An anonymous editorial with no byline, no project, and no data point just proposed the most consequential redesign of token ownership since the ICO era. Its title: "Users Are the Best Investors to Have." Its thesis: token holders do not actually need the rights that shareholders take for granted. Governance votes? Optional baggage. Dividends and residual claims? Outdated relics. The article imagines a future in which tokens are held by users who use, not by investors who demand.
I have spent twenty-six years in this industry, and I know the shape of dangerous claims. They rarely arrive with code libraries and formal verification proofs. They arrive with clean prose and compelling intuition, with the emotional force of a rallying slogan and the evidentiary weight of a fortune cookie. In 2017, I spent four hundred hours auditing the SafeMath library line by line and found fourteen integer overflow vulnerabilities, edge cases that would have drained twenty million dollars if the team had shipped them unpatched. The lesson of that audit never left me: the most seductive designs are the ones that fail on the edge cases. This editorial is an edge case in three bodies: token engineering, governance architecture, and securities law.
The Context: A Thesis Born From Governance Fatigue
The editorial is a product of its moment. The 2020-2021 governance mania built a generation of protocols on a flawed analogy: token equals share. Compound, Uniswap, and Aave each adopted the corporate shareholder template, issuing governance tokens with voting power proportional to holdings. The results were predictable to anyone who has studied corporate governance concentration data. Whale wallets accumulated outsized voice. Retail participation collapsed to single digits. Institutional investors acquired stakes not to govern but to profit. The "token equals equity" model was not so much defeated as revealed to be a caricature of equity: governance without fiduciary duty, dividends without mandatory distributions, liquidity without lock-ups.
The failures were real. The frustration was real. The question the industry never answered cleanly: what replaces the shareholder model?
The editorial proposes a radical answer. Remove shareholder rights entirely. Redefine the token holder as a user. Cast the token as a consumer product rather than an investment contract. "Users are the best investors" because users care about the product, not the exit.
Context matters because this thesis is not appearing in a vacuum. It arrives as regulatory pressure escalates globally, as the U.S. Securities and Exchange Commission brings enforcement actions against major protocols, and as DAOs re-examine their legal wrappers. An editorial that reframes token holders as users is not merely philosophical commentary. It is a legal strategy in embryonic form. If the industry accepts that token holders are users rather than investors, issuers can argue that their obligations end at consumer protection, which is dramatically less onerous than securities compliance. No disclosure filings. No fiduciary duties. No Howey test. The cost structure of running a token project improves on paper.
But legal strategies built on renaming rather than rebuilding have a history of collapse. I have a checklist for exactly this scenario. The checklist reveals four distinct failure modes hiding inside this thesis.
Failure Mode One: The Anonymous Author and the Missing Mechanism
Before the technical analysis, address the authorship problem. The editorial is unsigned. No author name, no organization, no affiliation, no audit trail. In my line of work, an anonymous claim about a security instrument is not a thesis. It is a signal without provenance.
This is not an ad hominem objection. It is a verification protocol. When a claim arrives without a verifiable source, the proper professional response is to inspect the claim's incentive structure. Who benefits from convincing the market that token holders should abandon shareholder rights? The answer is not retail holders. It is not institutional investors. It is project teams who would prefer to raise capital without the compliance burden, the governance obligation, and the fiduciary framing that investor status entails.
I have seen this pattern before in my consulting practice. A narrative surfaces in the press, testing market temperature. If the market tolerates the narrative, a project emerges that operationalizes it. The editorial may be a trial balloon, floated to measure resistance before a specific token design is announced. I cannot confirm that hypothesis with the available information, but the absence of attribution makes it the most parsimonious explanation for why such a consequential claim would appear without a named sponsor.
Treat any future project that cites this editorial as its intellectual foundation with the same skepticism I would apply to an unaudited smart contract. The source is unverified. The mechanism is unnamed. The claim is doing the work that evidence should be doing.
