Author: brian flynn Compiler: AididiaoJP, Foresight News

For the past five years, I have been trying to solve the "incentive misalignment" problem in cryptocurrency.

Most tokens are designed to allow holders to compete with each other.

This is the exact opposite of what they are supposed to achieve. Tokens were supposed to unite teams, investors, and users around a common goal. If everyone holds the same asset, then everyone naturally wants the project to succeed. This idea itself is correct. The problem is that the token model we built allows people to make money by "selling" instead of "holding". Just that one design choice messed everything up.

This post is not intended to promote a project I am working on. But I think this is the core issue that the entire industry needs to solve, and it is also the direction we should strive for from the regulatory agencies.

For eight years, we have been watching the same script: project launch, market hype, insider unlocking, smashing the market and running away, and retail investors being trapped. This pattern is so familiar that we almost don’t think it’s a problem – it’s as if tokens are designed to work this way. But I feel that we have not been honest about the root of the problem. And I don’t see anyone pushing for a truly better token model—one that we can point to and say, “This is what we should be doing.”

Now, we have an unprecedented regulatory window. But the problem is that we haven’t figured out what a “good token” should be before we step into this window.

Getting started

When you make money selling coins, every other holder is your competition.

The team issued a coin, and early investors came in. The team has taken a bunch of them themselves, but will be unlocking them slowly. Users buy in the market, and on the surface, everyone has the same interests. In fact, everyone is looking at each other, wondering when to sell. Investors are eyeing the first big unlock, and the team is eyeing the opportunity to cash out. Users stare, wanting to run before the insiders do. This is not an alignment of interests, this is a race to the bottom.

The locking and unlocking mechanism cannot solve this problem. They simply determine who gets to run first - the answer is always insiders before retail investors. Everyone’s “ultimate game” is no longer “how to make this project bigger”, but becomes “when should I sell it?”

Even "smart" methods are useless

What about buybacks? What about destruction? What about staking rewards? These are all attempts to solve the problem, but they all have the same problem: they are too convoluted. Buybacks and burns can push the price higher - but you still have to sell the coins to make money. The staking rewards are even more deceptive. New coins are used as rewards to be issued to holders. As a result, the currency price is diluted and new selling pressure is created. What kind of income is this? It’s just a treadmill disguised as income.

If your token model requires holders to sell their coins in order to make money, then you are not aligning incentives at all - you are just creating a game of musical chairs.

Industry Progress

Indeed, there are some signs that the industry is heading in the right direction. Projects such as Aave, Morpho, and Uniswap are all promoting the integration of equity holders and token holders, bringing insiders and communities to the same table, and eliminating opposition. This direction is really important.

But this still does not solve the problem of "front-running". Everyone is still playing the same game: making money by selling coins. Partial fee switching and point-based income management are a step forward, but they still scratch the surface. If we want to completely solve the problem of front-running, we must go to the end.

Proven model

Imagine this scenario: 100% of the protocol’s revenue is decided by token holders on how to use it. It’s not the team that has the final say, nor is it the decision behind the scenes. Everyone votes to decide: how much will be distributed directly to holders, how much will be used for continued development, and how much will be put into the reserve. This is what public companies do - shareholders vote on whether to pay dividends or reinvest, the cryptocurrency version is just more straightforward and transparent.

There is no lock-up, because you no longer have to play the game of "who runs first". You don't make money by selling coins, you make money by holding them. As long as the protocol is generating revenue every day, you will get the share that everyone voted for. Once you sell, you stop paying dividends. If you keep it, you will continue to receive dividends. The accounts are easy to calculate and the strategy is very clear: just find a way to help the agreement make more money.

Give me an example. Let’s say a deal makes $1 million a year. Holders voted to receive 70% of the shares and 30% to continue investing in development. There are 1 million tokens in total. Each token will be allocated $0.7 a year, and because there are funds for development, the protocol can continue to grow. You don’t need to figure out when to buy or sell, and you don’t need to figure out how to outwit other holders. As long as you hold it, you can keep making money.

