 will start to blend key elements from traditional token sales (engaging the crowd) and DeFi token issuance (empowering users to provide value to the project). We see increased alignment of incentives between projects and token holders in 2021, making this one of the dynamic corners of the crypto industry.

Regan Bozman @ Lattice Fund

Crypto deal structuring thoughts tweet thread

Let's talk about deal structuring in early stage crypto, specifically: 

  1. rise of equity + token warrant structure

  2. mass delusion amongst early stage vc's

Most early stage crypto deals are done with one of 3 instruments 

  1. Saft
    Simple for investors. We know what we’re buying. Defines a network value/price per token, and you buy X tokens for Y dollars.

  2. Saft(e)
    Slightly more complicated. Generally defines value for both equity and a network, and allows for conversion into 1 or both. Gives startups more optionality if they may never launch a token. 

  3. Equity + token warrant
    Investors buy 2 things:

    1. Equity (often in the form of a SAFE)

    2. A token warrant which allows them to buy tokens, if the startup issues, them for a trivial price

Equity + Token warrant has grown in popularity because in the US, VC funds can only invest in ‘qualifying assets’ which are essentially equity of private tech companies. So this lets VC’s fit these investments into their funds.

There’s also some legal opinion that it’s better from a regulatory perspective. 

Why is the structure wonky though?

  • It used to be simple.
    Buy x% of the company via SAFE, receive a token warrant to buy x% of the network when launched.

  • Then Uniswap gave half of the network to the community and the founders started pushing for 2:1 conversions. Buy x% of the company via SAFE, receive a token warrant to buy 1/2x% of the network when launched.

  • I’ve now seen 3:1 conversions and cases where conversion ratio is at discretion of founders in the latter case investors have *zero* idea what % of the network they'll end up with.

  • I think that these conversion structures have allowed VC’s to delude themselves into thinking they're paying lower prices than they are getting done at $30M, but if you think value will accrue to tokens and it's 2/1 conversion, you paid $60M.

Why do I dislike the structure?

  • It adds unnecessary complexity to these deals.

  • We end up negotiating three things

    • Equity value 

    • Conversion ratio 

    • Network value 

  • This is stupid. If value is going to accrue to tokens i *could not care* less about equity valuation.

This structure DOES protect community share of tokens by diluting investors/teams share. I fully support communities owning 50%+ of these networks however, companies just selling less tokens to investors accomplishes the same thing.

IMO no team should sell more than 20-25% of tokens to investors. There are easy ways to do this on a purely token model. 


  • $3m seed round at 30m fdv 

  • $8m series a at 80m fdv

Equity + token warrant is one way, but it's far from the simplest.

Raising less money from investors accomplishes this in a more elegant way. 

Dune Analytics just hit a $1B val with <20 employees. 

I think there are VERY few cases where a network needs to raise more than $5M pre-launch and so in this market it does not need to sell more than 10%.

If investors are trying to force you to raise more money, that is so that YOU fit into THEIR strategy, not the other way around you should politely tell them to fuck off. It's not your problem that they raised $200M+ from LP's and now can't write $500K checks anymore. 

Jason Choi @ Spartan Group

Thoughts on why SAFTs are waning in popularity in favor of SAFE + Token Warrant tweet thread

Founders are opting to do SAFEs + token warrants, oftentimes with 5x the paperwork.

The only people that seem to benefit from this are:

a) lawyers who draft more docs 

b) Silicon Valley VCs who now force founders to play on their home turf at the negotiation table

The current standard SAFE + token warrant structure lets VCs tie token rights to their equity ownership at TGE. 

With pro rata, they effectively grant themselves the right to buy more tokens in future rounds of pre-TGE fundraising regardless of whether founders want them.

For funds, SAFE + tokens make a lot of sense as it confers on funds more rights in case of rug. 

However I think the path forward should be to build out Web 3 tooling to bake in more rights into tokens, not to regress into this weird equity + token thing. 

Matt Kim 

7 crypto startup fundraising methods tweet thread

SAFT (Simple Agreement for Future Tokens)

Variation of SAFE. It secures the future transfer of digital tokens from startups to investors. It essentially uses tokens instead of equity.

