I spent the last five years trying to solve the incentive alignment problem in crypto. Here's what I learned:
Most tokens are designed to make their holders compete against each other.
That's the opposite of what they were supposed to do. Tokens were supposed to align teams, investors, and users around a shared goal. If everyone holds the same asset, everyone wants the project to succeed. That idea was right. But we built token models where you make money by selling, not by holding. And that one design choice broke everything.
This isn't a pitch for something I'm building. It's what I think the industry needs to get right, and what we should be asking regulators to support.
We've watched the same cycle for eight years: launch, hype, insider unlock, dump, community left holding bags. The pattern is so familiar it barely registers as a problem anymore. It's just how tokens work. But I don't think we've been honest about the root cause. And I don't see anyone advocating for a specific token model that's actually better — one that we can point to and say this is what we should be building.
We have a regulatory window right now that we've never had before. We're going into it without a clear answer for what a good token looks like.
The exit game
When you make money by selling a token, every other holder is your competition.
A team launches a token. Investors got in early. The team has a large allocation with a vesting schedule. Users buy on the open market. On paper, everyone is aligned. In practice, everyone is watching everyone else, trying to figure out the right time to sell. The investors want to sell after the first big unlock. The team wants to sell enough to lock in gains. The users want to sell before the insiders do. This isn't alignment. It's a race to the exit.
Lockups and vesting schedules don't fix this. They just determine who gets to sell first, and the answer is almost always insiders before retail. The "metagame" stops being how do we grow this thing? and becomes when do I sell?
Even the "smart" mechanisms don't work
What about buybacks? Burns? Staking rewards? These are real attempts to fix the problem, but they all share the same flaw: they're indirect. Buybacks and burns push the price up — but you still realize your gains by selling. Staking rewards are often worse, paying holders in new tokens that dilute supply and create sell pressure. A treadmill disguised as a yield.
If your token model requires holders to sell to make money, you haven't aligned incentives, you've built a game of musical chairs.
Signs of progress
There are real signs the industry is figuring this out. Aave, Morpho, and Uniswap have all moved toward merging equity holders with token holders, eliminating the insiders-vs-community dynamic by putting everyone at the same table. That's genuinely important.
But it doesn't solve the exit problem. Everyone is still playing the same game: profit by selling. Partial fee switches and governance-gated revenue sharing get closer, but they're half-measures. What kills the exit game entirely is going all the way.
The model that works
Imagine a token where 100% of protocol revenue is controlled by token holders. Not the team. Not behind closed doors. Governance decides allocation: what flows as direct distributions, what funds development, what goes into reserves. This is how public companies work — shareholders vote on dividends vs. reinvestment. The crypto version is just more direct and more transparent.
There are no lockups because there's no metagame. You don't profit by selling. You profit by holding. Every day that the protocol generates revenue, you earn your share of whatever holders have voted to distribute. If you sell, you stop earning. If you hold, you keep earning. The math is straightforward and the strategy is obvious: help the protocol make more money.
Let me make it concrete. A protocol generates $1 million a year in revenue. Holders vote to distribute 70% and reinvest 30% into development. There are 1 million tokens. Each token earns $0.70 per year in distributions, and the protocol keeps growing because development is funded. You don't need to time anything. You don't need to outmaneuver other holders. You just earn.
The competition shifts where it belongs: your protocol against other protocols, fighting for users and revenue. Not holders against holders, timing against timing.
When everyone earns by holding, the incentive isn't to exit, it’s to hold and be an advocate. These projects end up looking more like traditional businesses than venture-style bets. Dividends over appreciation. Revenue over hype. That might be exactly what crypto needs right now.
Why hasn't anyone done this?
Two reasons, and both of them are starting to change.
The first is that playing insider games was more lucrative. When you can 10x by selling into retail hype, there's no rational reason to build a real revenue-generating business. But this era is ending. Retail is smarter, on-chain analytics make insider movements visible, and the teams that are still here are the ones actually trying to build.
The second is securities law. A token that distributes revenue to holders looks a lot like a security under the Howey test. This has terrified every serious team in the industry for years. Even when founders knew that revenue share was the better model, the legal risk of being classified as an unregistered security was enough to kill the idea before it started.
This is why so many protocols route value through indirect mechanisms like burns and buybacks. Not because those mechanisms are better, but because they create enough indirection to argue you're not distributing revenue. The token design landscape has been shaped as much by legal fear as by good engineering.
There's also a practical factor: the infrastructure didn't exist. Trustless, programmatic revenue distribution at scale requires cheap transactions, reliable smart contracts, and battle-tested infrastructure. Five years ago, doing this on mainnet Ethereum would have cost more in gas than most protocols earned in revenue. L2s and modern infrastructure have made it practical.
Why now
The regulatory environment has shifted more in the last year than in the previous eight. The SEC formed a dedicated Crypto Task Force in January 2025, led by Commissioner Hester Peirce, with an explicit mandate to "draw clear regulatory lines and provide realistic paths to registration." Peirce proposed a token safe harbor framework that would give projects room to build before classification. The SEC and CFTC issued a joint statement on harmonizing digital asset regulation. These aren't vague signals — this is the machinery of new rules being actively constructed.
But this window has a shelf life. Midterms are this year. The current political composition that made this openness possible isn't guaranteed to survive the next election cycle. If we wait, the window could close before we've proposed anything worth supporting. And if the next wave of token blowups happens before the industry has put forward a credible alternative, those blowups will define the regulatory template — not us.
That's why having this conversation now matters. Not defensively, not reactively, but proactively. If we don't show regulators what good token models look like, they'll build frameworks around the bad ones. The extractive launches and pump-and-dumps will become the baseline assumption, and legitimate revenue-sharing models will get caught in the crossfire.
The equity-token merger trend from teams like Aave, Morpho, and Uniswap is already demonstrating that the industry wants to move toward models with real economic substance. Regulation should support that direction, not fight it. But it will only support it if we make the case — clearly, publicly, before it's too late.
The question every founder should ask
If you're designing a token right now, ask yourself one question: do your holders make money by selling, or by holding?
If the answer is selling, you've built a game of musical chairs. Some people will win. Most won't. And the ones who lose will remember.
If the answer is holding, you've built something where everyone wins by growing the pie. That's the alignment tokens were supposed to create in the first place.
This isn't a solved problem. Revenue share raises real questions about token classification, distribution mechanics, and governance. But it's a better starting point than what we have now.
Share this, argue with it, propose better models. I don't think I have all the answers. But I know the current model is broken, and the conversation about fixing it matters more than any single solution.
The regulatory window is open, but it won't stay open forever. Midterms will reshape the landscape. The next big token blowup could shut the door on revenue-share models before they get a fair hearing. If we want better rules, we need to show regulators what better looks like — now, not next cycle.
Disclaimer:
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This article is reprinted from [Flynnjamm]. All copyrights belong to the original author [Flynnjamm]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
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