Dual Engine Driving Web3 Companies: Equity Financing and Token Incentives
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Dual Engine Driving Web3 Companies: Equity Financing and Token Incentives
Equity is an expression of power, while tokens are rewards for users.
Navigating Web3 tides with focused insightsAuthor: Liu Honglin
Many people ask me how I view the relationship between equity and tokens in Web3 companies. This question may sound cliché, but in fact, it touches on the core logic of a company's asset design: What exactly are you raising funds with? How do you connect with users? And how do you realize capital exits? These very questions define the fundamental difference between Web3 companies and traditional internet companies.
In this article, Lawyer Honglin wants to discuss with you three aspects: future financing paths for Web3 companies, value distribution mechanisms, and the convergence trend between equity and tokens.
Tokens will become mainstream—but not as fundraising tools
This is my first clear judgment about the Web3 industry: Token issuance will remain a mainstream practice in the future, but its role is undergoing a fundamental shift—not used to raise funds, but to activate users and distribute the value generated by platform growth.
What has been the most common use of tokens over the past few years? The answer is fundraising—especially when private market fundraising cooled down and regulatory clarity was lacking, tokens became a "roundabout" tool for many startup teams to raise capital. Write a whitepaper, launch an airdrop, get listed on exchanges; project teams and early investors cash out first, leaving users holding the bag. This "fundraising → issuance → exit at user expense" model once became the default playbook in the industry.
But today, this playbook is becoming increasingly difficult to execute. On one hand, regulations are tightening—especially in major jurisdictions like the U.S., Europe, and Hong Kong, where oversight of token-based fundraising is growing stricter. On the other hand, users are maturing—the old narratives no longer work. The dream that “fundraising equals instant wealth” is harder and harder to sell.
At the same time, a new path is emerging: Tokens are not the “chips” for launching a project, but tools for operating a platform. Their function is no longer merely proof of asset ownership, but more like an internal “value-sharing mechanism.” It’s not a fundraising logic, but a marketing logic. Not issued to collect money, but to acquire users.
However, this doesn’t mean tokens have “devolved” into mere loyalty points. Quite the contrary—they play a far more complex and powerful role than traditional point systems: a composite incentive instrument. They can be tied to user behaviors (such as trading, referrals, interactions), combined with NFTs for tiered rights design, and even drive community self-governance. This ambiguous state—“quasi-financial, non-securities”—is precisely what makes token mechanisms compelling, and why they cannot be easily reduced to “points.”
In other words, tokens aren’t just “adding some points into the system,” but rather “introducing a native incentive language that circulates, carries pricing, and matches different levels of user contribution.” They represent a way for users to participate in platform growth, and a method to redefine operational expenses—previously burned in marketing budgets—as “circulatable assets.” This is why Web3 projects, when designing tokenomics, constantly emphasize elements like “incentive mechanisms,” “liquidity,” and “value anchoring,” rather than simply treating them as “reward points.”
Equity remains the legitimate path for capital realization in Web3 companies
The second judgment is equally clear: For the vast majority of companies that truly aim to grow big and last long, the ultimate capital realization path still lies in the traditional equity route. That means raising funds through equity when needed, and exiting via IPO, M&A, or equity transfer. Tokens will not, and cannot, replace equity in this role.
This point is crucial. In the early stages, many project teams fall into a misconception: Since tokens can be listed on exchanges, since users can buy and sell them and prices can rise, can't we just use tokens instead of equity—or even skip equity entirely and issue only tokens? But if you pause and think rationally: Is there any real anchor between token price and company profitability? If the company performs well, does the token price necessarily go up? Do token holders have voting rights or profit-sharing rights in the company?
The answers are mostly “no.” Tokens and equity operate under two distinct logics—two separate worlds. Relying on tokens to replace equity is as illusory as expecting in-game gold coins to buy you a house or car. You can participate, transact, and earn rewards within the platform—but that doesn’t mean you own the platform.
The true asset value and ultimate capital returns of a company are always recorded on a plain but legally binding balance sheet. Equity represents legal claims to a company’s net assets and future profits—a right that cannot be replaced by tokens in any jurisdiction or financial system.
Therefore, Web3 project teams must clearly understand: Tokens are operational tools, not capital exit vehicles. When it comes time to raise significant funding, pursue M&A, or go public, tokens offer no legal or commercial pathway for capital exit. Fundraising, mergers, restructuring—all these actions ultimately depend on equity. You can’t possibly expect a potential investor to say, “I want 10% of your company,” and respond by handing over a token wallet address saying, “Here it is.”
The fusion of tokens and equity will be the next industry focus
Yet the situation isn’t a strict binary. In fact, the trend toward convergence between tokens and equity is becoming increasingly evident—this is my third key prediction.
A prime example is the revival of the concept of “security tokens.” Already discussed during the 2018 STO bubble, it was shelved due to unclear regulations and immature infrastructure. Today, with advances in on-chain compliance technology and gradual entry of traditional financial institutions into tokenized assets, this path is becoming realistically viable.
For instance, public companies could tokenize part of their shares as on-chain instruments. Or investment funds could be structured as tokens, enabling finer-grained share division and transferability. In such models, tokens cease to be “points within a virtual economy” and become “digital representations of real financial products,” backed by actual assets and legal rights.
Of course, such designs demand high compliance standards. KYC, anti-money laundering checks, accredited investor verification, disclosure requirements, custody audits—all the serious processes from traditional finance must be integrated into the token lifecycle. And these components rely heavily on intermediaries from the traditional financial system: brokerages, regulated exchanges, licensed custodians, etc.
Thus, we see an interesting trend: The future of tokens is not a fully decentralized utopia, but rather a digital extension of traditional finance. The integration of equity and tokens isn’t about eliminating all intermediaries, but about enhancing asset liquidity and programmability within new technological contexts.
Summary: The dual-ledger structure of Web3 companies
So if you were to summarize the future asset structure of a Web3 company in one sentence, I’d say this:
Web3 companies are “dual-ledger” entities—one ledger records shareholders’ names and equity; the other records users’ addresses and distributes tokens.
The former determines control, fundraising capacity, and capital exit paths—it’s the core of corporate governance. The latter determines whether users stay long-term and actively contribute to growth—it’s the engine that drives business model viability.
You can’t expect tokens to replace equity—they don’t represent ownership. But you also can’t ignore the power of tokens—they’re essential for activating users and shaping market expectations. They are neither empty lines of incentive code nor blank IOUs of financial assets, but a unique expression straddling marketing and finance.
One final note: The tokens we’re discussing here exclude crypto assets like Bitcoin and stablecoins that serve as “base-layer currencies.” They belong to another paradigm—gateways to alternative financial systems—and fall outside the scope of enterprise-level asset structures we're analyzing. (If interested, read Lawyer Honglin’s other article: “Layered Money: Reunderstanding Gold, Dollars, and Bitcoin”)
But for Web3 entrepreneurs, understanding that “equity expresses power, while tokens reward users” may be the most critical lesson in rethinking company architecture and asset design.
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