SAFTE (Simple Agreement for Future Tokens or Equity)

Based on SAFT, SAFTE promises investors a discount on a future token sale or equity. It is said to provide a level of security: If the token sale doesn't occur, equity are to be traded.

SAFE + Token Warrant (aka side letter)

Investors receive equity in a project, just like a SAFE. But they also get a token warrant. So when the project launches a token, investors are entitled to buy the tokens (usually at a discount).

Token Glossary

Unfortunately I didn't save the sources for the definitions below. My bad.

  • Max Supply
    The number of coins/tokens that will ever be created.
    For instance, Bitcoin has a max supply for 21 million. Ethereum does not have any max supply.
  • Total Supply
    The number of coins/tokens that currently exist.
  • Circulating Supply
    The best approximation of the number of coins that are circulating in the market and in the general public's hands.
    A circulating supply below 50% often means that lots of tokens are awaiting release to investors and early adopters, and they may sell for profits putting a downward pressure on short/medium term price action.
    In the case of Bitcoin the total supply and the circulating supply are equal. If one took a look at other coins such as ripple it's not even half of it, which means a few people are controlling supply.
    Bitcoin has 90% of its max supply in circulation.
  • Market Cap
    Amount of money currently in the market.
    Calculated by multiplying the current market price of a particular coin or token with the Circulating Supply.
    The method of using the Circulating Supply is analogous to the method of using public float for determining the market capitalization of companies in traditional investing.
  • Fully Diluted Value
    FDV is the current price multiplied by the max supply, if all tokens were in circulation, which in itself can be useful to compare to market cap as a guide for future issuance sell-pressure.
  • Traded Volume
    The total number of units that changed hands in a market during a given time. Can be used as an indicator to gain a better understanding of the market-strength. Higher trade volumes mean higher liquidity and a higher chance to connect a buyer and a seller of an asset.
  • Total Value Locked
    TVL is the overall value of crypto assets deposited in a DeFi protocol. It’s a metric for gauging interest. It includes all assets deposited in all of the functions that DeFi protocols offer, including Staking, Lending, Liquidity Pools. TVL has been considered useless as a price signal.
  • Token Unlock / Lockup / Distribution
    Lockup or vesting period refers to the time span in which tokens or coins are not allowed to be transferred or traded.
    The sooner they can dump their token, the higher the risk of selling pressure & the price going down.
    Look out for:
    -If there is a token unlock within the first 3 months.
    -If there is a steep increase in 'unlocks'
    -Influencers promoting a project pre-pubic sale, with a very short unlock period. Normally means they got in before you + will dump on you
  • Bonding Curve
    A bonding curve is a mathematical formula used to set a relationship between a token’s price and its supply. Bonding Curves Offerings, or BCOs, allow projects to efficiently, fairly, and reliably distribute tokens to project adopters, who fund and speculate on new business ventures in a transparent way. Bonding Curves offer an innovative solution because they do not require the oversight of a centralized entity to create, oversee, and enforce the market’s pursuit of this equilibrium. Instead of relying on a third-party entity to create the market and mediate the transaction, Bonding Curves rely on a mathematical function packaged within a Smart Contract called an Automatic Market Maker.
    The Bonding Curve ensures that each newly minted token (which is sold to a buyer in the market), is more expensive than the previous token. Because the price of each token is defined by the curve / formula itself, every market participant knows exactly how much each token will cost at any given time. As tokens have the lowest price at the lowest part of the curve, there is a price advantage for early adopters.
    Early buyers have a considerable upside potential when compared with later entrants to market, as prices are lowest when supply is low as well.
    The most fundamental advantage of Bonding Curves over traditional asset pricing mechanisms is that the pricing of assets is transparent, defined, and immutable at all stages. The market is able to reach the equilibrium of consensus through clearly defined rules, without third-party intervention.
    Additionally, this fundraising method addresses many of the inefficiencies that have led to fraud and misappropriation within the Initial Coin Offering (ICO) model. Starting offer prices are not set arbitrarily by the project's founders. All tokens are accounted for at all times. The token’s distribution is automatic and configurable.
  • Burning
    The burning process happens in this industry for a whole set of different purposes:
    -to decrease coins in the circulation
    -to adjust supply and demand
    -to make the asset less inflationary

