Crafting Crypto Tokens for Utility and Equity

The launch of new tokens often follows a disappointing pattern. Projects overhype their tokens, which lack inherent value, and then witness a drastic decline in market price. Many attribute this trend to regulatory ambiguity, suggesting that only tokens with no practical use can thrive in the current regulatory environment. However, we disagree. As lawyers who advise founders on regulatory compliance, we emphasize the importance of developing tokens that serve a purpose and are fair to all stakeholders. This approach involves stepping back from legal intricacies and addressing two fundamental questions: how can the token be made useful, and how can it be made fair? A token is considered useful if people want to hold it for reasons beyond investment. For instance, some tokens provide access to blockchain-based services, facilitate decision-making, or incentivize contributions. Bitcoin is a prime example of a useful token, as it enables peer-to-peer transactions and secures the Bitcoin network. Similarly, decentralized physical infrastructure network (DePIN) tokens have proven useful by incentivizing global operators to participate in decentralized networks. A token is considered fair if its creation and distribution are transparent and equitable. The 'front page test' is a useful measure: would you be proud to have your project's details featured on the front page of a major newspaper? Avoiding 'decentralization theater,' where token creators pretend to build community-governed projects while maintaining control, is crucial. Instead, founders should prioritize honesty and transparency. While focusing on fairness and transparency is essential, it is not a substitute for regulatory compliance. Founders still need to work with lawyers to ensure they are not violating laws. Nevertheless, by concentrating on creating useful and fair tokens, the industry can achieve long-term success and pave the way for more comprehensive regulation.