The dual driving forces of Web3 companies: equity financing and token incentives

Written by: Liu Honglin

Many people ask me how I view the relationship between equity in Web3 companies and tokens. This question sounds like a cliché, but in reality, it relates to the core asset design logic of a company: what exactly do you rely on for financing? What do you use to connect with users? What do you depend on to realize capital monetization? And these questions fundamentally determine the differences between Web3 companies and traditional internet companies.

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

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

This is my first clear judgment on the Web3 industry: the issuance of tokens will still be a mainstream action in the future, but its positioning is undergoing a fundamental shift—no longer used to raise funds, but to activate users and distribute the value of platform growth.

What has been the most common use of Tokens in recent years? The answer is financing—especially when first-round market financing has cooled and compliance paths are unclear, Tokens have become a tool for many entrepreneurial teams to "raise funds indirectly." Once the white paper is written, airdrops are organized, and after the exchange goes live, project teams and early investors cash out first, leaving the users to pick up the pieces at the end. This "financing - issuance - cutting leeks" logic has become the default gameplay in the industry.

However, today, this set of practices is becoming increasingly difficult. On one hand, there is the continuous tightening of regulations, especially as major jurisdictions like the United States, Europe, and Hong Kong gradually tighten regulations on token financing; on the other hand, users are becoming more mature—old narratives are becoming less 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 launches, but rather the "tools" for platform operations. Their function is no longer a certificate for asset trading, but more like a "value-sharing mechanism" within the platform. It is not about financing logic, but marketing logic. It is not about sending money in exchange, but sending users in exchange.

But this does not mean that the Token has "degenerated" into a points system. On the contrary, it plays a role as a "composite incentive tool" that is more complex and has more incentive effects than traditional points systems. It 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 and non-security" is the charm of the Token mechanism and also the reason why it cannot be easily summarized with the term "points."

In other words, Token is not "more points in the system", but "a new set of native incentive languages in the system that can circulate, price, and match the value contributions of different users". It is a way for users to participate in the growth of the platform, and it is a means to redefine the cost that was originally consumed in the operating budget as a "marketable asset". This is why Web3 projects continue to emphasize elements such as "incentive mechanism", "liquidity" and "value anchoring" when designing the token economic model, rather than simply "reward points".

Equity is still the right path for Web3 companies to realize capital.

The second judgment is also very clear: for the vast majority of companies that truly want to grow strong and create brilliance, the ultimate path to capital realization is still through the traditional equity channel. In other words, when it comes to financing, equity financing should be used, and when exiting, one should pursue an IPO, mergers and acquisitions, or equity transfer. Tokens will not and cannot replace the role of equity.

This point is very important. Many project teams fall into a misconception in the early stages: since Tokens can be on exchanges, since users can buy and sell, and prices can rise, can Tokens replace equity, or simply "issue Tokens instead of equity"? But if you really take a moment to think about it, is there a tethered relationship between Token prices and company profits? If the company does well, will the Token price definitely rise? Does holding Tokens mean that users have voting rights or dividend rights in the company?

The answers are basically "no." Tokens and equity are two different logics, two different worlds. Expecting to replace equity with tokens is like expecting to earn gold in a game to buy a house or a car; it is a fantasy on 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 and ultimate capital gains of a company are always reflected on that dry but authentic balance sheet. Equity represents a legal claim to the company's net assets and future profits, which cannot be replaced by Tokens, regardless of the legal jurisdiction or financial system.

For this reason, Web3 project teams must realize clearly: Tokens are operational tools, not financial exit paths. When it comes to needing large-scale financing or achieving mergers and acquisitions or IPOs, Tokens do not possess any legal or commercial "capital exit channel" functions. Financing, mergers, and restructuring ultimately have to be realized through equity. You can't expect a potential investor to say: "I want to buy 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 key focus for the next phase of the industry.

But things are not as clear-cut as a binary opposition. In fact, the trend of integration between tokens and equity has become increasingly evident, which is the third development direction I have identified.

The most typical case is the concept of "Security Tokens" being brought up again. As early as the STO bubble in 2018, this concept was discussed, but it was shelved at that time due to unclear regulations and immature infrastructure. Today, with the advancement of on-chain compliance technology and the gradual entry of traditional financial institutions into the tokenized asset space, this path is starting to become realistically possible.

For example, a listed company can tokenize part of its shares, turning them into on-chain certificates. Alternatively, fund products can be issued in the form of tokens, enabling more granular share splitting and circulation. In this model, tokens are no longer "points within a virtual economy," but rather "digital representations of real financial products," possessing real asset mapping and legal rights.

Of course, such a design has very high compliance requirements. KYC, anti-money laundering, qualified investor identification, information disclosure, and custody auditing—all serious processes of traditional finance must be integrated into the lifecycle of the Token. Moreover, these aspects must rely on the intermediary forces within the traditional financial system—securities firms, compliant exchanges, regulated custodians, etc.

So we will see an interesting trend: the future Token world is not a completely idealistic realm focused solely on "decentralization," but rather a "digital extension" of traditional finance. The combination of equity and Tokens is not aimed at removing all intermediaries, but rather to enhance the liquidity and programmability of assets within a new technological context.

Summary: The dual ledger structure of Web3 companies

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

Web3 companies are the "dual ledger" entities — one ledger records the names of shareholders, keeping track of equity; the other ledger records user addresses, distributing Tokens.

The former determines the company's control, financing capacity, and capital exit path, which are the core assets of the corporate governance structure; the latter determines whether users are willing to stay long-term and whether they are willing to participate in growth, which is the growth engine that can drive the business model.

You cannot expect tokens to replace equity; they are not a vehicle for ownership. However, the power of tokens cannot be ignored, as they are a key means to activate users and market expectations. They are neither a string of hollow incentive codes nor a promissory note of financial assets, but rather a unique expression that lies between marketing and finance.

Finally, I want to emphasize: the Tokens we are talking about here do not include cryptocurrencies like Bitcoin or stablecoins that play the role of "base currencies." They represent a different paradigm and serve as an entry point into another financial system, and do not belong to the asset structure issues at the enterprise level that we are discussing. (If you are interested in this topic, you can read another article by lawyer Hong Lin: "Layered Currency: A Reinterpretation of Gold, the US Dollar, and Bitcoin.")

But for Web3 entrepreneurs, understanding "equity is an expression of power, and tokens are rewards for users" may be the most critical lesson in rethinking corporate structure and asset design.