Value of equity vs crypto tokens

Here’s a table that summmarizes the similarities and differences of equity and tokens. They are in fact, very similar.

Voting & Dividends
Many of us have bought and sold equity; it’s familiar. If I buy one share of a public company stock, I can vote in the shareholder decisions and receive dividends if the board elects to issue one.

A token provides voting rights when it is a governance token that governs a DAO (Decentralized Autonomous Organization). A DAO is the governance organization of a crypto company. It functions like a board and shareholder base. A DAO manages the roadmap and the treasury of the business and evaluates ideas for the business that are submitted by the community. Should the DAO elect to distribute profits from the treasury, a token holder would receive a share of those earnings.

I can lend the stock to short sellers in a practice called securities lending for stocks. If a trader would like to short stock, they must borrow it from someone - me! For the service, the trader pays a me fee communicated as an interest rate.

The same is true of tokens. Traders can borrow them to sell them short and pay a fee. Different tokens command different rates, like stocks.

A company’s board can create more stock simply by passing a motion. Poof! 10 million more Google shares. These new shares are often granted to employees as compensation.

Tokens work similarly, though it’s called minting. If I work on behalf of a crypto company, I receive tokens as part of my compensation.

But being an employee isn’t necessary to mint. I can also mint tokens if I participate in the network to help it along. If I operate a Solana validator to verify transactions or buy a Helium router to distribute internet in my city or stake Ethereum to verify transactions, each network would reward me with tokens. The network pays members with tokens much the same way a corporations pays employees in stock.

Public companies can choose to increase or decrease the number of shares outstanding through pool expansion or share buybacks. Tokens have their own mechanisms for controlling the total quantity of tokens.

Some tokens are inflationary (over time each token is worth less) and others are deflationary (over times each token is worth more). The same could be said of company stock. For example, Apple is a deflationary stock. There are approximately 1/3 fewer shares of Apple in circulation today than in 2012 because the company has used their cash to buy them back and retire them.

Unlike equity, tokens have a utility. I can use a Ethereum token to transact: buy an NFT, sell an NFT, execute a Defi contract to exchange Compound tokens for Aave tokens for example. If I arrived at a Microsoft store seeking to buy an Xbox Series X with a two Microsoft shares, the clerk would be more than befuddled.

To use my Microsoft stock and walk out of the store with the XBox, I’m required to swap my stock for US dollars and pay in cash or a credit card.

Valuation Driver
Most companies in the public market are valued on revenue or EBITDA; if revenue increases, so does the value of the stock.

As for tokens, it’s an open question.

This is one of the many passages and charts I find in books and articles on a daily basis. They span many disciplines, including:

I occasionally add a personal note to them.

The whole collection is available here.