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There’s an interesting dichotomy in crypto between venture-backed tokens and community-first tokens. Each one is represented by prominent people within the ecosystem and have their reason to exist. One side defends that tokens should have “real utility” beyond speculation and the other one that speculation is a use case by itself. The first is treating tokens like equity, and the second one claims that tokens are in fact the product, or at least a type of product. I see VCs like a16z on the first side, and VCs like Boost and SeedClub on the other.
Fungi stands with the second group, but claiming that there has to be a trade-off for holders, founders, and VCs in order to keep incentives aligned.
First, let’s stop treating tokens as equity
Blockchains enable digital scarcity in an era of digital abundance. Tokens are just means to express that scarcity — digital representations of whatever you can imagine.
When normies say that tokens have no “real value” because they don’t generate positive cash flows nor pay dividends to holders, they’re thinking of tokens as equity. That’s a mistake. It’s obvious that a token can represent a piece of a business; but also ideas, communities, cultures, jokes, memes, real world assets, countries.
VC-backed tokens are losing against community-first tokens (memecoins, scenecoins). Users prefer to buy a meme rather than a “universal intersubjective work token” with half of the supply going to founders and VCs. The mistake that VC-backed companies are making is that they’re tokenizing their businesses too early (treating them as equity) when there is no PMF, no profit, and no loyal customer base. Companies go public when they reach a certain size for a reason.
And start treating tokens as products
We (founders) should launch tokens that users love to buy, exchange, and hold. Token UX is underrated and super important, because users aren’t buying the business, they’re buying the experience of holding that token. So, if a founder is building a product that solves X problem for users beyond speculation, it makes total sense to launch a second product that works as an attention and distribution mechanism for the first, but keeping in mind that the token is a product itself, not a share of the first product.
Treating tokens like products also opens the door for founders launching more than one. This isn’t something new btw, Yuga Labs launched BAYC first (1st product), then MAYC (2nd product), then APE (3rd product). It doesn’t matter if the tokens are fungible or not; those are different products for different kinds of users. It’s true they’ve failed shipping a product beyond speculation (for now), but did an amazing distribution job with the first three.
Now, let's use the YC manual and believe that the key to building a successful product is to focus on solving problems and talk to users. Well, the problem is that we (crypto users) love speculation and we’re constantly looking for things to buy that may go up (a lot), and at the same time, we think that tokens with an absurd fully diluted valuation and >40% of the supply owned by VCs and founders are shit. That’s a fact.
But here’s another fact: Memecoins don’t generate any kind of innovation per se and VC-backed companies are actually the ones aiming to move the ecosystem forward. Without VC money, it’s impossible to scale crypto and bring it to billions.
So the question is: how do we realign incentives in a way that holders, founders, and VCs are happy?
Token transaction fees deserve to be explored
They’re also called “token taxes” or “transaction taxes”, but who likes taxes? A better word is definitely needed. I know that It’s almost impossible to sell my point using that word, but let’s try it anyway.
“Token transaction fees” are just percentage fees charged to holders when transfering a token. The fee is programmed on the token smart contract and it’s usually paid by the holder who initiates the transfer (taken from the sent amount): initiated transfer amount > received transfer amount. It’s also possible to discriminate between transfers and swaps, so for example the fee of transferring a token between EOAs could be zero while the buying/selling fee through an AMM could be X basis points.
My point is: if holders (users) prefer community tokens rather than VC tokens, founders treat tokens as products that help with attention and distribution, and VCs are here to play the long game, the solution for founders seeking technological innovation may be to launch a community-first token with a small transaction fee, renounce supply allocation, and give smaller allocations to VCs. Here’s why:
If tokens are products, it makes sense that they generate revenue for its creators, just as any other product in the world. It’s common sense.
Revenue captured from token consumption can be used to fund development (less capital needed to scale), incentivize growth in creative ways, cause deflation, and more.
Token holders (degens) prefer to spend a small fee with every swap (let’s say between 20 and 50 basis points) rather than holding an asset with absurd FDV and half the supply owned by founders and VCs. That's the holders' trade-off.
Founders renounce their supply allocation in exchange for generating revenue from day 1. The door remains open to launch one or more tokens in the future for other purposes (including tokenized equity), and their companies get more valuable because of the revenue and social impact of the token. Sounds good to me.
Early-stage VCs would take a small allocation of the community first token’s supply (let’s say 10% max), and would start valuing equity more, since the project would be generating revenue from day 1. They get early liquidity from the community-first token, also exposure to the business side of the project, and could still potentially receive a future allocation of the tokenized equity when the time comes.
Feedback is super welcome!
We’re super interested in discussing this topic with the three groups involved: token holders, founders, and VCs.
Please feel free to share your thoughts, support, or especially, your criticism.
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