Failure Mode Two: Token Engineering, or the Missing Consumption Loop
Token engineering is a discipline of constraints. The design space for token mechanisms splits into two families with different mechanical logics.
The first family is equity-like. The token carries claims on residual value. It captures fee flows through buyback-and-distribute structures. It holds governance rights that steer protocol upgrades. It has liquidation priority in dissolution. These mechanics map cleanly onto the shareholder model, which is why the corporate analogy attracted early protocol designers. The mechanical logic: token value is a function of the protocol's future earnings and the holder's claim on those earnings.
The second family is utility-like. The token is a key. It gates access. It powers transactions. It provides discounts and consumption priority. Its value is a function of demand for the underlying service. The mechanical logic: token value is a function of the utility it unlocks.
The editorial's thesis belongs to the second family. It wants the industry to abandon the first. But it commits a fatal engineering omission: it identifies the destination without providing the mechanical transition.
Let me be precise. A utility token requires a consumption loop. The protocol must force interaction with the token for the service to function. Without that forced interaction, the token is an option without an underlying asset, a claim on nothing that is nevertheless priced as if it were a claim on something.
I analyzed exactly this dynamic in 2021, when I published my teardown of ERC-721 versus ERC-1155, "The Inefficiency of Singular Assets." The gas savings I quantified, a 60 percent reduction in transaction costs through batch transfers, was the headline number. The durable insight was structural. ERC-1155 tokens worked in gaming economies because their value was anchored to a specific consumption scenario. Players needed the tokens to play. The token was a key, and the game was the lock. Remove the lock, and the key becomes worthless brass.
The editorial provides no lock. It never explains why a user would hold the token. Is there a fee burn? A staking discount? A proof-of-use requirement? Mandatory expenditure for service access? None of these mechanisms appear in the argument. The thesis is a call to strip rights without an instruction to build utility. This is the engineering equivalent of saying "cars should be safer" and then removing the brake pedal.
If a project implements the editorial's vision faithfully, it produces a token that carries no governance rights, generates no yield or dividends, has no mandatory consumption mechanism, and is nevertheless listed on secondary markets. Such a token is a point with a price tag. It will be traded because it can be traded. And because its only possible value driver under the stated design is secondary-market speculation, the market will price it as a speculative instrument. The thesis's explicit rejection of investment behavior produces, in execution, a token whose sole value proposition is investment speculation. This is not a design contradiction. It is a design failure of the first order.
In mathematical terms, the valuation model lacks a closing term. Asset pricing requires a source of value: free cash flow, a control premium, a binding utility constraint. Eliminate all three, and the equation reduces to a function of narrative momentum, which is another way of saying the price is a function of nothing.
I have spent years modeling these failure dynamics. In 2022, after the Terra collapse, I published a post-mortem that grounded the event in mechanically precise terms. UST was framed as a payment mechanism, a utility-first stablecoin for everyday users. The consumption narrative was central. But on-chain, the only mechanism that actually anchored the system was an arbitrage loop in the seigniorage model, a feedback mechanism that worked until it didn't. When the narrative collided with the mechanism, the mechanism won. Sixty billion dollars of market value evaporated because narrative assumptions were treated as structural reality.
Terra's failure was a warning about exactly this category of error: believing that a claim about user utility is equivalent to user utility. The editorial repeats the error in theoretical form. It gives the industry a permission structure to design tokens with no rights and no utility while claiming that users are the best investors.
Failure Mode Three: The Valuation Void and the Velocity Trap
Value capture requires a mechanical source. Let me enumerate the known sources in protocol design.
Source one: cash flows. A protocol collects fees and distributes them to token holders through buyback-and-burn, staking rewards, or dividend mechanisms. This creates a direct link between protocol revenue and token value.
Source two: governance control premium. A token that controls access to a value-generating system commands a premium because control has economic value. Uniswap's governance token prices partly in the ability to direct fee structures, treasury assets, and protocol parameters.
