The Game Between Tokens and Equity: Revealing the Fundamental Conflict Behind Token Economics

比推Publicado em 2025-12-11Última atualização em 2025-12-11

Resumo

The article "The Dark Side of Altcoins" by Crypto Dan explores the fundamental conflict between company equity and token holders in crypto projects. It argues that most projects are essentially companies with tokens, creating a structural conflict where equity (backed by VCs and boards) inevitably captures value at the expense of token holders. This leads to tokens trending toward zero despite project success. Hyperliquid is highlighted as an exception because it avoided VC equity financing, directing all economic value to the protocol instead of a corporate entity. The piece explains that tokens cannot legally function like stocks without being classified as securities, triggering regulatory issues. The ideal structure involves no company revenue capture, value accrual to token holders via mechanisms like buybacks, and DAO-controlled economic decisions. However, true alignment requires no corporate structure at all, akin to Bitcoin or Ethereum. The core issue is structural: tokens fail due to design flaws like VC funding, private sales, unlock schedules, or company revenue retention. Solutions require investors to stop funding flawed models and support projects like Hyperliquid that prioritize tokenholder alignment through thoughtful design.

Author: Crypto Dan

Compiled by: Saoirse, Foresight News

Original title: The Dark Side of Altcoins

People always ask why almost all tokens go to zero, with only a few exceptions like Hyperliquid.

It all boils down to one thing that no one talks about openly: the structural game between company equity and token holders.

Let me explain it in simple terms.

Most cryptocurrency projects are essentially just companies with an attached token

They have the following characteristics:

  • An entity company

  • Founders holding equity

  • VC investors with board seats

  • CEO, CTO, CFO

  • Profit goals

  • Future exit (cashing out) expectations

Then, they casually issue a token.

What's the problem?

Only one of these two can capture value, and equity almost always wins.

Why Dual Financing (Equity + Token) Doesn't Work

If a project raises funds through both equity and a token sale, it immediately creates conflicting interests:

Equity side's demands:

  • Revenue → Flows to the company

  • Profit → Flows to the company

  • Value → Belongs to shareholders

  • Control → Belongs to the board

Token side's demands:

  • Revenue → Flows to the protocol

  • Token buyback / burn mechanisms

  • Governance rights

  • Value appreciation

These two systems will forever be in a game against each other.

Most founders ultimately choose the path that satisfies the VCs, and the token's value continuously erodes.

This is why, even if many projects are "superficially successful," their tokens still inevitably go to zero.

Why Hyperliquid Stands Out in a Field Where 99.9% of Projects Fail

Besides being the protocol with the highest fee revenue in the crypto industry, the project also avoided the biggest "killer" of tokens — VC equity financing rounds.

Hyperliquid never sold its equity, has no VC-dominated board, and thus no pressure to direct value to the company.

This allows the project to do what most cannot: direct all economic value to the protocol, not to the corporate entity.

This is the fundamental reason its token can be an "exception" in the market.

Why Tokens Legally Cannot Function Like Stocks

People always ask: "Why can't we make tokens directly equivalent to company stock?"

Because if a token has any of the following characteristics, it will be deemed an "unregistered security":

  • Dividend payments

  • Ownership

  • Corporate voting rights

  • Legal claim to profits

Then, US regulators would crack down on the project overnight: exchanges couldn't list the token, holders would need KYC, and its global distribution would be illegal.

Therefore, the crypto industry has chosen a different development path.

(The Optimal Legal Structure Used by Successful Protocols)

Today, the "ideal" model is as follows:

  1. The company does not capture any revenue; all fees belong to the protocol;

  2. Token holders capture value through protocol mechanisms (e.g., buybacks, burns, staking rewards, etc.);

  3. Founders capture value through tokens, not dividends;

  4. There is no VC equity;

  5. Economic decision-making power is held by a DAO, not the company;

  6. Smart contracts automatically distribute value on-chain;

  7. Equity becomes a "cost center," not a "profit center."

This structure allows the token to function economically similarly to a stock while avoiding securities laws. Hyperliquid is the most typical successful case study currently.

