Author: Liu Honglin

Many people ask me what I think about the relationship between the equity and tokens of Web3 companies. This question may sound like a cliché, but in fact, it is related to the core asset design logic of a company: how do you raise funds? How do you connect users? How do you realize capital? These questions determine the fundamental difference between Web3 companies and traditional Internet companies.

In this article, Lawyer Honglin would like to discuss with you from three aspects: the future financing path of Web3 companies, value distribution, and the integration trend of equity and Tokens.

Token will become the mainstream form, but not a financing tool

This is my first relatively clear judgment on the Web3 industry: the issuance of tokens will still be the mainstream action in the future, but its positioning is undergoing a fundamental change - it is no longer used to attract financing, but to activate users and distribute the value of platform growth.

What has been the most common use of tokens in the past few years? The answer is financing - especially when primary market financing is cold and the compliance path is unclear, tokens have become a tool for many startup teams to "raise funds in a roundabout way". Once the white paper is written, the airdrop is carried out, and the exchange is launched, the project party and early investors will ship first, and users will take over last. This logic of "financing-issuing-cutting leeks" has once become the default way of playing in the industry.

But today, this game is becoming increasingly difficult. On the one hand, the supervision is constantly tightening, especially the supervision of token financing in mainstream jurisdictions such as the United States, Europe, and Hong Kong is gradually tightening; on the other hand, users are maturing - the old narrative is no longer useful, and the dream of "financing means financial freedom" is becoming increasingly difficult to realize.

At the same time, a new path is taking shape: Token is not a "chip" for project launch, but a "tool" for platform operation. Its function is no longer a certificate for asset trading, but more like a "value sharing mechanism" within the platform. It is not a financing logic, but a marketing logic. It is not sent to exchange money, but to exchange users.

But this does not mean that Token has "become" a points system. On the contrary, it plays the role of a "compound incentive tool" that is more complex and more motivating than the traditional points system. It can bind user behaviors (such as transactions, recommendations, interactions), combine NFTs to design layered rights and interests, and guide community self-organization governance. This ambiguous state of "quasi-finance, non-securities" is the charm of the Token mechanism, and it is also the reason why it cannot be easily summarized by the word "points".

In other words, Token is not "adding points to the system", but "adding a new native incentive language to the system that can circulate, price, and match the value contributions of different users". It is a way for users to participate in the growth of the platform, and a means to redefine the costs that were originally consumed in the operating budget as "circulating assets". This is why Web3 projects constantly emphasize elements such as "incentive mechanism", "liquidity", and "value anchoring" when designing the Token economic model, rather than simply "reward points".

Equity is still the right way for Web3 companies to realize capital

The second judgment is also very clear: for the vast majority of companies that really want to grow bigger and stronger and create everlasting glory, the ultimate path to capital realization is still the traditional equity channel. In other words, when it is time to raise funds, take equity financing, and when it is time to exit, go through IPO, mergers and acquisitions, or equity transfers. Tokens will not and cannot replace this role of equity.

This is very important. Many project parties will fall into a misunderstanding in the early stage: since tokens can be listed on exchanges, since users can buy and sell, and prices can rise, can tokens be used to replace equity, or even "empty equity and only issue tokens"? But you really need to calm down and think about it. Is there an anchor relationship between the token price and the company's profits? If the company does well, will the token price definitely rise? Do users who hold tokens have voting rights or dividend rights in the company?

The answer is basically "no". Tokens and equity are two sets of logic and two worlds. Expecting to use tokens to replace equity and expecting to earn coins from playing games to buy a house or a car are fantasies on the same level. You can participate, circulate, and get incentives within the platform, but this does not mean you own the platform.

The true asset value and final capital gains of a company are always written on that dry but effective balance sheet. Equity represents the legal claim to the net assets and future profits of a company, which cannot be replaced by tokens in any jurisdiction or financial system.

For this reason, Web3 project owners must clearly realize that tokens are operating tools, not financial exit paths. When it comes time to introduce large amounts of financing, achieve mergers and acquisitions, or IPOs, tokens do not have any legal or commercial "capital exit channel" functions. Financing, mergers and acquisitions, and restructuring, these actions must ultimately be achieved through equity. You can't expect a potential investor to say, "I want to take 10% of your company's shares," and you hand over a string of token addresses and say, "This is it."

The integration of tokens and equity is the focus of the industry in the next stage

But things are not a clear-cut binary opposition. In fact, the trend of integration between tokens and equity has become increasingly obvious, which is also the third development direction I judge.

The most typical case is the re-emergence of the concept of "Security Token". This concept was discussed as early as the STO bubble in 2018, but was shelved due to unclear supervision and immature infrastructure. Today, with the advancement of on-chain compliance technology and the gradual entry of traditional financial institutions into the field of tokenized assets, this path has begun to become a realistic possibility.

For example, listed companies can tokenize some of their shares and turn them into on-chain certificates. Alternatively, fund products can be made into tokens to achieve more fine-grained share splitting and circulation. In this model, tokens are no longer "points in the virtual economy", but "digital expressions of real financial products" with real asset mapping and legal rights.

Of course, such a design has very high compliance requirements. KYC, anti-money laundering, qualified investor identification, information disclosure, custody audit, all serious processes of traditional finance must be integrated into the life cycle of Token. And these links must also rely on the intermediary forces in the traditional financial system - securities companies, compliant exchanges, regulated custodians, etc.

Therefore, we will see an interesting trend: the future Token world is not a completely "decentralized" utopia, but more like a "digital extension" of traditional finance. The combination of equity and Token is not to remove all intermediaries, but to improve the liquidity and programmability of assets in the new technical context.

Summary: Dual ledger structure for Web3 companies

So if you have to summarize the asset structure of future Web3 companies in one sentence, I think it can be said like this:

Web3 companies are "dual-ledger" creatures - one ledger contains the names of shareholders and records equity; the other ledger contains the users' addresses and issues tokens.

The former determines the company's control, financing capabilities and capital exit path, and is the core asset of the corporate governance structure; the latter determines whether users are willing to stay for a long time and whether they are willing to participate in growth, and is the growth engine for whether the business model can be successful.

We cannot expect Token to replace equity, as it is not a carrier of ownership; but we cannot ignore the power of Token, as it is a key means to activate users and market expectations. It is neither a string of empty incentive codes nor an IOU for financial assets, but a unique way of expression sandwiched between marketing and finance.

Finally, I would like to emphasize that the tokens we are talking about here do not include crypto assets that play the role of "underlying currency" such as Bitcoin and stablecoins. They are another paradigm and the entrance to another financial system. They do not belong to the corporate-level asset structure issue we are discussing. (If you are interested in this topic, you can read another article by Hong Lin Lawyer: "Layered Currency: Re-understanding Gold, US Dollar and Bitcoin")

But for Web3 entrepreneurs, understanding that "equity is an expression of power and tokens are rewards for users" may be the most critical lesson in re-understanding company structure and asset design.