For crypto startups, choosing a funding structure that makes it harder for the founder to get paid is a reliable signal of high project quality.
April 1, 2026
Original Paper
Incentive-Compatible Token Design as a Signal of Venture Quality
SSRN · 6504473
The Takeaway
Founders use 'incentive-compatible' tokens—where they only get paid if they hit specific milestones—as a form of strategic 'self-harm.' Because scammers won't agree to lock their own money behind difficult goals, the presence of these restrictive legal and technical contracts is the most credible proof that a venture is legitimate.
From the abstract
This paper examines whether token design can serve as a signal of venture quality in decentralized fundraising environments. We develop a simple model in which an entrepreneur privately informed about project quality chooses between a neutral token and an incentive-compatible token embedding a milestone-contingent feature. While the latter increases the likelihood of attracting external funding, it imposes a private cost on the entrepreneur.Because token design is publicly observable prior to in