Equity is an expression of power, and Token is a reward for users.

Written by: Liu Honglin

Many people ask me how I view the relationship between equity and Token in Web3 companies. This question may sound like a cliché, but in reality, it relates to the core asset design logic of a company: what exactly are you relying on for financing? What connects you to users? What allows you to realize capital monetization? These questions fundamentally determine the differences between Web3 companies and traditional internet companies.

In this article, Lawyer Honglin wants to discuss three aspects with everyone: the future financing paths of Web3 companies, value distribution, and the trend of integration between equity and Token.

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

This is my first clear judgment about the Web3 industry: the issuance of Tokens will still be a mainstream action in the future, but its positioning is undergoing a fundamental shift — it is no longer used for raising funds, but rather to activate users and distribute the value generated by 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 has cooled and compliance paths are unclear, Tokens have become a tool for many startup teams to "raise funds indirectly." With a white paper written, an airdrop conducted, and a listing on an exchange, project teams and early investors sell off their holdings first, leaving users to take over last. This "financing - issuance - harvesting" logic once became the default play in the industry.

However, today, this approach is becoming increasingly difficult. On one hand, there is the tightening of regulations, especially as mainstream jurisdictions like the U.S., Europe, and Hong Kong gradually tighten their oversight of Token financing; on the other hand, users are maturing — the old narratives are no longer effective, and the dream of "financing equals financial freedom" is becoming harder to sell.

At the same time, a new path is taking shape: Tokens are not the "chips" for project initiation, but rather the "tools" for platform operation. Their 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 about sending out Tokens for money, but sending them out to exchange for users.

But this does not mean that Tokens have "degenerated" into a points system. On the contrary, they play a role as a "composite incentive tool" that is more complex and has a greater incentive effect than traditional points systems. They can bind user behavior (such as trading, recommending, interacting), combine with NFTs for tiered rights design, and guide community self-organization and governance. This ambiguous state of being "quasi-financial, non-security" is the charm of the Token mechanism and the reason it cannot be easily summarized with the term "points."

In other words, Tokens are not "just a few more points in the system," but rather "a new set of native incentive language that can circulate, be priced, and match different user value contributions within the system." They are a way for users to participate in platform growth, redefining costs that would originally be consumed in the operational budget as "circulating assets." This is also why Web3 projects continuously emphasize elements like "incentive mechanisms," "liquidity," and "value anchoring" when designing Token economic models, rather than simply "reward points."

Equity remains the legitimate path for capital monetization in Web3 companies

The second judgment is also very clear: for the vast majority of companies that genuinely want to grow strong and achieve lasting success, the ultimate path for capital monetization still lies in traditional equity channels. In other words, when it comes time to raise funds, they should do so through equity financing, and when exiting, they should pursue IPOs, mergers, or equity transfers. Tokens will not, and cannot, replace the role of equity.

This point is very important. Many project teams initially fall into a misconception: since Tokens can be traded on exchanges, and users can buy and sell them, does that mean Tokens can replace equity, or even simply "eliminate equity and only issue Tokens"? But if you take a moment to think about it, is there a pegged relationship between Token prices and company profits? If a company performs well, will Token prices definitely rise? Does holding Tokens grant users voting rights or dividend rights in the company?

The answer is basically "no." Tokens and equity are two sets of logic, two worlds. Expecting Tokens to replace equity is akin to hoping that earning coins in a game can be exchanged for a house or a car — it is a fantasy of the same level. You can participate, circulate, and receive incentives within the platform, but that does not mean you own the platform.

The true asset value of a company and its ultimate capital returns are always reflected in that dry but real and effective balance sheet. Equity represents a legal claim to the company's net assets and future profits, and this cannot be replaced by Tokens, regardless of the jurisdiction or financial system.

For this reason, Web3 project teams must clearly recognize: Tokens are operational tools, not financial exit paths. When it comes time to introduce large-scale financing or achieve mergers or IPOs, Tokens do not possess any legal or commercial "capital exit channel" functionality. Financing, mergers, and restructuring must ultimately be realized through equity. You cannot expect a potential investor to say, "I want to acquire 10% of your company shares," and you hand over a string of Token addresses and say, "This is it."

The integration of Tokens and equity is the industry's focus for the next stage

However, the situation is not a clear-cut binary opposition. In fact, the trend of integration between Tokens and equity is becoming increasingly evident, which is my third judgment on the development direction.

The most typical case is the concept of "security tokens" being brought back into discussion. This concept was discussed as early as the 2018 STO bubble, but was shelved at that time due to unclear regulations and immature infrastructure. Now, with advancements in on-chain compliance technology and traditional financial institutions gradually entering the Tokenized asset field, this path is beginning to become a realistic possibility.

For example, a listed company can tokenize part of its shares, turning them into on-chain certificates. Alternatively, fund products can be structured as Tokens, allowing for finer granularity in share division and circulation. In this model, Tokens are no longer "points within a virtual economy," but rather "digital expressions of real financial products," possessing genuine asset mapping and legal rights.

Of course, such designs come with very high compliance requirements. KYC, anti-money laundering, qualified investor identification, information disclosure, custodial audits — all the serious processes of traditional finance must be integrated into the Token's lifecycle. These processes must also rely on the intermediary forces within the traditional financial system — securities firms, compliant exchanges, regulated custodial institutions, etc.

Thus, we will see an interesting trend: the future world of Tokens is not a completely idealized "decentralized" utopia, but rather a "digital extension" of traditional finance. The combination of equity and Tokens is not aimed at eliminating all intermediaries, but rather at enhancing the liquidity and programmability of assets within a new technological context.

Summary: The dual ledger structure of Web3 companies

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

Web3 companies are "dual ledger" entities — one ledger records the names of shareholders and reflects equity; the other ledger records user addresses and issues Tokens.

The former determines the company's control, financing ability, and capital exit path, serving as the core asset of the corporate governance structure; the latter determines whether users are willing to stay long-term and participate in growth, acting as the growth engine that can validate the business model.

We cannot expect Tokens to replace equity; they are not a vehicle for ownership. But we also cannot ignore the power of Tokens; they are a key means of activating users and market expectations. They are neither a string of hollow incentive codes nor a financial asset's IOU, but rather a unique expression that lies between marketing and finance.

Finally, I want to emphasize: the Tokens we are discussing here do not include cryptocurrencies like Bitcoin or stablecoins that serve as "base currencies." They represent another paradigm and another entry point into a different financial system, which does not belong to the discussion of corporate-level asset structure issues. (If you are interested in this topic, you can read Lawyer Honglin's other article: "Layered Currency: A Reinterpretation of Gold, the Dollar, and Bitcoin.")

But for Web3 entrepreneurs, understanding "equity is an expression of power, and Token is a reward for users" may be the most crucial lesson in rethinking company structure and asset design.

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