Web3 and crypto is a growing market, more people are starting to realise it’s potential and slowly moving into the space – although, there is still a lot of growth yet to happen.
If you’re new to the space, you may be unfamiliar with the benefit packages that Web3/crypto companies tend to offer. Although there are some similarities, such as equity options, the main difference is the option of tokens.
New to the space? Check out our guide to transitioning from Web2 to Web3 here.
Navigating the world of employee benefits can be difficult in the space, especially when it comes to tokens.
We’ve put together a guide focusing on tokens as an employee benefit to help you with your decision making.
What are tokens?
Before we get into the reasons why tokens are beneficial to you, lets first unpick what tokens actually are.
According to Investopedia, crypto tokens are ‘a representation of an asset or interest that has been tokenised on an existing blockchain.’
It’s possible for there to be confusion between cryptocurrencies and crypto tokens but there are two very different offerings. Tokens are used as a way to raise funds for a project(s), which are usually created and sold through Initial Coin Offering (ICO). Cryptocurrencies are to be used as payment.
There are different types of tokens:
- Utility Tokens: a token that can access a blockchain product or service
- Security Tokens: a token representing a share in an external asset or organization
- NFTs (Non-Fungible Tokens): a digital asset that represents ownership of a specific asset (virtually or IRL), such as, artwork, videos and/or audio
What is the value of tokens as an employee benefit?
Tokens as a benefit could seem like a riskier option for most, in part due to the volatile nature of the current Web3 and Crypto space. However, there is a lot of value in tokens, which can ultimately be very lucrative for you.
Gain earlier liquidity with tokens
Traditional methods rely on an IPO or liquidity event in order to see any gain from shares. This usually can take between five to ten years before you see any financial gain and is entirely dependent on the company’s exit strategy.
Unlike traditional stock options, tokens provide a faster route to market, allowing you to gain liquidity immediately. As soon as you are given your token, you can sell or buy these as soon as your lock-up period is over.
Create a sustainable and future-proof product
With tokens, the benefit to the employee is directly linked to the product/community instead of the financial backing of the company.
This means that the better the product, the more users it will attract, which then grows the value of the token.
As the value of the token is directly linked to the success of the product, there is emphasis on creating a sustainable and future-proof product that is scalable.
Fair compensation alongside base salary
No matter what your salary or package offering, tokens allow for a fair compensation as they belong directly to you, with the ability to control when you receive liquidity.
N.B. some companies may have a vesting period/lock-up for tokens, something which you need to discuss during your interview/offer stage.
Long-term advantages of tokens
As we’ve mentioned above, tokens can help facilitate product growth – the more people want to invest in your product through tokens, the more your token will be worth.
It’s simple, believe in the product and you’ll see the rewards.
Eventually, you may be able to exchange tokens with your peers. If you’re a longstanding employee, you may be able to sell their tokens to newer employees allowing them to cash in earlier.
This essentially allows individuals to buy into the success of a company without any external influence.
How do tokens as an employee benefit work?
So, how do tokens as an employee benefit work exactly? What do you need to be aware of when joining a company that’s offering tokens as part of their benefit package.
When you’re offered tokens, the company/employer will allocate you the token(s) from a reserved patch they have available. Depending on whether these are pre or post launch, their value will be different, so it’s worth finding out about this before you sign the dotted line.
From your initial start date, most tokens will start vesting, however, there could be restrictions around what you can do with your tokens initially – this is called a lock-up.
Lock-up periods usually last for around a year, meaning you can’t sell or transfer your tokens during this time.
There is a lot of financial gain to be had with tokens and it’s definitely worth exploring this further with your future employer.
As we anything to do with your work package, negotiating is key so make sure you really understand what the value of your token is, know what the growth plans are for the company and product before committing.
Ultimately, you can control the value of this by helping to create a product that people want to get involved in.