The direction of competition is finally right: it is your protocol and other protocols that compete for users and revenue. Rather than holders scheming against each other and stealing away from each other.

When everyone can make money by holding, the motivation is no longer to "run away", but to "hold it and speak for the project." In the end, such a project will look more like a traditional enterprise than a venture capital-style gamble. Value dividends, not hype; value income, not bragging. This may be what cryptocurrencies need most right now.

Why didn't anyone do this earlier?

Two reasons, and both reasons are slowly changing.

The first reason is that you can make money faster by playing the "insider game" before. As long as you can achieve 10 times profit by selling to retail investors, who is willing to go to the trouble of building a truly profitable business? But this era is almost over. Retail investors have learned to be smart, and the data on the chain can reveal the movements of insiders at a glance. The teams that are still working seriously are the ones who really want to stay.

The second reason is the issue of securities laws. A token that distributes income to its holders looks a lot like a security according to the Howey test. Because of this, all serious teams in the industry have been afraid for many years. Even if the founders knew that revenue sharing was a better model, as long as there was a possibility of being characterized as “unregistered securities,” the idea would not even start.

So you will see so many agreements going around and around, using indirect methods such as destruction and repurchase. Not because they are better, but because this way you can bypass direct dividends and find an excuse for yourself: "Look, we didn't pay directly." It can be said that the current status of token design is mostly driven by legal fear, and the smaller half is due to technical considerations.

There is also a practical difficulty: the previous infrastructure does not support it. To achieve large-scale, trustworthy, and programmatic revenue distribution on the chain, transactions need to be cheap enough, smart contracts reliable enough, and infrastructure to withstand the test. If we did this on the Ethereum mainnet five years ago, the handling fees alone would exceed the income of most protocols. Now with Layer 2 networks and modern infrastructure, this is becoming feasible.

Why is it possible now

In the past year, the regulatory environment has changed more than in the previous eight years combined. The U.S. Securities and Exchange Commission (SEC) established a cryptocurrency working group in January 2025, led by Commissioner Hester Peirce. The task was clearly stated: "Draw clear regulatory boundaries and provide a feasible registration path." Peirce himself also proposed a token "safe harbor" plan to allow the project to have a construction buffer period before being finalized. The SEC and the Commodity Futures Trading Commission (CFTC) also jointly issued a statement saying that they would coordinate the supervision of digital assets. These are not empty words, but real rule-making is being advanced.

But this window waits for no one. This year is the midterm election, and the relatively open political atmosphere now may not last until the next election cycle. If we just wait, the window may close before we have anything worth supporting. What’s even more dangerous is that if the industry has not come up with a reliable alternative and the next wave of token thunderstorms comes again, then the thunderstorms will help the regulatory agencies to determine the template - it will not be our turn to speak.

That's why it's so important to talk about this now. It is not a passive response or remedial action, but a proactive one. If we don’t tell regulators what “good tokens” should look like, they will use those bad cases as templates. Those leek-cutting projects and pump-and-dump schemes will become the “baseline” for supervision, and truly compliant revenue sharing models will be accidentally damaged.

What projects such as Aave, Morpho, and Uniswap are doing - merging equity and token holders - has shown that the industry really wants to move in a direction with real economic value. Regulation should support this direction, not the other way around. But the premise is that we must explain the truth clearly and publicly before the window closes.

Questions every founder should ask

If you are designing a token now, ask yourself this question: Do your holders make money by selling the token, or by holding it?

If the answer is "sell coins," then you're just playing a game of musical chairs. Some people can grab the chair, but most people can't. And those who can't grab it will always remember it.

If the answer is "hold", then you have built something that everyone can make money by growing the pie. This is the "unity of interests" that tokens should have.

This is certainly not a simple question. The revenue sharing model does involve complex issues such as token characterization, distribution mechanism, governance methods, etc. But it's at least a better starting point, much better than what we have now.

The regulatory window is open, but it won't be open forever. The midterm elections will change the landscape. The next big token storm may shut the door on the revenue sharing model before it has a chance to be treated fairly. If we want better rules, we need to tell regulators what “better” looks like now—now, not waiting for the next cycle.