Web3 Business Models: Assigning Token Asset and Debt Attributes
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Web3 Business Models: Assigning Token Asset and Debt Attributes
The main content of this article focuses on exploring the characteristics of Web3 business models and how they differ from Web2.
Navigating Web3 tides with focused insightsAuthor: Kylo, Foresight Ventures
Tips:
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Unlike Web2 companies, Web3 projects can tokenize equity and achieve fair distribution of tokens
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The essence of fair tokenized equity issuance is a marketing strategy aimed at acquiring early users and achieving cold-start for the ecosystem
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Web3 asset issuance methods include narrative-driven issuance, asset leverage, and equity tokenization
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LSD is a lossless leverage process within DeFi
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Systemic debt can be resolved through time-for-space or parent-token spawning child-token mechanisms
This article primarily explores the characteristics of Web3 business models and their differences from Web2. When we say a project has a certain business model, it means the project maximizes customer value by integrating internal and external elements into an efficient system with unique core competencies. Compared to Web2 enterprises, Web3 incorporates Tokens into its business model—essentially combining the internet with assetization. Assetization is a key feature distinguishing Web3 from Web2, enabling rights such as IP, traffic, and ownership to be represented as Tokens. The introduction of Tokens gives Web3 businesses greater operational flexibility compared to Web2.
1. Relationship and Differences Between Web2 and Web3 Business Models
The definition of Web3 originates from Web2 and in many ways inherits its business logic. Web2’s business model is clear: aggressively capture market share to gain monopolistic pricing power, which naturally leads to monopolistic profits. This aggressive expansion involves heavy subsidization, funded by high-premium equity financing. Through massive subsidies and marketing, Web2 platforms dominate user perception and markets, securing monopoly returns. In the Web2 era, high valuations based on equity are fundamentally derived from LTV (Lifetime Value), where VCs inflate the bubble and later pass it on to retail traders via public listings.
Web3 shares similarities with Web2 but also differs significantly. Both involve subsidization and aim for monopolistic outcomes; however, Web3 enables equity tokenization and fair token distribution.
For Web2 companies, operations rely solely on cash flow and VC funding. Equity issuance in early stages is limited to VCs, whose exit depends on IPOs and subsequent retail trading. In contrast, for Web3, token issuance itself functions like an immediate上市 (listing) of equity. With tokens, retail investors become direct financiers. Due to their collective and often irrational behavior, retail participants tend to drive premiums on tokens (equity).
To better understand this, consider Meituan as an example. In a Web2 scenario, Meituan subsidizes merchants, riders, and users using cash from operating cash flows or funds raised by selling equity to VCs. In a Web3 context, the platform skips traditional fundraising and directly conducts fair equity issuance, allowing all participants—riders, merchants, users—to receive company equity directly.
However, this raises a critical issue: equity valuation. Web2 companies use rigorous valuation frameworks during VC rounds to determine equity value. In Web3, equity value is priced purely based on secondary market prices—paper valuations subject to market sentiment. Due to crowd irrationality, these valuations may exhibit significant premiums. Moreover, Web3 projects intentionally create such premiums to attract participation, sometimes even manipulating markets early on to enhance perceived returns.
1.1 The Asset and Debt Attributes of Tokens
From the above model, we can observe the asset attribute of Tokens—they act as “equity” fairly distributed among platform participants. Participants engage because they believe the issued Tokens hold value, reflecting their inherent asset nature. However, if a Token trades at a premium, that premium becomes systemic debt. Thus, when overvalued, Tokens simultaneously carry debt attributes. While different in form from Web2 corporate debt, the underlying principle is the same. From a Web2 perspective, companies finance through two main channels: equity and debt financing. Debt must be repaid via operating cash flows; once cash flow breaks down, default occurs and creditor value plummets. From a Web3 perspective, when projects conduct equity issuance via Tokens, it's typically done at a premium. If operating cash flows fail to offset the inflated supply, the Token risks collapsing in value just like a defaulted bond. Hence, over-issued Tokens represent systemic liabilities—this is the so-called debt attribute of Tokens. Currently, there are only two ways to resolve such systemic debt: time-for-space or finding sacrificial lambs (i.e., "greater fools").
Balancing the dual nature of Tokens—their asset vs. debt characteristics—is a constant challenge for Web3 protocols. What the industry calls tokenomics design and market manipulation tactics are essentially attempts to manage this duality. Understanding how Web3 issues assets, leverages token premiums (debt aspect) to acquire users, and ultimately resolves debt could unlock the true essence of Web3.
