The Advisors' Blog

– Liz Dunshee

Cryptocurrency isn’t just for capital raising. This MoFo memo speculates that it’s also an emerging compensation trend – especially at cyrpto companies themselves – and explains what rules apply. Token awards are driven by the same securities & tax law considerations that apply to more familiar equity awards (see this memo about tax stuff). Companies who use cryptocurrency pay would have to figure out some novel questions. But if they’re in the industry, they’re probably used to that. And maybe there’d be cost savings when it comes to tracking awards – as well as possible upside from the tokens. Here’s an excerpt from the memo:

Whereas the market for compensatory equity is well understood, compensatory token-based awards raise new questions for companies to answer: Should the company offer both equity and token incentive awards? What percentage of tokens to be generated should be reserved for awards to service providers? Should token-based awards be allocated among service providers in the same proportions as traditional equity-based awards?

In any event, we do know that tokens may present solutions to some problems with traditional equity-based awards. For example, token-based awards can be automated using smart contracts, which could decrease administrative costs and errors that are sometimes incidental to equity-based awards. In addition, they more directly incentivize employees to develop the company’s product portfolio so as to expand the application and value of the awarded tokens. And of course, token-based awards can be a non-dilutive form of executive compensation.