Your guide to tokens: How to design, launch, structure rights, and more
Tokens are the technology that defines and distinguishes web3. Because they’re still new, and best practices around them are rapidly evolving, we get lots of questions about tokens — it’s best to approach them with caution and care.
In this special series of posts continuing the a16z crypto Token Launch Playbook series, we cover token “do’s and don’ts”; the ins and outs of tokens as part of overall compensation; new financial models for web3 application (vs. infrastructure) tokens; and the art of tokencraft. We also share more on how to prepare for token launches, which we covered before. And we share how to structure deals involving token rights and restrictions — including especially how to avoid predatory term sheets! See also the first drop in this series below, which covered what you need to know before you launch a token, as well as an operational readiness checklist from token creation to custody; rules for token launches and strategies for managing risk; and more.
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Token Do’s and Don’ts
with Eddy Lazzarin, Miles Jennings, and Robert Hackett
This podcast episode covers all things tokens — including what tokens have to do with decentralized protocols, understanding the different types of tokens, and, of course, the Do’s and Don’ts of designing and launching a token. Our expert guests — CTO Eddy Lazzarin and head of decentralization and general counsel Miles Jennings, in conversation with editor Robert Hackett — discuss how to reason about the risk and reward tradeoffs of various protocol designs, launch strategies, and the overall art of tokencraft.
How to think about tokens in compensation
by
Incorporating tokens into compensation comes with unique complexities, challenges, and opportunities. For instance, there are many, many ways to structure compensation — and what’s right for one company may not be right for another. So in this post, we explore how tokens fit into a larger compensation strategy for anyone considering token compensation; then dive into specific details of structuring token grants, from vesting schedules and lockups to taxes.
Token rights in term sheets: How to avoid predatory deals
by Miles Jennings, Joseph Burleson, and Zachary Gray
Long before projects even launch a token, they can derail their future prospects by making mistakes with how they structure their token rights during early financing rounds. This structuring of legal rights related to tokens is complex, and some investors can exploit the lack of clearly defined market standards to take advantage of unsuspecting entrepreneurs.
To empower entrepreneurs to better understand the market — and ensure fair and sustainable deal structures — we share foundational principles that inform how we define the scope of token rights and restrictions. We highlight some of the predatory behaviors we’ve seen from some investors, and discuss how that behavior hurts projects. We also provide an explanation of provisions we use.
A new financial model for app tokens: How to generate cash flows
by Ross Shuel, Miles Jennings, and Mason Hall
For infrastructure tokens — which correspond to a Layer 1 network (or an adjacent part of the computing stack like Layer 2) — economic models are well-developed and understood, rooted in the supply and demand for blockspace. But for application tokens — smart contract protocols deploying services on top of blockchains that relay rights in “distributed businesses” — economic models are still being solved.
App token business models should be as expressive as their underlying software. To that end, we introduce cash flows for app tokens — an approach that enables applications to create permissive, flexible models and allows users to pick and choose how they are rewarded for the value they provide. This method creates fees from legitimate activities across different jurisdictions’ regulatory requirements, encouraging greater compliance. It also maximizes value accruing to the protocol while encouraging governance minimization. And the principles we share here apply to all web3 applications — from DeFi to decentralized social apps, DePIN networks, and everything in between.
Tokencraft
with Eddy Lazzarin
a16z crypto’s CTO delves into the world of tokens, outlining various token categories — including memecoins, stablecoins, arcade tokens, and network tokens. He shares the differences and similarities between token types, and also the path to progressive decentralization, in this talk (first delivered at our Crypto Startup Accelerator).
Planning for token launches
with Miles Jennings
a16z crypto’s General Counsel and Head of Decentralization shares strategies for web3 projects to consider when planning their token launches. He also shares how to operationalize for this in one’s organization, manage potential risks, and use the DUNA as a structure for DAOs in this talk (first delivered at our Crypto Startup Accelerator).
…and more from our Token Launch Playbook series, part 1
Getting ready to launch a token: What you need to know
by Miles Jennings and Jason Rosenthal
The most common mistake that projects make in web3 is launching tokens too early. This mistake is often fatal, so it’s important to carefully consider when to launch a token, along with why and how. Asking “when” isn’t so much about calendaring timelines — as it is about finding the point where your project can reasonably overcome the legal, commercial, and operational challenges that come with launching a token. So when is your project really ready? We discuss key considerations, along with some of the risks, tradeoffs, and milestones, leading up to launch and beyond.
5 rules for token launches
by Miles Jennings
The fundamental goal of the SEC and builders is aligned — to create a level playing field. But the two sides approach this challenge from completely different perspectives. For better or worse, the burden is on web3 builders to prove that the blockchain industry’s approach works and is worthy of consideration. So, how can projects get started? After determining when and how to launch a token, they can start with these five rules for token launches.
Operational guidelines for token launches, from creation to custody
by Adina Fischer, Matt Gleason, and Justin Simcock
Launching a token takes time and teamwork. The process involves several types of stakeholders — protocol developers, third party custodians, staking providers, investors, employees, and others — all of whom must be on the same page when preparing for the creation and custody of a new digital asset. This applies even more so if working with any SEC-regulated stakeholders.
This post shares helpful operational and logistical guidelines for developers to consider before establishing a protocol — so that they can ensure its security, and enable their partners to satisfy regulatory compliance requirements.
How to navigate token launch risks
by Miles Jennings
Tokens are one of the most powerful tools available to crypto founders. They’re also one of the riskiest to bring to market. Challenges mount for startups attempting to launch tokens that are both useful and compliant. And how a company issues and talks about its token matters a lot, as recent rulings in the U.S. Securities and Exchange Commission (SEC) enforcement action make clear. The stakes are high — crypto enforcement actions have doubled since 2021 — and an SEC investigation can cost a startup millions. Class action lawsuits, which remain an ever-present threat, can run several times that.
The good news is that, despite all of this noise, a pathway exists for entrepreneurs to launch tokens in good faith while mitigating most risk.
Launching compliant tokens
with Miles Jennings
a16z crypto’s General Counsel explores the much debated topic of token launches — from common myths and regulatory considerations to a few best practices for token launches. He also shares some useful frameworks for web3 founders in this talk, first delivered at our Crypto Startup Accelerator.
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