    The general idea behind the burning process is to make the coin more demanding and less inflationary.
    There is no unique approach that all projects follow to burn their tokens. Some burn on scheduled intervals. Some others burn part of the transaction fees. Surprisingly enough, some projects burn tokens randomly and without notice.
    Ethereum burning occurs at the transaction fee level.
    Binance Coin has scheduled burnings.
  • Monetary Policy
    “Monetary Policy” in the crypto assets is related to two things:
    -Is the coin inflationary or deflationary?
    -What are the plans for the coins (tokens) issuance in the future?
    Inflation, deflation, and issuance play a vital role in the current and future price movements.
    Part of this data is available online. For example, a project’s CEO may announce that X tokens will be released (or unlocked) into the market in a given time. You can also check websites such as viewbase to get ideas about different projects’ inflation rates (and some other statistics).
    However, the primary source of info for checking monetary policy is the Consensus mechanisms of the projects.
  • Consensus Mechanism
    Methodologies used to achieve agreement, trust, and security across a decentralized computer network. Examples:
    -Proof of Stake (PoS): A consensus mechanism in which an individual or “validator” validates transactions or blocks⁷.
    -Proof of Work (PoW): A consensus mechanism in which each block is ‘mined’ by a group of individuals or nodes on the network.
    -Proof of Authority (PoA): A consensus mechanism used in private blockchains, granting a single private key the authority to generate all of the blocks or validate transactions⁷.
    -Proof of Burn (PoB): Miners send coins to an inactive address essentially burning them. The burns are then recorded on the blockchain and the user is rewarded⁸.
    -Proof of Capacity (PoC): Plotting your hard drive (storing solutions on a hard drive before the mining begins). A hard drive with the fastest solution wins the block⁸.
    -Proof-of-Developer (PoD): Any verification that provides evidence of a real, living software developer who created a cryptocurrency, in order to prevent an anonymous developer from making away with any raised funds⁹.
    -Proof-of-Donation: integration of charitable donations into the functionality of a blockchain⁹.
    -Proof of Elapsed Time: Consensus algorithm in which nodes must wait for a randomly chosen time period and the first node to complete the time period is rewarded⁸.
    -Proof-of-Liquidity: A cryptographically signed assertion by a trusted third-party auditor that an actor holds the declared number of resources⁴.
    -Proof-of-Replication: the way that a storage miner proves to the network that they are storing an entirely unique copy of a piece of data⁹.
    -Proof-of-Spacetime: someone can now guarantee that they are spending a certain amount of space for storage⁹.
  • Earnings
    Earning some passive income — on top of your main holdings — while you are contributing as a user in the network.
    There are several reasons to distribute these rewards between users:
    -to incentivize the miners (in PoW consensus models)
    -to secure the network (in PoS or similar consensus models)
    -to confront inflation
  • Governance
    Holders of the project tokens on the blockchain have voting powers which they can use to voice their opinions about the digital token project.
    Important decisions can be made by token holders, such as project features, direction, and token economy changes, among other things. All of these decisions are outlined in the tokenomics section of a project.
  • Non-Fungible Tokens
    NFTs are unique digital tokens stored on a blockchain. We’ve seen a lot of activity and excitement in this space, but to focus on the bigger picture here, people value virtual goods for six main reasons:
    -Identity and belonging
    -Personal meaning
  • Equity Tokens
    Equity tokens are fungible tokens that represent ownership in an asset or a pool of assets. These tokens are used to incentivize participants to provide a scarce resource to a network. In cryptonetworks, scarce resources include capital, developers, customers, creators, and computing power.
    An example of how a protocol uses equity tokens to incentivize stakeholders to provide a scarce resource is Uniswap, a decentralized exchange for swapping tokens on the Ethereum network.
    The protocol incentivizes LPs by giving them a proportional share of trading fees for any pool they’re an LP in. In this case, LPs are incentivized through equity tokens (e.g. pool tokens) to offer their scarce resource (e.g. capital) to improve the network.
  • Utility Tokens
    A utility token is a crypto token that serves some use case within a specific ecosystem. These tokens allow users to perform some action on a certain network.
