Can Equity-Tied Tokens Save Cryptocurrencies?

By: Brian Flynn

Translated by: AididiaoJP, Foresight News

For the past five years, I’ve been trying to solve crypto’s “misaligned incentives” problem.

Most token designs pit holders against one another.

That’s the exact opposite of what tokens are supposed to achieve. Tokens should unite teams, investors, and users around a shared goal. The idea that everyone holding the same asset naturally wants the project to succeed is sound—on its face. The problem lies in the token models we’ve built, which reward people for *selling*, not *holding*. That single design choice has broken everything.

This article isn’t about promoting a project I’m building. It’s about what I believe is the industry’s core unsolved problem—and the direction we should be advocating for with regulators.

For eight years, we’ve watched the same script play out: launch, hype, insider unlock, dump-and-run, retail left holding the bag. It’s so familiar that we barely register it as a problem—as if tokens were *meant* to work this way. But I don’t think we’ve ever honestly confronted the root cause. And I haven’t seen anyone push forward a genuinely better token model—one we can point to and say, “This is what we *should* do.”

Now, an unprecedented regulatory window has opened. But the problem is we’re walking into it without having clearly defined what a “good token” even looks like.

The Race to the Exit

When you profit by selling tokens, every other holder becomes your competitor.

A team launches a token; early investors jump in. The team itself holds a large allocation—but it vests gradually. Users buy on the open market. On the surface, interests appear aligned. In reality, everyone watches everyone else, calculating when to sell. Investors watch for the first major unlock. The team watches for its own exit opportunity. Users watch, hoping to flee before insiders do. This isn’t alignment—it’s a race to the exit.

Vesting and unlock schedules don’t fix this. They only determine *who gets to run first*—and the answer is always insiders ahead of retail. Everyone’s “endgame” stops being “How do we grow this project?” and becomes “When do I sell?”

Even the “Smart” Fixes Don’t Work

What about buybacks? Burns? Staking rewards? These are all attempts to solve the problem—but they share the same flaw: they’re convoluted. Buybacks and burns may lift price—but you still have to sell to realize gains. Staking rewards are worse: new tokens are minted and distributed to holders, diluting supply and creating fresh sell pressure. That’s not yield—it’s a treadmill dressed up as yield.

If your token model requires holders to sell to profit, you haven’t aligned incentives—you’ve built a musical chairs game.

Industry Progress

There *are* signs the industry is groping toward the right direction. Projects like Aave, Morpho, and Uniswap are pushing to merge equity holders and token holders—to bring insiders and the community to the same table and eliminate opposition. That direction matters deeply.

But it still doesn’t solve the “race to the exit.” Everyone is still playing the same game: profit by selling. Partial fee switches and governance-distributed revenue are incremental improvements—but they’re still scratching the surface. To truly solve the race-to-the-exit problem, you must go all the way.

A Working Model

Imagine this: 100% of the protocol’s revenue is allocated at the discretion of token holders—not the team, not some backroom decision. Holders vote on how much goes directly to distributions, how much funds further development, and how much goes into reserves. Public companies do exactly this—shareholders vote on whether to distribute dividends or reinvest. The crypto version is just more direct and transparent.

No vesting needed—because there’s no longer a “who runs first” game. You don’t profit by selling—you profit by holding. As long as the protocol generates revenue daily, you receive your share of whatever the community votes to distribute. Sell, and your distributions stop. Hold, and they continue. The math is simple. The strategy is clear: help the protocol earn more.

Example: Suppose a protocol earns $1M per year. Holders vote to allocate 70% to distributions and 30% to development. There are 1M tokens total. Each token earns $0.70 annually—and because development is funded, the protocol continues to grow. You don’t need to time buys or sells. You don’t need to outmaneuver other holders. You hold—and keep earning.

Competition finally points in the right direction: it’s *your protocol* competing with *other protocols* for users and revenue—not holders competing against each other.

When everyone profits by holding, motivation shifts from “exit” to “hold—and advocate for the project.” Such projects begin to resemble traditional businesses—not VC-style gambles. They prioritize dividends over hype, revenue over rhetoric. That may be exactly what crypto needs most today.

Why Didn’t Anyone Do This Sooner?

Two reasons—and both are changing.

First, the “insider game” used to pay faster. If you could generate 10x returns by hyping and dumping on retail, why bother building a real revenue-generating business? That era is ending. Retail is getting smarter. On-chain data makes insider moves fully visible. Teams committed to real work are the ones planning to stay.

Second, securities law. A token that distributes revenue to holders looks, under the Howey Test, very much like a security. For years, every serious team in the industry feared this. Even founders who knew revenue sharing was superior dared not pursue it—fearing classification as an “unregistered security.”

That’s why so many protocols circle around indirect mechanisms like burns and buybacks—not because they’re better, but because they let teams sidestep direct distributions and offer plausible deniability: “See? We’re not distributing cash directly.” Much of today’s token design stems from legal fear—not technical reasoning.

There’s also a practical hurdle: infrastructure wasn’t ready. Automating large-scale, trustless, programmable revenue distribution on-chain required cheap transactions, reliable smart contracts, and battle-tested infrastructure. Five years ago, doing this on Ethereum mainnet would have cost more in gas fees than most protocols earned. Today, with L2s and modern infrastructure, it’s finally feasible.

Why Now Is the Time

Regulatory change over the past year has surpassed the prior eight years combined. In January 2025, the U.S. Securities and Exchange Commission (SEC) launched a dedicated Crypto Assets Task Force, led by Commissioner Hester Peirce, with a clear mandate: “establish clear regulatory boundaries and provide practical, actionable registration pathways.” Peirce herself proposed a “Safe Harbor” framework—giving projects a grace period to build before final classification. The SEC and Commodity Futures Trading Commission (CFTC) jointly issued a statement pledging coordinated oversight of digital assets. These aren’t empty promises—they’re active rulemaking in motion.

But this window won’t wait. This is a midterm election year; the current relatively open political climate may not survive until the next cycle. If we sit idle, the window may close before we’ve produced anything worth supporting. Worse—if the industry fails to propose credible alternatives, the next wave of token blowups will lock in regulation *by precedent*: the bad actors will define the baseline, and compliant revenue-sharing models will get caught in the crossfire.

That’s why discussing this now is critical—not reactively, not post-hoc, but proactively. If we don’t tell regulators what a “good token” looks like, they’ll default to the worst examples. Rug pulls and pump-and-dumps will become the regulatory benchmark—while legitimate income-sharing models get mischaracterized and penalized.

Projects like Aave, Morpho, and Uniswap—merging equity and token holders—are already demonstrating the industry’s intent to move toward real economic value. Regulators should support that direction—not oppose it. But only if we articulate it clearly, publicly, and before the window closes.

Every Founder Should Ask This Question

If you’re designing a token today, ask yourself: Do your holders profit by *selling*—or by *holding*?

If the answer is “selling,” you’ve built a musical chairs game. Some get chairs. Most don’t. And those who don’t will remember.

If the answer is “holding,” you’ve built something where everyone profits by growing the pie—the true “alignment of interests” tokens were meant to deliver.

Of course, this isn’t simple. Revenue-sharing models raise complex questions around token classification, distribution mechanics, and governance. But it’s a far better starting point than what we have today.

The regulatory window is open—but it won’t stay open forever. Midterms will shift the landscape. The next major token collapse could slam the door shut before income-sharing models ever get a fair hearing. If we want better rules, we must tell regulators what “better” looks like—now. Not in the next cycle.