But Even the Most Ideal Structure Cannot Fully Eliminate Contradictions

As long as a project still has a corporate entity, potential conflicts of interest will always exist.

The only path to achieving a truly "conflict-free" state is to reach the ultimate form like Bitcoin/Ethereum:

  • No corporate entity

  • No equity

  • Protocol runs autonomously

  • Development work funded by a DAO

  • Possesses neutral infrastructure properties

  • No legal entity that can be attacked

Achieving this is extremely difficult, but the most competitive projects are moving in this direction.

The Core Reality

Most tokens fail not because of "poor marketing" or "bear market conditions," but because of flaws in their structural design.

If a project has any of the following characteristics, it is mathematically impossible for the token to achieve long-term sustainable appreciation. Such designs are doomed from the start:

  • Has conducted VC equity financing

  • Has conducted private token sales

  • Has token unlock schedules for investors

  • Allows the company to capture revenue

  • Uses the token as a marketing coupon

Conversely, projects with the following characteristics can achieve completely different end results:

  • Direct value to the protocol

  • Avoid VC equity financing

  • Have no investor token unlock schedules

  • Align founder interests with token holders

  • Make the company economically insignificant

Hyperliquid's success is not "luck"; it stems from thoughtful design, a sound token economic model, and a high degree of interest alignment.

So, the next time you think you've "found the next 100x potential token," maybe you have, but unless the project adopts a token economic design like Hyperliquid pioneered, its ultimate fate will still be a slow grind to zero.

The Solution

Project teams will only optimize token economics when investors stop providing capital for projects with flawed designs. They won't change because you complain; they will only adjust when you stop giving them money.

This is why projects like MetaDAO and Street are so important to the industry — they are pioneering new standards for token structures and holding project teams accountable.

The future direction of the industry is in your hands, so allocate your capital wisely.

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Original link:https://www.bitpush.news/articles/7595034

Perguntas relacionadas

QWhat is the fundamental conflict between tokens and equity in crypto projects according to the article?

AThe fundamental conflict arises from the structural tension between company equity and token holders. Equity holders (founders, VCs) benefit from company profits, revenue, and control, while token holders seek value accrual to the protocol through mechanisms like buybacks, burns, and governance. These interests are inherently opposed, and equity almost always wins, leading to token value drainage.

QWhy does the article claim that dual financing (equity + token) doesn't work?

ADual financing creates conflicting interests: equity side demands revenue, profits, and value to flow to the company and shareholders, while token side expects value to accrue to the protocol via mechanisms like revenue sharing or token burns. This conflict forces founders to prioritize VC interests, causing token value to decline over time.

QHow does Hyperliquid avoid the typical pitfalls that cause most tokens to fail?

AHyperliquid avoids VC equity financing rounds, has no VC-dominated board, and directs all economic value to the protocol instead of a corporate entity. This alignment ensures token holders capture value through protocol fees and avoids the pressure to divert value to shareholders, making it an exception in the market.

QWhat legal constraints prevent tokens from functioning like traditional stocks?

ATokens cannot function like stocks because features such as dividend payments, ownership rights, corporate voting, or profit claims would classify them as unregistered securities. This would attract severe regulatory scrutiny, including delisting from exchanges, KYC requirements for holders, and legal violations for global distribution.

QWhat are the key characteristics of an ideal token protocol structure to minimize conflicts?

AThe ideal structure includes: no company revenue (all fees go to the protocol), value accrual to token holders via mechanisms like burns or staking rewards, founders benefiting from tokens rather than dividends, no VC equity, DAO-controlled economic decisions, on-chain value distribution via smart contracts, and making equity a cost center rather than a profit center. This mimics stock-like economics without triggering securities laws.

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