Founder of 6th Man Ventures: Forget the "Token vs. Equity" debate, what is it that we truly need to trust?

Author: Mike Dudas, Founder of The Block, Founder of 6th Man Ventures

Translation: Ken, ChainCatcher

The feasibility of a “dual-token + equity” structure does not have a simple or “one-size-fits-all” answer. However, a core principle is that you must be confident that the team is not only absolutely excellent but also possesses a long-term mindset, committed to building a company-led, enterprise-level business that can last for decades, like Zhao Changpeng.

I believe that for application-layer projects requiring long-term leadership, token mechanisms are often inferior to equity structures. For example, many founders of DeFi 1.0 protocols have already left their projects, and many of these projects are struggling, primarily operated in “maintenance mode” by DAOs and part-time personnel. It has been proven that DAO and token-weighted voting are not effective mechanisms for making good decisions (especially in the application layer), as they cannot make rapid decisions and lack the knowledge and capabilities of “founder-driven” leadership.

Of course, pure equity models are not necessarily superior to tokens. Binance is a strong example—its tokens grant fee discounts, staking for airdrops, access rights, and other rights related to core business and blockchain interests, which cannot be clearly supported by equity ownership.

“Ownership tokens” also have limitations and are currently difficult to directly apply within products or protocols. Distributed applications and networks are fundamentally different from traditional companies (otherwise, what meaning would this industry have?), and pure equity is obviously less flexible than tokens. In the future, “equity+” type token designs may emerge, but this is not the current situation (moreover, the US currently lacks a market structure law, and issuing pure quasi-equity tokens with direct value capture and legal rights still faces risks).

In summary, you can imagine a scenario (as depicted by Lighter): an equity entity operates on a “cost-plus” model, serving as an engine for token-driven protocols. In this architecture, the goal of the equity entity is not profit maximization but to maximize the value of the protocol’s tokens and ecosystem. If this model works, it will be a huge benefit for token holders because you will have a well-funded Labs entity (for example, Lighter has a token treasury for long-term development), and the core team holds a large amount of tokens, creating strong incentives to drive token appreciation (while maintaining the native cryptographic and on-chain characteristics of the core tokens, separating them from complex affiliated Labs entities).

In this model, you do need a high level of trust in the team because, in most current cases, token holders do not have strong legal rights protections. Conversely, if you don’t believe the team has the ability to execute and create value for their heavily concentrated tokens, why did you initially participate in this project?

Ultimately, everything depends on the team’s capability, credibility, execution, vision, and actual actions. The longer a great team stays in the market and the better they fulfill their promises, the more their tokens will exhibit a “Lindy effect.” As long as the team maintains good communication and uses buybacks, substantive governance, and utility within the underlying protocol to clearly direct value toward the token, we will see the most high-quality tokens—whether they have equity/Labs entities—explode by 2026.