1.2 Web3 Methods of Asset Issuance
Earlier, we discussed how equity tokenization distinguishes Web3 from Web2. But in reality, equity tokenization is only one of three primary methods of asset issuance in Web3—the others being narrative-based issuance and asset leverage.
1.3 Asset Issuance Through Narrative
Narrative stems from consensus or the authority/credibility of a centralized entity. In this sense, the issuance of fiat currency follows the same logic—backed by institutional credibility and enforced circulation by state power. Before modern monetary systems, gold and silver served as money due to universal consensus. Consensus confers value upon objects. From this angle, NFTs, BRC-20s, and various meme coins are extensions of value derived from narrative. When people think “this item has value and I’m willing to pay my expected price,” the object effectively becomes an asset. Delving deeper, consensus includes emotional alignment, ownership rights, intellectual property, and other complex social factors. Once accumulated sufficiently, these transform ordinary items into valuable assets.
1.4 Asset Leverage
Asset leverage is common in TradFi. When depositing large sums in fixed-term bank accounts, you receive negotiable certificates (CDs). These CDs can then be used as collateral for loans—an example of asset leverage. In DeFi, LSD and LP Tokens function similarly, creating new assets out of existing ones. A significant portion of DeFi TVL (Total Value Locked) or AUM (Assets Under Management) likely comes from leveraged assets.
During bull markets, Web3’s AUM/TVL expands rapidly—often exponentially—not only due to increased asset inflows but also because of widespread leverage. ETH’s transition to PoS was highly beneficial for its DeFi ecosystem precisely because LSD represents a lossless leverage mechanism for ETH. Most forms of leverage incur costs—interest rates or liquidity penalties. For instance, Uni V3 LP Tokens can serve as assets but suffer from poor liquidity; MakerDAO and crvUSD issue stablecoins backed by real assets, yet require interest payments as cost.
The greatest utility of LSD in DeFi lies in its lossless leverage—no interest costs, no liquidity loss. Previous-cycle DeFi growth was built on ETH-denominated primitives. Introducing LSD adds another asset transmission layer across the entire DeFi stack. This implies that in the next cycle, DeFi will reach higher levels of leverage than before—precisely why we bet on LSDFi.
1.5 Equity Tokenization
Equity tokenization differs from narrative-based issuance and asset leverage. It requires projects to meet real user needs and generate genuine external revenue. Today, Web3 supports multiple revenue-generating use cases:
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Service fees: swap fees, borrow fees, perp trading fees
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Bribery/campaign funding
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External revenues: e.g., Render Network charging for GPU rendering services
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Sales revenue: GameFi NFT and token sales, DePIN hardware sales
When a protocol generates such real revenues, equity tokenization becomes viable. Tokens then incorporate economic design—aiming to sustain their asset-like properties through external cash inflows. Typically, projects enable fair equity distribution among stakeholders, leveraging this process to bootstrap the ecosystem. In other words, fair post-tokenization equity distribution is essentially a marketing tactic to acquire early adopters and initiate ecosystem growth.
There are various approaches to fair equity tokenization, including:
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Liquidity mining
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Trading mining
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DePIN mining
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X2E
Behind this marketing model lies a sophisticated playbook. Take liquidity mining: the most common tactic is launching pools with low liquidity but high FDV (Fully Diluted Valuation), enabling price manipulation. Since nominal APY in liquidity mining depends on both secondary market prices and release schedules, and since emission rates cannot be changed easily, the optimal strategy is to maintain high token prices—either organically or artificially—to boost apparent yields. Most retail users lack proper valuation frameworks and often mistake nominal yields for actual returns. Projects exploit this cognitive gap, attracting users with seemingly high returns.
Thus, two key drivers underlie this marketing success:
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Deliberate manipulation by project teams
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Irrational valuation judgments by retail users
Only when both factors align does the marketing mechanism succeed. This raises two further questions:
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Why manipulate prices specifically during initial marketing?
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When do retail users make irrational valuation decisions?
The answers are cost and experience. When token distribution is cleanest, minimal resources yield maximum impact. In front of a new narrative, no one can apply a precise valuation framework—everyone is guessing. Therefore, identifying targets and entry points becomes clearer.
Fair equity token distribution is often a long-term process, usually accompanied by equity premiums. Such premiums are essentially bubbles—and constitute systemic debt. As debt accumulates, the system becomes increasingly vulnerable to collapse. Hence, various strategies must be employed to reduce or transfer this debt ("deflate the bubble").
