Token Cap Table – How to manage crypto assets?
In this article, you will get an overview of token cap tables and know how to manage use, or map tokens into a cap table.
The rise of cryptocurrencies has brought with it a new paradigm in the way people manage their assets. In order to manage crypto assets or tokens, it is important to understand how these assets are structured and how their ownership is distributed. Well, a cap table is how the ownership of these crypto assets is recorded and updated. Basically, the total tokens emitted, distributed, and held by the company are recorded through a cap table. As a result, the term cap table is used to describe the records of these events. In this article, you will get an overview of token cap tables and know how to manage use, or map tokens into a cap table.
Token cap table and crypto assets
Before we dive into token cap tables, let’s first get an idea of what tokens or crypto assets are. Tokens or crypto assets are basically digital assets that operate as an alternative use of physical currencies. They usually have their own blockchain backed by a distributed ledger. They are transferred and held electronically instead of being held physically in the form of paper money or metal coins. Bitcoins, for example, are a form of currency that is digitally held and are not tied to any particular bank.
In this case, the token cap table refers to a list tracking the distribution, holding, and emission of tokens. As you can see, the whole concept of cap tables is pretty much similar to that used to track assets such as shares and bonds. However, in token cap tables, it is mainly related to tokens or crypto assets. Thus, when it comes to token management, especially in regards to tracking the ownership and distribution of tokens, cap tables are super useful.
Understand Tokens and cap table
Tokens, coins, or cryptocurrencies are virtual currencies that can be transferred, traded, and exchanged on the blockchain. Ethereum, Bitcoin, and Tether are some examples of tokens. Blockchain technology was created as a consensus-based, peer-to-peer distributed ledger. This has made it possible for digital assets to be securely traded and transferred among parties without the need for banks or third-party payment services.
Now let’s see how they are represented in a cap table. A token cap table is used to keep track of token issuances and distributions. As mentioned earlier, the integrity of these records is crucial. Otherwise, it becomes hard for companies to know how many tokens are circulating, who owns them, and what they are being used for. As a result, maintaining accurate and up-to-date cap tables is essential in token management. But, what is a token cap table?
What is a token cap table?
Tokenomics is the term used to describe the process of managing, creating, removing, and circulating tokens in a company. In this regard, a token cap table is an important element of tokenomics, thereby making it one of the key tools to understand how tokens are distributed and managed. More importantly, it serves as an important document that allows companies to track your token and transactions.
Nowadays, token cap table management software is being used to ensure the accuracy, consistency, and security of cap tables. Eqvista’s cap table management software, for example, helps companies create a cap table and manage token transactions in an easy and transparent way. Therefore, a token cap table is an essential tool to track the management of crypto assets by a company.
Types of cap table crypto companies use
Now that you know what cap tables are and the general concept behind managing tokens in a company, let us now understand the most common types of cap tables that can be found in a company. Below are the two most common token cap tables that companies use:
- Equity Cap Table – As the name suggests, it refers to a cap table that is used to track the ownership structure of equity. Usually, funding rounds such as Seed funding or Series A, B, and C funding, along with stock-based compensation like ESOPs, are recorded in the equity cap table. As such, all transactions related to equity are recorded, starting from the initial distribution of the shares to the current situation. It allows founders as well as potential investors to understand in detail how the equity is distributed among the company.
- Token Cap Table – Well, token cap tables are used to track the distribution, holding, and token issuance of tokens or crypto assets. This allows a company to manage the ownership of its tokens and track the transactions in an organized way. For instance, 50% of the total tokens in a company are held by the founders, 25% by employees, 20% by the investors, and 5% by the advisors. All of this information can be easily recorded in a token cap table. Thus, it becomes easy for the company to understand how many tokens are in circulation and what the ownership structure is.
What does a token cap table include?
The token pool is the term used to refer to the group of tokens that are owned by a company. Usually, it is divided into various categories depending on the allocation of tokens to founders, employees, advisors, and investors. In this regard, there are two types of token pools included in the token cap table: the default pool and custom pool:
- Default Pool – Essentially, the primary individuals of the company are given initial allocations of tokens. Here are a few of the typical default tokens allocations:
- Founders Pool – The founders are given a certain percentage of tokens for their contribution to the company.
- Team & Advisory Pool – This is usually used when tokens are allocated to employees or advisors.
- Investors Pool – This is another pool used for allocations to investors when they invest in a company.
- Community Pool – This pool is usually used to allocate tokens to the community of people, such as users, ambassadors, promoters, and so on.
- Custom Pool – The specific participants that helped in the creation of the tokens are given custom allocations. Following are some of the typical custom allocations:
- Validators’ Pool – This is typically used for participants that are validators in the blockchain protocol.
- Oracles’ Pool – Tokens that are used for cross-protocol transactions are usually the oracles.
- Liquidity Pool – These are tokens allocated to individuals or entities that ensure that tokens are liquid on exchanges, including smart contracts in DEX, DeFi, and token swaps.
