Why Are Tokens Being Viewed As A Better Mode To Incentivize Start-up Employees Rather Than Equity – Part 1
Why are tokens being popularised? Know all the details in two parts. Explaining the advantages of payment in tokens.
Tokens On The Blockchain Technology
It was found that the most important considerations while designing a blockchain are the token structuring and tokeneconomics as they think about how it is best to distribute the tokens as founders often think about the tokens impacting external stakeholders similar to investors, the community and the stakers. Whereas token economises bring disruption to organisations internally it is especially when it comes to HR and compensation.
Directly aligning with the goal of the project are the external stakeholders as the tokens are structured properly for a blockchain as the incentives encourage participation on the blockchain platform driving token demand with community-building and marketing as the internal stakeholder incentives come to be structured correctly in case the project could accrue long term value motivating employees to work towards the same goal reducing adversarial behaviour as well as bad actors.
Thereby for any of the blockchain companies to succeed in the long term and scale it comes inevitably as they need to structure the tokens retaining and rewarding the best employees sustainably as it is important that not more important than incentivising external token holders.
The Opinion Of The Employee Regarding Tokens Vs Equity
As it is observed currently the equities come in the form of stock options that are widely distributed as part of compensation packages amongst start-ups as the employees join the company as they are usually offered a combination of cash as well as stock options. Thereafter it is the options that become the way for employees to meaningfully participate in the company’s upside as they succeed where often employees negotiate between taking a higher cash crop or the higher options amount depending on their risk appetite.
In many ways, tokens and equity are similar as both assets motivate individuals to align their goals with that of a company as the company becomes more successful with the value of tokens and equity theoretically going up. One of the downsides nonetheless of the stock options is that they usually require a liquidity event for the employee converting them to paper money where historically it was when a company went public as the employee converts their options into stocks selling them in public markets.
With the increasing amount of private capital and the subsequent larger private fundraising rounds, in the last decade companies are however taking a way longer to IPO as the companies similar to Dropbox took around eleven years from founding to IPO as the Airbnb has been around for ten years which has still not gone public and as a result, the private companies had started doing option buybacks thereby providing liquidity for the employees as the phenomenon caused the secondary market thriving in Silicon Valley
The Token Liquidity That Changes The Game
There are a lot of differences between tokens and equity where one is that tokens are immediately liquid assuming that they have already been listed on an exchange and putting simply the equity options prove their value at the end whereas tokens certainly do have values from the beginning. Primarily outside of the US employees could get paid in tokens instead of equity or cash in the cryptocurrency and blockchain companies. As an example, they can be then immediately sold upon reception assuming the token has been listed on an exchange as there is enough trading volume.
Hereby it is the one reason where exchanges come to be important for the cryptocurrency space due to reasons like :
It comes easier way to gauge the value of the company thereby the industry is yet to figure out the proper valuation methodology.Providing immediate liquidity for the employees as they have been burned by hopes that a billion-dollar company not coming to fruition as well as all the options going to zero.
Consider two companies that are the same for the employee looking for a job in the technology-based company as the same team quality and the targeted industry whereas one company has token incentive structure instead of equity incentive structure with the token already trading on an exchange. The question here is why would the employee ever want equity as with tokens, they still share the upside in the company’s success whereas they have immediate liquidity.
The Discussion To Be Continued
Outside the US additionally, employees get paid in tokens or stable coins in lieu of cash taking advantage of tax benefits of the blockchain given the lack of regulatory sophistication as it may thereafter change very soon and thus the token structure is a disruption to the company’s internal structure sharing some examples below how that’s already affecting several Chinese crypto companies.