Source three: utility demand. A token required for service access generates direct demand. Demand is a function of service usage, and token price is a function of that demand interacting with supply.
The editorial's thesis eliminates sources one and two. It explicitly rejects cash-flow rights. It strips governance, and the control premium evaporates. This leaves only source three. But the editorial provides no mechanism for utility demand to materialize. No consumption mandate. No service gating. No medium-of-exchange requirement. This is the deepest flaw of the thesis: it removes the two structural value anchors without constructing the third.
The historical record is unforgiving. Pure utility tokens without mandatory consumption have failed to maintain value in almost every instantiation I have examined. The reason is the velocity problem, identified decades ago in monetary economics and refined in token engineering. A token that is spent frequently for services circulates quickly. High velocity suppresses price because the same unit of value supports a larger volume of transactions. Low velocity, by contrast, is a speculative hoard. But a low-velocity token is not being used, which contradicts its utility premise.
The utility token is caught in a trap: it can be used, but usage suppresses its value; it can be held, but holding contradicts its use-case narrative. This is why successful utility tokens in closed ecosystems are either not freely tradeable or are accompanied by explicit market-making mechanisms.
The editorial's "user token" has no answer to the velocity problem. It wants holders to be users and users to hold. But the holding-period demand created by speculation is in direct tension with the spending behavior demanded by usage. A token cannot simultaneously be a long-term investment for its holder and a frictionless medium of exchange for the same holder. The two roles cannibalize each other.
Here is the economic insight the editorial misses: the user is a good investor not because users are patient, but because users create demand. Demand requires usage. Usage requires consumption incentives. Consumption incentives require a mechanism. The thesis announces the desired outcome and skips the mechanism. In protocol design, skipping the mechanism is not an oversight. It is the whole game.
I have seen exactly this failure in venture-backed token projects throughout the bull-market cycles. Teams spend months on narrative, token allocation tables, and investor decks, and minutes on consumption loops. The result is a token that is aggressively marketed, thinly used, and priced by the marketing. The standard ecosystem response is blame: retail investors are too speculative, the market is immature, the product was undervalued. But blame is a mechanism too. It redistributes accountability away from design failure.
Failure Mode Four: Howey Does Not Care What You Call the Holder
The most consequential claim in the editorial is legal, whether the author knows it or not. By proposing that token holders are users rather than investors, the editorial implicitly argues that securities law should not apply to these assets. Securities law has an answer for that argument, and the answer is not favorable.
The Howey test, established in SEC v. W.J. Howey Co. (1946), asks whether a transaction constitutes an investment contract based on the economic reality of the arrangement, not its nominal label. The four elements: an investment of money, in a common enterprise, with an expectation of profits, derived from the efforts of others.
Map the editorial's proposed token against this test.
Element one, investment of money: if the token is sold in any public or private financing event, purchasers commit capital. Element satisfied.
Element two, common enterprise: the token's value depends on the protocol's success. The purchasers' financial fortunes are pooled with those of the project team and other holders. Element satisfied.
Element three, expectation of profits: this is where the editorial attempts its exit. It argues that token holders are users, not profit-seeking investors. But the courts have consistently held that the expectation of profit can arise from secondary-market trading and from the potential for price appreciation driven by the project team's development efforts. If the project markets the token as an opportunity, if it builds a secondary market, if it emphasizes protocol growth, the expectation of profit exists independently of the token's nominal rights. Stripping governance and dividends does not sanitize the expectation. The price will still move with the project's fortunes.
Element four, derived from the efforts of others: if the project team continues to develop the protocol, govern its parameters, and build the ecosystem, the token's value is derived from their efforts. The editorial cannot escape this element without dissolving the project team entirely, which is not a realistic design.
