New token-issuance norms for Web3
tl;dr: we need issuance that matches demand. Over-abundance can’t continue.
Web3 was born from the desire to build open, decentralized systems that empower users, disintermediate traditional gatekeepers, and create entirely new economic models. In practice, however, many Web3 projects have struggled with fundamental challenges around token economics, profitability, and decentralization. Clearly, there is a mismatch of goals, capabilities, and demand.
This is a social-level problem, i.e. a human problem, so it requires community-wide consensus to fix. We need token-issuance that, at least, doesn’t widely exceed demand.
In a previous article I lambasted the rise of memecoins the dilution it has brought. I also highlighted a problem of too many tokens in general. See here:
However, there is further issues that should be addressed. It is not only that we have too many projects and so too many tokens to choose from, but also that each project has over-inflated the supply of their tokens. There isn’t enough demand for the tokens they pushed out to the market.
The evidence is in the fact that many token prices are massively down over the last 12 months, with many making new cycle lows, while BTC is making new all-time-highs.
The Token Problem: Overabundance and Unclear Demand
A Fundraising Shortcut
One of the most appealing aspects of launching a token is rapid access to capital. Anyone with an idea can mint and distribute tokens to backers, raising funds far more quickly than in traditional equity markets.
Supply vs. Demand
- Supply side: Tokens often have unlock schedules and staking mechanisms that continuously increase the circulating supply.
- Demand side: Utility is often underdeveloped or intangible. Outside of hype, there’s minimal reason to buy and hold most tokens.
Almost all projects have a pre-programmed unlocking schedule for their tokens. This has the idea of immutability baked into the protocol, as Bitcoin did, and therefore it must be good. It made sense for Bitcoin and other projects that wanted to be pure currencies (although we can debate the need for dynamic adjustments in another blog). However, as we are seeing in the current bull run, there isn’t enough demand for the tokens that exist.
It is not just about a lack of utility, but that even with some utility, there are still far too many tokens than the demand can satisfy, so prices are depressed.
The additional increase in supply from staking rewards isn’t helping the matter either. There needs to be an adjustment here such that the total amount of token inflation is kept in check. Supply should not outstrip demand.
I think projects should look into burning tokens and reducing supply.
An additional problem is when these projects fail to become self-sustaining businesses, they wind up liquidating their own tokens to stay afloat — driving prices down and damaging community confidence. This highlights another problem: profitability.
Why Profitability Matters — And The Securities Dilemma
Profitability vs. Token Price
I’d like to see a growing sentiment that a project should prove itself profitable before even considering a token launch. Otherwise, the team’s primary revenue stream becomes selling tokens, which can erode user trust due to the price pressure on the token.
However, when teams do become profitable and use that revenue to buy back or otherwise shore up the token price, regulators may interpret this as managing or manipulating a security — akin to a publicly traded company buying back its own shares or issuing dividends.
Let me highlight a particular nuance here. The developing team should aim to create a product that leads to them being profitable. If there is a protocol and associated token, then there needs to be a separate consideration for that protocol also becoming profitable.
The former is necessarily centralized, while the latter can become decentralized.
The dev team must aim to be a profitable business to avoid selling their token to survive. Even if they are profitable, care must be taken with regards to buying (or buying and burning) tokens that could be construed as making the token a security.
Governance could at least allow a way for a protocol to burn or issue tokens in a decentralized manner.
The Myth of Decentralization in Practise
Real vs. Aspirational Decentralization
Web3 often sells itself on a grand vision: no single point of failure, no central authority, all power to the community. But actual practice reveals that most projects still rely on:
- A central developer team pushing updates and deciding the roadmap.
- A large pre-mined token allocation for founders and early investors.
- Limited real governance participation from everyday token holders.
Power in Practice
For smaller or newer projects, there’s often no realistic path to full decentralization. The most successful decentralized protocols (like Bitcoin, partially Ethereum) had simpler beginnings with no large venture checks or official company structure at inception, which made their power distribution more organic.
For 90%+ of current projects it feels like decentralization is incomplete. We have “decentralization theater,” with a DAO or governance forum that’s mostly symbolic. Underneath, a singular entity — often a traditional corporate entity — makes the core decisions.
I think it is a hard problem to solve. Merely trying to gift a project to a community doesn’t guarantee success or longevity.
Are We Just Reinventing Companies?
Corporate Parallel
If you ignore all the marketing and grand statements and look closely at many Web3 projects and you’ll find:
- Founders (sometimes referred to as “core contributors”).
- Venture Capital investors (with token allocations instead of equity shares, or sometimes both).
- Marketing, business development, etc much like any startup.
The project, or protocol, is near enough indistinguishable from the development company. Granted there are some differences.
So, What’s New?
- Global Participation: Anyone with internet access can buy or earn tokens, theoretically bypassing accredited investor rules. This can democratize fundraising, but also opens the door to scams and speculation.
- Open Source and Composability: Many protocols are open source and can be built upon by third parties without permission, which is more “open” than a typical startup.
- Token Governance Potential: Some teams truly aim for community-driven decision-making, even if it’s often difficult to implement.
Nevertheless, the day-to-day running of these projects frequently mirrors traditional companies more than we’d like to admit.
Honestly, I don’t think we can simply change this either. The number of competent community members (who also have the necessary freedom) that can take on the running of a crypto project are few and far between.
Re-stated: the exit to community strategy is not viable (for most projects).
Potentially, a profitable development company with a community that’s active in governance projects can at least find a reasonable path forward.
New community norms required
We need new community norms on token issuance.
- We need less tokens: both the number of new tokens launching AND the supply of these new tokens.
- Tokens should not have an uncapped future supply. Companies have a fixed number of shares. They don’t have constant issuance every block (it’s rare).
- No new supply without demand: new token issuance should ideally be conducted via community governance. The issuance should only allow an amount of tokens that can be absorbed by demand. The mantra should be that “less is better”.
- Tokens must have utility. Real demand requires that the token has utility.
- Token burning. Projects should consider burning tokens. Wholesale burning, plus a burning mechanism. It needs to be a permanent fix. Governance can always modify the changes later.
- Teams must aim to be profitable. The development teams need to think like actual business. No longer can they just release a token with wonky tokenomics and then live on a hope and a prayer of surviving.
- Token raises need to be less greedy. The mega-valuation fundraises over multiple private rounds are great for the development team. The raises made them rich but they did not care a whit about profitability or sustainability of their business. Only in a few cases do the teams raise enough to have decade-plus longevity.
- Don’t forget the community. This is partly a fault of excessive regulation in the US, but it is worth considering how to distribute tokens to the community at an early stage when the overall token valuation is low.
I think points 6 and 8 are probably the hardest, while the others can be done with greater ease.
There must be fundamental changes in the industry if it is ever to be taken seriously. This all goes hand-in-hand with my belief that we have too much infrastructure and not enough apps, but that’s another blog.
