Token Compensation Primer

Joshua Rivera
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Token-based compensation is an increasingly critical component of the digital assets industry. As decentralized ecosystems of value proliferate, ensuring incentive alignment among those building and participating in those ecosystems is paramount for any company developing in the space. However, token-based compensation is deceptively complex and requires a nuanced understanding of a number of corporate and tax issues to ensure that companies providing it and those receiving it are able to realize and preserve the value derived from this compensation practice. 

We teamed up with our friends at Toku to learn more about how the digital assets industry is grappling with this relatively new form of compensation. Toku helpfully came up with this comprehensive report that sheds light on the major considerations and structures involved in token-based compensation. 

The report includes an exploration of various types of grants, their tax implications, and other important aspects companies should be aware of before implementing this type of comp strategy. For those interested in delving further into the subject, we recommend downloading Toku's Token Grant Compensation Primer to get an informed understanding of token-based compensation and how it could be effectively utilized within your organization.

Download Toku's Token Grant Compensation Primer!  → 

Token-based compensation is reshaping how tech companies reward and retain talent. For a deeper dive into their mechanics and impact, check out a sneak peek of the report in the graphics below, showcasing types of token grants and key differences of each token type.

Figure 1: Token-Based Compensation Structures

Navigating the tax implications of token-based compensation can be as critical as understanding the compensation itself. Here’s a snapshot of the tax treatment of RTAs, TPAs, and RTUs under U.S. personal income tax law, mapping out the tax journey for anyone dealing with or considering token-based compensation.

Figure 2: Comparison of Personal Income Tax (United States) on Token-Based Compensation

For businesses, the tax side of token incentives is complex. Here is a quick reference for companies to understand the essential tax information using token-based incentives as part of their compensation strategy.

Figure 3: Comparison of Company Tax (United States) on Token-Based Compensation

Make informed choices in token-based compensation with this comparative table that outlines the benefits and challenges of RTAs, TPAs, and RTUs.

Figure 4: Advantages and Disadvantages of Token-Based Compensation Structures

Download Toku's Token Grant Compensation Primer!  →

Blockchain Capital is an investor in Toku. The views expressed in each blog post may be the personal views of each author and do not necessarily reflect the views of Blockchain Capital and its affiliates. Neither Blockchain Capital nor the author guarantees the accuracy, adequacy or completeness of information provided in each blog post. No representation or warranty, express or implied, is made or given by or on behalf of Blockchain Capital, the author or any other person as to the accuracy and completeness or fairness of the information contained in any blog post and no responsibility or liability is accepted for any such information. Nothing contained in each blog post constitutes investment, regulatory, legal, compliance or tax or other advice nor is it to be relied on in making an investment decision. Blog posts should not be viewed as current or past recommendations or solicitations of an offer to buy or sell any securities or to adopt any investment strategy. The blog posts may contain projections or other forward-looking statements, which are based on beliefs, assumptions and expectations that may change as a result of many possible events or factors. If a change occurs, actual results may vary materially from those expressed in the forward-looking statements. All forward-looking statements speak only as of the date such statements are made, and neither Blockchain Capital nor each author assumes any duty to update such statements except as required by law. To the extent that any documents, presentations or other materials produced, published or otherwise distributed by Blockchain Capital are referenced in any blog post, such materials should be read with careful attention to any disclaimers provided therein.

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