Written commitments, signed agreements, and on-chain credentials are the only sources of certainty for you in this highly volatile world.
Everything unfolded on the eve of the Token Generation Event (TGE).
In the Web3 world, the most dramatic moments often occur in the weeks leading up to a project’s Token Generation Event (TGE).
Mankun Law Firm has recently received numerous consultations from employees of crypto projects, alleging that the projects revoked token options at TGE, terminated core team members, and engaged in similar conduct.Such phenomena are commonplace:
- Developers who worked diligently for months suddenly lost all incentives due to “organizational restructuring” just as their tokens were about to launch;
- Early advisors who were promised “token rewards and co-investment allocations” were repeatedly told that the “model was undecided” or “compliance approvals were pending” after the project gained momentum, resulting in continuous delays;
- Others, relying on the clearly stated “10% team incentive pool” in the whitepaper, ended up with nothing when the vesting period arrived, citing reasons such as “failure to meet performance targets” or “triggering non-compete clauses.”
These stories may sound like rumors, but they play out in nearly every bull market cycle.
In these incidents, the disadvantaged party is often not the investor, but the incentive participants—the builders who truly bring the project to fruition.
Token Rights Incentives ≠ Equity Incentives: Fundamental Differences in Contractual Logic
Many people, when first exposed to token incentives, simply analogize them as the “Web3 version of equity incentives.”
In fact, the two differ fundamentally inthe nature of rights, legal regulation, and contract designthere are fundamental differences.
In an equity incentive agreement, the subject matter is the company’s shares, which fall within the scope regulated by company law.
Share transfers are often subject to shareholders’ preemptive rights; therefore, companies typically need to expressly state in the incentive agreement:
“This incentive grant will not affect the rights of the incentive recipients due to restrictions arising from preemptive rights.”
By contrast, in a token incentive agreement, the subject matter is crypto assets. There is no concept of shareholder rights, and there is no need to undergo business registration or share transfer procedures.
However, it faces another category of risks: financial regulatory and compliance issuance issues.
Accordingly, a token incentive agreement should clearly set out:
“The Company warrants that the token has been issued in compliance with applicable laws and does not constitute a prohibited financial product in the relevant jurisdiction. If regulatory policy changes render the token undeliverable, the Company shall provide equivalent compensation or other alternative arrangements.”
In addition, the token incentive agreement should also clarify:
- whether the tokens underlying the incentives have tradable characteristics;
- Whether it may be deemed a security (Security Token);
- Whether the project has the requisite qualifications of the issuing entity and a lawful path for the Token Generation Event (TGE).
In simple terms:
- Equity incentive contracts focus on the restriction and transfer of internal rights within the company;
- Token incentive contracts focus on external compliance, regulatory risks, and the feasibility of performance.
- Although both are “incentive instruments,” the underlying logic of a well-drafted contract is entirely different.
To receive your entitled tokens, first ensure that promises are “committed to writing”
To truly safeguard your rights and interests, the first step is to require the project party to commit its promises in writing. The following are essential “required actions”:
- Execute a written “Token Incentive Agreement” (such as a Token Grant, Option, RTU, or Warrant)
Including the number of tokens, vesting schedule, cliff, lock-up period, and unlocking mechanism. Without written documentation, all promises are merely “verbal airdrop candy.”
- Specify conditions for termination and acceleration of vesting
It must be clearly stated whether, in circumstances such as “termination without cause” or “change of corporate control,” you may retain the vested portion and whether “acceleration of vesting” is triggered. This will determine whether you can still receive tokens if laid off before the TGE.
- Confirmation of Delivery Mechanism
This includes the timing of token issuance, method of delivery, on-chain wallet addresses, and whether release is facilitated through smart contract escrow or a third-party escrow arrangement. This helps avoid situations where “the project has launched, but no tokens have been distributed.”
- Addressing Compliance and Tax Issues
Regulatory restrictions vary across jurisdictions. If you provide services within mainland China, the agreement should expressly state that “if token issuance becomes impossible due to regulatory reasons, the company shall compensate in fiat currency or other equivalent forms.”
In jurisdictions such as the United States, details regarding the applicability of an 83(b) election, timing of tax liability, and withholding arrangements should also be clearly specified.
Although this section may appear “cumbersome,” it ultimately determines whether your tokens can actually be delivered to your wallet. If these clauses are omitted, risks tend to materialize at the most critical stages of the project:
- Absence ofa written agreementmeans you may be unable to prove that an incentive commitment was ever made, potentially undermining even your status as a “rights holder” under law;
- Absence ofa clear vesting mechanismallows the company to suspend token distributions at any time, citing grounds such as “failure to meet performance standards” or “failure to achieve objectives”;
- Absence ofclear delivery terms, with the project team delaying transfers after the Token Generation Event (TGE), leaves you unable to recover the assets or pin down liability;
- Absence ofcompliance and tax arrangements, may result in regulatory prohibition on token issuance, leaving you neither with the tokens nor with any avenue for compensation.
In other words, the simpler the contract, the more complex your path to enforcing rights.
Only when all key conditions are clearly set forth in the agreement do token incentives transform from "oral trust" into "legal rights."
The key details in contracts that "appear as fine print"
A qualified token incentive agreement should not merely be a template, but should clearly specify the following key details:
- Grant Quantity and Type:Token Grants, Options, RTUs, etc., with quantities that are precise and traceable;
- Vesting Rules:The commencement date, cliff period, and linear vesting schedule must align with the Token Generation Event (TGE);
- Lock-up and Unlocking:Specify the lock-up period following the TGE to prevent nominal vesting without actual liquidity (i.e., "vested but not listed");
- Termination and Acceleration Mechanisms:Define "Good Leaver" and "Bad Leaver" scenarios; provide protection of equity interests in the event of a change of control;
- Tax Liability and Compliance Representations:Avoid violating local prohibitions on payments using virtual currencies;
- Dispute Resolution Clause:Should include mechanisms for "emergency arbitration" or "interim injunctions" to ensure that rights enforcement remains effective immediately prior to the TGE;
- Risk Disclosure:Disclose risks related to token price volatility and regulatory changes to prevent project parties from disclaiming liability on the grounds of "undisclosed risks."
These provisions, which may appear to be mere "legal clauses," in fact correspond to painful real-world cases.
Concluding Remarks
In a truly mature Web3 ecosystem, code is responsible for execution, and contracts are responsible for trust.
Do not let your efforts and contributions ultimately become nothing more than "illusory incentives."
Written commitments, signed agreements, and on-chain credentials are the certainties you can rely on in this highly volatile world.
When the next Token Generation Event (TGE) arrives, may your wallet hold not merely screenshots and regrets, but the real value that belongs to you, has been encoded in the contract, and is realized on-chain.