The critical legal principle is the economic-reality doctrine. Labels do not determine legal classification. Substance does. The Howey analysis looks at the totality of circumstances surrounding the offering: marketing materials, distribution structure, secondary-market behavior, and the economic incentives of purchasers. Consumer-purpose rebuttals have failed repeatedly when the economic reality of the transaction matches investment behavior.
The strongest precedent is SEC v. Telegram. Telegram explicitly argued that its Gram token was a commodity and a payment vehicle intended for use within its ecosystem, not an investment. The SEC argued that the economic reality of the $1.7 billion offering told a different story: purchasers expected to profit from Telegram's development efforts and the eventual appreciation of the token on secondary markets. The court sided with the SEC, halting the token's distribution. The argument died with the verdict: you cannot raise capital from thousands of purchasers by promising a platform, then claim your token is a consumer good because you call your purchasers users.
The editorial is Telegram's argument in weaker form. Telegram had a functioning messaging service with hundreds of millions of active users. The editorial has no product, no project, no user base, no technical specification. It is a pure ideological assertion that, if adopted by a project team, would leave that team in a worse regulatory position than if they had simply acknowledged the equity-like nature of their token.
There is a reason my institutional clients in Hong Kong and the United States spend millions on legal opinions, security audits, and regulatory frameworks. In 2024, I designed a BLS threshold signature custody architecture for a tier-one financial institution integrating Bitcoin. The client's ability to pass a SOC2 audit on the first attempt did not depend on describing Bitcoin as a bookkeeping entry instead of a digital asset. It depended on the architecture: three hardware security modules, a comprehensive security specification, and a compliance framework that acknowledged the actual nature of the asset. Substance, not semantics, is what regulators verify. A project team that calls its token a user mechanism without building the mechanism will discover this in the enforcement action that follows.
Failure Mode Five: The Governance Vacuum
Governance rights are not decorative. They are the accountability infrastructure of a protocol. I have examined this machinery at the code level for years, most notably in my 2020 analysis of Compound's interest rate model, where I built a simulation environment to model liquidation cascades under extreme volatility. The model exposed a flaw in the interest rate convergence logic, a gap that could trigger systemic insolvency during a flash crash. The governance mechanism was the only channel through which such a flaw could be corrected before the market punished it. Governance is a correction mechanism, not a democratic luxury.
Remove governance, and the design space collapses to limited options.
Option one: replace capital-weighted governance with reputation-based governance. Identity-weighted voting, proof-of-personhood systems, community reputation scores. These alternatives exist in academic literature and in experimental deployments. But they require infrastructure that does not yet exist at production grade: a robust identity layer, an anti-Sybil standard, formal verification of reputation-weighted voting logic. That is a multi-year engineering project, not a token design tweak. The editorial does not propose any of it.
Option two: transfer control to a committee or foundation. This is a governance structure, but it is not decentralized. It is a traditional board with a blockchain wrapper.
Option three: the default outcome. The project team retains control without accountability. The protocol runs on a founder-controlled multi-sig wallet. Token holders have no vote, no dividend, and no claim on the treasury. The project becomes an unregistered fund with a tradeable receipt. The "user is the best investor" narrative becomes a legal fiction that drains the governance mechanism of any purpose while leaving the capital structure intact.
I have seen this outcome in post-mortem. When I analyzed the Terra collapse, I identified governance capture as a contributory mechanism, not the root cause. The root cause was the feedback loop in the seigniorage model. But the community's inability to constrain the parameters through governance meant the system could not self-correct. It collapsed because no one had both the incentive and the authority to stop the bleeding. Governance was the absent safety valve. The editorial asks the industry to remove safety valves as a design principle.
Here is a darker prediction. If a high-profile project adopts this thesis literally, the sequence is predictable. Launch a token with no rights. Market it as a user token with an engaged community. Watch the price appreciate alongside protocol growth. Discover that the community has no mechanism to correct a governance failure. Experience a crisis requiring a parameter change or treasury decision. Witness community revolt, because the community has no vote but retains emotional and financial investment. The project either reverses course, abandoning the thesis, or deteriorates into a one-party state.