    Utility tokens are not mineable cryptocurrencies. They are usually pre-mined, being created all at once and distributed in a manner chosen by the team behind the project.
    While utility tokens are not currently classified as securities, there has been some speculation that one day, they could be.
    In general, utility tokens provide access to a specific service or product with a blockchain ecosystem. In other words, you might need a certain utility token to be able to perform actions on an altcoin’s network.
    While cryptocurrencies are a form of digital money, utility tokens might be better described as pieces of software. They can be used to transfer value, but that’s generally not their main purpose.
    -Usage Tokens / Medium of Exchange Tokens
    A token that is required to use a service.
    These are the tokens that function like a currency in their respective dApps.
    These tokens have monetary value; however, they don’t come with any sort of rights or privilege within the particular network.
    In short, think of a token as money. Usage tokens  are sometimes also referred to as “medium-of-exchange” tokens.
    -Work Tokens
    A token that gives users the right to contribute work to a DAO and earn in exchange for their work.
    In this model, the user (or service provider) stakes the native token of the network to earn the right to perform work for the network. The cool thing about the work token model is that as demand for the service grows, more revenue will flow to service providers. Given a fixed supply of tokens, service providers will rationally pay more per token for the right to earn part of a growing cash flow stream.
    -Access to Community Tokens
    Like FWB. Equity tokens incentivize participation in a protocol, and utility tokens unlock functionality in a protocol while easing coordination among participants.
    -Governance Tokens. Governance tokens represent percentage ownership over voting rights. It’s difficult for most community members to keep up with the latest developments for specific protocols, so most protocols allow token holders to delegate their votes to trusted representatives.
  • Security Tokens
    Security tokens give rights of ownership to a company. Think of them sort of like digital, decentralized shares of stock. Security tokens are also classified as securities by financial regulators like the Securities and Exchange Commission (SEC), making them subject to all the same rules as stocks, bonds, ETFs, and other securities.
    The SEC uses something called the Howey Test to determine whether or not an investment is a security. The criteria of this test are:
    -A monetary investment
    -People invest because they expect to make money
    -The investment is a “common enterprise,” meaning investors will only make money based on what the issuers of the investment do
    -Profits are dependent on the work of a third party If the investment in question checks the above boxes, the SEC considers it a security
  • Layer 1 Networks
    Layer-1 focuses on creating a consensus ledger. Use a native token to access the network's resources. Anytime you hear topics like "scaling network performance" (aka rollups, side-chain, multi-signature), "reducing transaction fees", or "increasing programmability", the emphasis is on Layer-2 solutions.
    Bitcoin, Ethereum, Solana, Binance Chain.
  • Layer 2 Networks
    Extends layer 1 functionality by enabling fast, cheap, high-throughput transactions over the underlying ledger.
    Lightning Network, Polygon, Arbitrum.

Reasons to hold a token

Again, sorry I didn't save the original sources.

  • It grants governance actions, like voting.
  • It grants exclusive access to a community, network, or service.
  • It enables a user to contribute to value-adding actions to the network or market.
  • It provides discounts or rewards to incentivize usage.
  • It’s a principal payment unit.
  • It grants the user value based on sharing/contributing (passive work).
  • Provides opportunity to earn return by yield farming.
  • Earnings/fees generated from the protocol are distributed back to holders. Ex. Ethereum (ETH) for example will offer a roughly 5% annual percentage rate of interest (APR) for staking to help secure its network when Proof-of-Stake (PoS) finally launches
  • Holding is required to run a smart contract or fund an oracle.
  • Holding is required as a security deposit to secure some aspect of the blockchains operation.
  • It’s a derivative to pay for usage.
  • Rebasing with inflation (similar to a stock split, whereby holding and staking the token enables the holder to receive more, thereby offsetting any impact of inflation – eg % ownership remains constant).
  • Rarity & Speculation (Memes and Religion): blind faith that it’s valuable and will become more valuable over time. Bitcoin, Dogecoin, NFTs…

Here are some more crypto resources I've gathered over the years.