Demian Brener is founder and CEO of Smart Contract Solutions, a firm working to provide tools to build businesses using blockchain-based software tokens.

In this opinion piece, Brener discusses the different ways startups are seeking to leverage these new creations, and the various business models taking shape in the evolving space. 

Companies we’ve never heard of are launching IPOs before our very eyes.

But instead of ringing the IPO bell after years of operations, they are going public on day one, and instead of raising money by selling their company stock, they are building distributed networks and selling their own tokens.

This new way of building companies is what Fred Ehrsam ,  founder of Coinbase ,  described as the “decentralized business model”.

Yet, many of the established rules about building and investing in businesses don’t apply to this new model. What can we learn from the companies going down this road?


The mechanics of a token crowdsale are directly related to the kind of token issued.

We identified three types of tokens:

  • Debt Tokens
  • Equity Tokens
  • User Tokens.

User tokens

User tokens , or ‘appcoins’ as Naval Ravikant and Balaji Srinivasan have called them, are a form of digital currency needed to access the service provided by the distributed network.

As Union Square Venture managing partner Albert Wenger explains, you can think of these as tokens you buy at a fair to get on a ride.

In ethereum, for example, you need ether to build distributed apps on the platform. In the case of Sia, a distributed storage system, you need to own Siacoins to store files in the network.

User tokens are earned by providing value to these networks.

Contributions can take the form of mining, as in bitcoin, ethereum and Sia, or publishing stories, as in Steemit. Since user tokens are on a blockchain, they can be easily redeemed for any local or cryptocurrency.

Equity tokens

Equity tokens are used to finance the development of the network, but are not needed to access the services provided by the underlying protocol. As its name suggests, we can see ‘equity tokens’ as cryptographic shares of a network.

In exchange for investment, equity token holders are entitled to “dividends” in the form of revenue sharing or transaction fees in the network. For example, in the case of Sia, 3.9% of all successful storage payouts go to the holders of Siafunds, their equity token.

In many cases, these equity tokens represent shares of a distributed autonomous organization (DAO). A DAO’s code is responsible for issuing the tokens, holding the money collected from the token sale, and contracting a company to develop the network.

Besides receiving a pro-rated reward, equity token holders in the form of DAO shares are usually entitled to pledge on proposals for how the investment money will be used.

That’s the case of Digix, an asset-tokenisation platform built on ethereum. DGD token holders:

  1. Receive a reward on the transaction fees of the Digix Gold Network
  2. Are able to submit and vote proposals on the DigixDAO.

Debt Tokens

A third type of token is the ‘debt token’.

We can see these as a ‘short term loan’ to the network, in exchange for an interest rate on the amount lent. Steemit is one of the few networks with debt tokens, issued in the form of Steem Dollars.

Steem, the cryptocurrency mined by the network, can be used to buy Steem Power or Steem Dollars. Holders of Steem Dollars receive a ~10% interest rate, paid in Steem Dollars.

Steem Dollars are unique to the economics of the Steemit protocol.

Through buying Steem Dollars, people can invest in the network with sufficient liquidity, without committing to the two-year vesting period to which Steem Power holders are subjected.

We see networks with multiple combinations.

These include networks with:

  • Both user and equity tokens (Sia, Digix)
  • Only user tokens (bitcoin, ethereum)
  • Only equity tokens (Golem, SingularDTV)
  • User, equity and debt tokens (Steemit).

The combination depends on the unique dynamics and economics of the network.


The type of token typically dictates the mechanics of its crowdsale.

Pre-sale of User Tokens

To sell user tokens, companies tend to:

  1. Publish a white paper defining the specifications of the network and a roadmap for its future development.
  2. Publicly announce the token and release the source code prior to creating the first token.
  3. Deploy the network and secure user tokens via mining. Alternatively, allocate a portion of the pre-sale tokens to the founding team as a reward for ideating and developing the network.
  4. Advertise the network and sell user tokens to anyone, anywhere.
  5. Work to grow the number of people using, building apps on top and maintaining the network.

As the network grows, demand for the token increases, leading to a rise in the user token price. This is what we call the ‘Nakamoto business model’. Satoshi got its reward not by pre-mining bitcoins, but by being the first believer and supporter of…

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