The "user token" model, implemented without governance infrastructure, converts token holders from shareholders into a mob with receipts. That is not stability. It is instability waiting for a trigger.
The Boundary Condition: When the Thesis Actually Works
I am an auditor, not an ideologue. A thesis that fails in general may succeed under boundary conditions. The editorial's intuition has a valid core: user-centric tokens have a place in the design space, and the "token equals equity equals shareholder rights" formula is not the only legitimate model. Consumer-facing protocols in gaming, social platforms, and decentralized physical infrastructure networks operate in contexts where the utility model maps naturally to user behavior. The ERC-1155 gaming ecosystems I studied in 2021 proved that a token can be genuinely useful: a player needs the token to advance, to access content, to stake in a guild. The token's utility is its value anchor.
But the boundary condition is strict. For a user token to work economically, the user relationship must be mandatory. The token must be a required input into the product's value chain. If the product works perfectly without the token, the token is not a utility mechanism. It is a decoration on a workable product, a security in costume.
I formulated this as a test in my advisory practice: remove the token from the product, and measure the product's utility loss. If the loss is zero, you have not built a user token. You have built a security with a user-facing narrative. Every project team considering this thesis should apply this test before launch. The test is inexpensive. The consequence of skipping it is regulatory, financial, and existential.
Distribution mechanics also matter. A user token should not be sold to the public in a financing event with promises of appreciation. It should be earned through usage: retroactive airdrops for real participation, liquidity mining tied to actual consumption, in-protocol rewards for value-creating behavior. These distribution patterns align with the user narrative. When a token is sold in a public offering, the user-investor distinction collapses, and the Howey analysis begins.
The Contrarian Conclusion: Stripping Rights Increases Regulatory Exposure
The counter-intuitive conclusion follows directly from the analysis: stripping shareholder rights from a token increases regulatory exposure rather than reducing it. A token with equity-like mechanics has a coherent legal story under current securities law. It resembles a share. Its classification is predictable. A token with no rights, no dividends, no utility mandate, and no governance mechanism is a jurisdictional orphan. It looks like a security, trades like a security, and has the legal protections of a casino chip. When a regulator encounters such an asset, the analytical response is not "this is a consumer item." It is "this is an investment contract with no protections," a worst-case classification.
The SEC's enforcement framework does not reward ambiguity. It punishes it. A project that relies on the "users are the best investors" framing to avoid securities obligations is simultaneously admitting that it holds user funds without shareholder accountability. That is not one violation. It is two: an unregistered securities offering plus an unconstrained fund management structure. I have seen this calculation made in institutional compliance rooms. The regulators are not confused by the semantics. They examine the economics.
There is a second-order effect the editorial's authors have not considered. The thesis may be correct for a narrow class of protocols. If it is adopted indiscriminately, it will damage the prospects of the ones where it would have worked. GameFi and DePIN projects with real consumption loops will be painted with the same brush as the rights-vacuum tokens. The narrative will be cited as cover for projects that were never building user mechanisms. The cost of that contamination will be borne by the legitimate ones.
The Takeaway: Audit the Consumption Mandate
The next time you see a project cite "users are the best investors" to justify a token design that grants nothing to its holders, apply one audit: calculate the consumption mandate. If it is missing, the thesis is not a design. It is an exit strategy.
The standard for legitimate user tokens is obsolete before the mint finishes if it means a tradeable token with no rights and no mechanism. The protocols that survive this narrative cycle will be the ones that built consumption loops, earned distribution, and accountability structures that outlive the label. The losers will be the ones that treated an anonymous editorial as legal cover.
If it isn't formally verified, it's just hope. And hope is not a risk-management strategy.
Code is law, but law is interpretive. The interpretation starts with the mechanism, not the marketing. Build the mechanism. Verify the loop. Then talk about users.