Therefore, the above-mentioned allocations serve as the basis for a token cap table. Yes, it is a long list, and all of these are recorded and managed in a single, organized cap table.
How do you distribute different token pools in the cap table?
In the token cap table, all token pools are included in various categories, such as the founder’s pool, employee pool, advisor pool, and so on. While the distribution of tokens in each pool is quite complex, it is easier to understand and process after there is a fundamental understanding of how these pools work. As such, the tokens for the founder and team pool are reserved via token options with vesting. In addition to this, the tokens for the investor pool are distributed through SAFTs or private token sales.
However, it is important to note the tokens for the team and investors pool is subject to lock-up, thereby prohibiting the investor from selling their holding until the lock-up period has been completed. Lastly, airdrops, launch pads, public token sales, or staking rewards are used to distribute tokens for the community pool. Thus, this shows that the pool distribution is determined by the type of token and how the token issuance takes place. As such, token cap tables are the driving force behind building a strong community and delivering the best value to a company.
Why is the token cap table important for fundraising?
Since the token cap table is a record of all transactions the company makes, it serves as an important document that can be used to raise more capital. Here are a few importance of a token cap table for fundraising:
- Tokenomics is what investors look for; thereby, a token cap table is an essential element that details the process of tokenomics. This is why an organized cap table can be used to attract more investors, raise more capital, and achieve the milestones of the project.
- The valuation of a project using the token cap table is essential. Since all token transactions and developments are recorded, it becomes easy to understand the integration of metrics like token value, circulating amount, etc.
- Investors prefer to work with companies that have a clear legal structure detailing the different pools and how the tokens are distributed. Due diligence is essential for investors; thus, this step provides investors with the necessary details.
Reasons to have a token cap table for distributing crypto assets
Having a token cap table is the most important element in the overall distribution of tokens and crypto assets. The following are some benefits of having a token cap table:
- Easy token lockup tracking – Since tracking the vesting period of tokens is the most important step, having a token cap table ensures that all information is recorded and managed in one place. This means that the lockup period or vesting schedule is clear, which makes it easy for the founders to understand exactly how the tokens will be distributed.
- Advance employee view – Employees are the most important participants of crypto projects; thus, ensuring that all information about their compensation, bonuses, and incentives is recorded and transparent is of utmost importance. The token cap table enables employees to understand the different distributions of tokens and their allocation per pool.
- Token offer letters – This is the document that ensures legal protections for both parties. It is the record that outlines the terms and conditions of the deal, including what kind of tokens are issued, vesting schedule, specifications of crypto assets, and any other important considerations. Thus, a well-structured token cap table helps in managing all documents related to token offers.
- Track token liquidity – Since there are various exchanges in which users can sell tokens, it becomes essential to account for this information while making deliveries on distribution. With a token cap table, founders have a complete record of all tokens distributed, which makes it easy to understand the process behind tracking liquidity.
Token cap table management software
Token cap table management software makes it easy for crypto projects and startups to manage their token assets as well as distribute them to the right individuals or groups. While it streamlines the tokenization process, it also provides companies with a complete view of the crypto project, hence building a transparent environment for founders, investors, and employees.
Why should founders use token cap table management software?
In the crypto world, there are a lot of things that need to be done in order to run a successful project. From setting up company structures to accounting, payments, and more, founders often get overwhelmed by these tasks. A token cap table management software helps founders to keep track of all the tokens they are issuing and distributing. The software provides the transparency needed for the company to properly communicate about the development of the project and also makes it easier to share the relevant data with investors, employees, and other essential individuals.
Why use third-party token cap table management software?
While a lot of startups try to manage their token cap table using spreadsheets or other similar tools, it often becomes a tedious process. Using third-party software enables the management of tokens and crypto assets in a more efficient way, thereby making it easier to manage important information related to the crypto project. Eqvista’s top-tier technology enables the management of information using a standardized platform that allows companies to easily understand their tokenomics and manage them accordingly. Time-saving and accuracy are the two most important factors that drive all start-up founders to rely on authentic cap table management software.
How can Eqvista help manage your crypto assets/tokens?
Eqvista’s web-based platform enables founders to manage all tokens/crypto assets and make clear distribution decisions. The platform includes an extensive set of features, including token cap table management, token receiving, token distribution, crypto project funding, and other essential features. The experts at Eqvista work with you to develop a solution that perfectly suits your project for all your crypto asset management needs. What are you waiting for? Sign up with Eqvista today!
Manage your token cap table with Eqvista!
Managing, distributing, and issuing cryptocurrencies with the help of a token cap table is crucial to the success of a startup. Not sure where to begin? Let Eqvista help you. Eqvista has a team of experts and professionals available to guide you, calculate your costs, and help you make the most of your crypto assets. We strive to provide the best and most cost-effective solutions to help you grow your crypto startup. Get in touch with Eqvista today to learn more about our services.