# @TheiaResearch: why tokens are fundamentally broken in crypto

Source: https://x.com/TheiaResearch/status/1914728360577835341

## Summary

Theia Research argues that tokens are fundamentally broken across the crypto industry, affecting teams, VCs, liquid investors and M&A. The article says teams are harmed when they focus on price charts instead of customers and product-market fit, and that VCs were hurt after funds went into "Token is the Product" businesses. It proposes fixes including token transparency standards, abandoning "Token as Product" in favor of tokens tied to future cash flows, and better regulation, citing the Securities Act of 1933 as an example of helpful rules.

## Article

Tokens are Broken

Tokens are broken for teams who spend too much time looking at price charts and not enough time focused on customers and product-market fit. Tokens are broken when morale fluctuates with macro and market beta, and for teams attempting to negotiate funding rounds with declining token prices. Teams should not spend hundreds of hours building complex, gamified tokens or thinking about monetary policy.

Tokens are broken for VCs that deployed entire funds into "Token is the Product" businesses only to learn that the market had moved on by the unlock. The mentality (and sometimes reality) of "Token as Product" obfuscated lack of product-market fit and directed capital to too many products that never should have been built. Then Low Float / High FDV (LFHF) decimated the unsophisticated token buyer and eliminated the path to exit.

Tokens are broken for liquid investors who have to deal with insufficient legal protections. As a liquid investor, you learn to live with the Damocles Sword of additional tokens (can you image Amazon's backers worrying about whether they would receive value from AWS) and equity holders siphoning off value. You learn to understand that founders sometimes sell tens of millions into illiquid markets and check out, or siphon off cash flow through advisory contracts with offshore foundations (and you learn how to avoid these founders). You learn to verify everything ~ the entire practice of liquid token investing is an Indiana Jones dungeon ~ and underwrite to a higher cost of capital.

Tokens are broken for M&A. We don't have good precedents on how value should flow, making an already difficult business transaction much more complicated and likely to fail.

What do we do about this? We may have invented the best tool for capital formation the world has ever known and a mess of the entire enterprise. The latent potential is an opportunity. A few ideas on how to move in the right direction:

1. We need better standards for token transparency. Markets are wonderful but they don't work with asymmetric information. I believe increasing transparency around core token categories (eg insider selling, cashflow, relationship with equity) will go a long way.

2. We need to completely abandon the idea of 'Token as Product' and acknowledge that tokens derive value from future cash flows associated with the underlying business. This idea has singlehandedly been responsible for the misallocation of over half the resources allocated to us as an industry.

3. Social layer needs to obliterate people who use the grey area to misbehave and siphon value. This type of behavior raises the cost of capital on all companies in the industry.

4. We need better regulations as the market did not, in fact, regulate itself. Good faith regulation has helped many markets overcome some of these early problems and the Securities Act of 1933 was instrumental in building the greatest capital markets in the history of the world.

5. Better governance would go a long way. In particular, I am excited about Futarchy and the ability to build in tokenholder rights directly into the token. It's still early days here.

I believe this is the single biggest problem in the market right now, and I also believe we can solve it.