This article is translated from a post by Chari, founder of TaleX, original link: https://x.com/TaleX_chain/status/1849936180894453913

Introduction

When ICOs surged in 2015, many friends suggested I issue a token. At the time, I didn't seriously consider this option, but it sparked some thoughts. I thought for a long time — what is a token? If it is a form of equity, should I give my users 'equity'? They have already received products or services without paying for any 'equity'. How does this help the business? If it merely attracts a group of speculators, isn't that self-destructive?

This question troubled me for a long time, but I had no answers. I couldn't understand it, so I decided to set it aside for a while. But when I finally decided to enter the crypto space, this question became unavoidable.

1

At that time, entrepreneurship based on business models heavily relied on venture capital to survive the early stages without supply chain advantages. Just as an atomic bomb needs to reach critical mass, supply chain advantages need to survive in the early infrastructure stage. Startups must build supply advantages through subsidies and investments, and through network/scale/brand effects, ultimately gaining market and user recognition. For example, ride-hailing platforms. In the early days, companies subsidized drivers and passengers to help them through stages where there were too few passengers or drivers. Ultimately, when supply exceeds the critical point, drivers and passengers can match quickly, and services are delivered smoothly.

This entrepreneurial approach seems simple: invest heavily, quickly establish supply advantages, achieve network effects, and then start making profits. But in reality, if it's easy for you, it's easy for others too. In China, competition among ride-hailing platforms is fierce — Didi, Kuaidi, Uber, etc., have burned billions of investors' money. But neither investors nor entrepreneurs seem too worried. Whoever wins users wins the market. They know clearly that every penny spent today will convert into a larger share when acquisitions occur.

In this process, both drivers and passengers are happy — orders keep coming, rewards keep coming, and coupons keep coming. They don't understand who is losing, just like players at a card table don’t know who the weakest player is. As mergers occur and monopolies emerge, network effects begin to exert their negative magic. Drivers soon realize that their peers are increasing, work hours are getting longer, but income is decreasing. Passengers realize that cars are divided into different tiers, and faster, higher-tier cars require extra payment. If you choose the cheapest tier, you have to wait a few minutes and then be matched with a lower-rated driver.

'User first' exists because users are chips, and chips are money. People love chips, love money, even more than they love themselves. But do people respect chips or money? Do they grant rights to chips and money? 'He who wins the people's heart wins the world' is a saying often used by common people to describe their importance. But this saying is actually about the distribution of rights. The people do not own the world; those who win the support of the people own the world. So what is the 'world'? The world is the people, and the people are the plate.

If we change the subject, like 'He who gets the ox's heart gets the steak', or 'He who gets the fish's heart gets the sashimi', it's easy to understand that those so-called 'fast, good, and cheap' choices are actually just bait and traps.

2

Some may think that ultimately, the evil capitalists are the ones who profit the most. But that's not the case. Most investors may still be in a state of loss.

For various reasons, Didi's stock had a very short lifespan in the US stock market and has always faced delisting risks. Even if Didi's business is doing well, its stock price has been declining. The stock price seems to have lost touch with the business and is closely tied to liquidity.

Yes. That's it.

Since the early 21st century, when tech companies began to flourish, their founders have gradually freed themselves from capital's control. On one hand, although traditional investors like Warren Buffett criticize dual-class equity structures, most capital bows to the founders' 'super voting rights'. In fact, even Buffett himself has bought many such stocks. On the other hand, these tech founders tightly control the company's free cash flow and have not paid dividends for decades. Buffett has no complaints about this, as he himself is a founder who has never paid dividends (unless a founder genuinely retires or passes away, don’t expect dividends).

Trading such stocks is essentially betting against the market; whether you win or lose has little to do with the company itself. Google, Facebook, Amazon, Netflix, and even Berkshire Hathaway, along with the previously mentioned Didi — their stock prices are not determined by their businesses, but by whether anyone is willing to take over. At this point, liquidity becomes crucial. Once delisted, it's uncertain when one can realize their investments.

By the way, stocks without governance rights or dividends — how do they differ from meme coins?

3

There is a difference.

The Bitcoin network is a product without investors or a management team. It only has users, including miners who provide computing power and users who use the Bitcoin network for accounting.

Bitcoin (BTC) is a token designed to reward miners, ensuring that the Bitcoin network remains decentralized and trustworthy. Although this token has no governance rights or dividends, it has a use case — it can be used to pay for fees incurred when using the Bitcoin network for accounting. If you want to use the Bitcoin network, you inevitably need to hold Bitcoin, as it is the only currency accepted by the network.

Binance Coin (BNB) goes further in its use case. Initially issued by the Binance exchange, BNB is a token that allows users to pay service fees with a 10% discount. This use case is similar to a company repurchasing its own stock at a premium. Compared to the stocks mentioned in the previous section, this design is significant. Companies only need to do a simple buyback for their stock price to rise dramatically.

Moreover, due to the usability and independence of these tokens, companies no longer need to hold large reserves of fiat currency, or even at all (like Bitcoin). They can convert all revenue into their own tokens as reserves. These tokens serve as value reserves and value circulation tools within the ecosystem. Their revenue is in their tokens, their expenditures are in their tokens, retaining value within the ecosystem. This not only effectively counters the inflation of fiat currency but also, with the expansion of use cases and the increase in token holders, the rise in token prices directly benefits all token holders.

This is a revolutionary innovation that marks the first time in history that a company's free cash flow is directly tied to equity certificates.

Because the true value of a company is never in its equity certificates (stocks or tokens) but in its free cash flow.

In the early commercial era, major shareholders took away the free cash flow generated by company growth. In the tech era, founders took all the free cash flow. In the blockchain era, company free cash flow finally has the opportunity to benefit the masses.

Because these tokens are non-inflationary, as company revenues increase, the value of each token appreciates directly.

Users purchase tokens through consumption or receive tokens as rewards. As the company's network/brand/scale effects grow, the company becomes larger, free cash flow increases, and the utility of the tokens rises.

Creators earn tokens through incentives and rewards, while holders obtain tokens through purchases. Both can share in the wealth generated by the growth of free cash flow.

In a world where traditional equity structures have severely undermined the win-win situation between creators and shareholders, companies can use token mechanisms to achieve complete alignment and synchronization of interests between users, creators, and shareholders.

If concerned about token price fluctuations affecting company cash reserves, companies can use their own tokens to buy other tokens (such as fiat-backed stablecoins or Bitcoin, or even tokens from upstream and downstream companies) as reserve tokens. These tokens can be added to liquidity pools to help stabilize the token's exchange rate.

Both small companies and large countries can benefit from this mechanism.

4

In the traditional equity cooperation model, creators and shareholders have long since parted ways. But another crucial part of the company's economic ecosystem — the users who directly provide free cash flow to the company — have not even been invited to the negotiating table for equity distribution.

The technological conditions for welcoming a new era are already in place.

Recently, I saw a friend in my social circle share Murad's speech 'Meme Coin Supercycle' at this year's Token2049, calling for attention to meme coins. The first image that came to my mind was the citizens of Paris storming the Bastille in 1789. The second image was Gustave Le Bon's 'The Crowd'. The third image was Louis XVI being sent to the guillotine.

Yes, this is real chaos, and the emotions are real.

But the king's downfall is also real.

Author: Chari, Founder and CEO of TaleX

(Disclosure: The author holds BTC/BNB, and this article does not constitute investment advice, DYOR)