Paradigm: How should talent rushing into the Web3 world understand the value of tokens in salary structures?

Today, the trend of talent flocking to companies focusing on the Web3 field is obvious. Those who have worked in traditional Internet giants, traditional financial institutions and top law firms are pouring into this emerging field, but they often do not fully understand Compensation structures commonly employed by cryptocurrency companies, in particular, lack an accurate understanding of the value of “tokens” in salaries.

Assuming you’re one of these people and you’ve got an offer “from Web3”, before you decide whether or not to take the job, it’s critical to understand what kind of feedback you’ll get so you can take it Compare with a more “standard” compensation package.

A big part of the benefits of joining a Web3 startup is that in many cases your salary will include a fair percentage of tokens and sometimes a portion of traditional equity incentives. One thing we want to be clear is that tokens are not inherently traditional equity representation, but there are some similarities between the two. Like equity, tokens can appreciate significantly in value, though tokens tend to be easier to “liquidate” because, in general, tokens are backed by liquidity earlier than traditional equity. Token rights may also allow employees to directly participate and contribute to the protocol they are building, which is effectively an invisible incentive for employees to work.

Like equity-incentive grants, token-incentive grants come with a price—they are designed to align grantee incentives with network growth, and their value is uncertain. You have to work hard to make it more valuable. Most companies distribute tokens to employees from a reserved pool of tokens based on the relative amount of equity each person holds, so token grants are often tied directly to equity grants.

Of course, companies should handle the token issuance mechanism better to minimize the tax impact. In other words, employees should not declare income for tokens or token entitlements that are not yet in circulation, as this will require you to pay tax obligations out of your own pocket.

A very important point: the “timing” of the issuance of token incentives

One of the very important things about token incentives is to figure out whether tokens are issued before or after the public offering of tokens.

Token issuance before the public offering is actually similar to the option issuance of startup stocks. The value of unissued tokens is very low at the time of minting, and its value is mainly determined by some uncertain future expectations. Like stock options, there is no tax burden when receiving a pre-listing token gift, of course, there may be taxes on exercising the option in the future, just as you would be taxed when exercising an NSO (non-restricted stock option).

The incentives of tokens that have been publicly issued are completely different, in this case the properties of the tokens are similar to RSU (restricted stock units), these tokens exist in a liquid market (although they may be restricted by lock-up) , and the recipient is taxed immediately upon receipt. If you receive token assets that are still in lock-up period, you should consider filing an 83 (b) Election to minimize the tax impact (for the unrealized income portion), otherwise you will be considered fair in the token market at the time The value of income is taxed.

Release period and unlocking rules

Most token incentives will be gradually released after you join, similar to the batch unlocking design in traditional equity incentives. This means that if you leave the team early, you are giving up part of the agreed-upon token incentives.

The team’s token incentives also often set a lock-up period to prevent you from selling a large number of tokens in a short period of time. For example, you may receive a corresponding reward after the token is issued, but within a year of the network launch, this part of the token will be locked and cannot be sold. Of course, in general, the lock-up period will also have corresponding exemption clauses, which will not affect your use of this part of the tokens to pledge to obtain additional income or participate in governance voting during the lock-up period.

Although related, release and lock are different, because gradual release means that the tokens that have not been released do not belong to you, and the lock only temporarily restricts the purchase and sale of tokens that already belong to you. Generally speaking, the main In order to reduce the selling pressure in the market.


Finally, as with all salary components, you can always consult a lawyer or tax advisor to understand the design of various mechanisms in token incentives, especially if the company promises your token incentive plan involves some unusual Mechanisms, such as “lock-up period conditioned on the company reaching a certain milestone” or “equity conversion token rights”, etc., you should seek professional help.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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