2. How to Eliminate the Debt Attribute of Tokens
High-premium subsidies can indeed attract massive user adoption early on, but excessive issuance turns every token into another straw burdening the camel. There are several known ways to eliminate the debt-like nature of tokens—choosing the right method depends on the project’s uniqueness and scalability.
2.1 Time-for-Space
“No bank is free of bad debt”—this seems to be an accepted truth in banking. When bad debts occur, banks simply extend the timeline, using future interest income to cover past losses, allowing continued operation. If we analogize token issuance to banking, bad debt equals systemic debt accumulated from over-subsidization, while revenue comes from service fees generated by platform activity. Because tokens possess both asset and liability traits, a sharp drop in secondary price simultaneously reduces both asset and debt values. Over time, falling prices combined with steady fee accumulation gradually bring systemic debt down to manageable levels. When asset and debt attributes rebalance, the stage is set for the next bubble cycle fueled by token debt.
A classic example of this time-for-space approach is Curve Finance. It captured market share through heavy early subsidies and now enjoys liquidity dominance, granting it monopolistic pricing power over bribe fees. Since the last bull run, $CRV’s price has steadily declined, reducing debt via devaluation, while veCRV continues collecting bribes—slowly and steadily resolving debt over time.
2.2 Parent-Token Spawning Child-Token
If a project has strong composability or extensibility, it can spawn high-quality child-tokens to absorb or transfer its own debt/bubble. Before Blast launched, Blur might have planned to follow Curve’s time-for-space model—secure monopoly status and activate staking fees to gradually reduce systemic debt caused by oversubsidization. Blast accelerated this debt resolution. As Blur’s sacrificial lamb, Blast absorbed the excess systemic debt resulting from over-subsidization.
If we treat earlier-issued tokens as parent-tokens and later ones as child-tokens, three types of relationships exist between them:
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Parent-token as sacrifice
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Child-token as sacrifice
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Mutual reinforcement between parent and child
Each new child-token introduces a major trading opportunity—we must assess who benefits most between parent and child. When Blast introduced Blur staking, Blur effectively offloaded its debt, making Blur the biggest winner. Yet in special cases, we shouldn’t analyze parent-child dynamics purely rationally—especially when the parent is near death. Our first instinct may suggest opportunities lie in the child-token, but this intuition—and market consensus—can be wrong, as seen in the USTC case.
When USTC announced a new product, analysts rushed to dissect its Ponzi structure, how it would deflate more bubbles, and its potential significance. But focusing only on the product itself may lead to total failure. Why take it so seriously? The new mechanism might genuinely work, rising from the ashes with limitless potential. Or perhaps—just perhaps—the so-called innovation exists merely to provide a narrative for the dying parent project?
When a master manipulator presents a PPT about Ponzi design, luring countless “smart” people into analyzing its mechanics, and when the entire market gets distracted by novelty, the true intention—to pump the parent-token—becomes clear. At that point, whether the new project truly exists no longer matters—it was just a slide deck. The old faith reignites in users’ hearts, the community revives, and the USTC market play is complete.
3. Summary
Users and project teams have shifting preferences toward the asset vs. debt attributes of tokens depending on market cycles. In bull markets, capital appreciation dominates; users are highly sensitive to returns. Protocols prefer exploiting the debt attribute—expanding debt ratios and hoping to pass the burden to retail traders via secondary markets, deflating bubbles before launching new debt cycles. In bear markets, conservative user behavior favors cash-yielding products, pushing projects to emphasize the asset side—offering perpetuals, yield-bearing stablecoins, RWAs, etc.
From the perspective of fair equity token distribution, DeFi farming, GameFi farming, DePIN, PoW, and trading mining all represent variations of the same business model: how to influence paper yields via secondary market prices to achieve marketing goals. However, excessive token emissions create severe debt burdens, forcing protocols to deploy deflationary or debt-transfer mechanisms.
These theories explain numerous phenomena in secondary markets—such as using marketing logic to explain rallies in TAO, Clore.AI, RBN; or interpreting Gala’s 2021 surge through cash flow sustainability. Gala’s price rise closely mirrors typical DePIN and PoW project patterns. Before launching its own chain, Gala sold nodes priced in ETH, but rewards were paid in GALA. With slow node sales, BD and direct sales proved inefficient. The most effective path was inflating GALA’s secondary market value far beyond fundamentals. Since node ROI depends on GALA’s market price, high paper returns made node sales effortless. But here’s the catch: excessively high GALA prices indicate extreme exploitation of its debt attribute. How did Gala resolve systemic debt? The answer lies in the wallets of those who bought high-priced GALA tokens and nodes at the peak…
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