Should crypto startups ditch ESOPs?

Employee stock option plans (ESOPs) haven’t fully caught on in Southeast Asia, a recent study by Saison Capital and Svested revealed.

That’s partly because ESOPs can be problematic for startups. They are tools to retain talent and create a sense of ownership, yet they can be confusing to implement. It can also take a long time to reap their benefits.

An NFT sold online. // Image credit: 123RF

In the crypto world, however, startups that issue tokens and NFTs may have found an alternative. Beyond the speculative noise, tokens have features that not only emulate but potentially exceed the benefits of ESOPs.

Though they’re riddled with issues of their own, tokens might be a game changer – or a nonstarter – for startups looking to scrap ESOPs.

Like an ESOP, but better

At first glance, NFTs and tokens offer similar benefits as ESOPs. In particular, both can be used to attract and retain talent since, like ESOPs, they give employees a form of ownership that comes with financial gain.

It’s not just employees who enjoy these perks – many NFT communities, like the Bored Ape Yacht Club and the Women Rise collective, count artists, scientists, and other domain experts as their members.

The Bored Ape Yacht Club // Image credit: 123RF

There’s more. “The main benefits of using tokens to replace ESOPs are transparency and liquidity,” says Saison Capital partner Chris Sirise, who is active in several NFT communities. He points out that “these are the two key challenges that ESOPs have traditionally struggled with.”

Case in point: Under ESOPs, the stock option allocation process is often opaque because of the lack of transparency in salaries in Southeast Asia.

“With tokens, it’s easy to build benchmarks since anyone can observe the tokenomics of different public projects,” Sirise asserts. “Because the transparency afforded by tokens makes it easy for anyone to review the chain, it’s also easy to figure out whether tokens are issued [and] to whom,” he adds.

Meanwhile, just 24% of 124 startup founders understood ESOP buybacks and only 36% were aware of the legal and tax setups that govern them, according to the report by Saison Capital and Svested.

What’s the catch?

True value has no fixed form