Web3 is broken. Trapped in a destructive loop of hype, speculation, and devastating crashes, blockchain's revolutionary promise has become a playground for financial recklessness—destroying billions in value while leaving genuine innovation gasping for oxygen.

This article exposes the regulatory paradox fueling this crisis: in their quest to protect investors, regulators have inadvertently constructed a system where substance is penalized and speculation rewarded. Founders offering real value face crushing regulatory barriers, while those peddling worthless tokens operate freely.

The message is clear: create value, face scrutiny; promise nothing, reap billions.

Ask any Web3 founder what keeps them up at night, and you'll probably hear: securities classification.

Regulators have made their position crystal clear—issue a security without proper registration and face their wrath. Fair enough. But here's where it gets interesting. What does "proper registration" actually mean for a token?

It means choosing between two impossible options.

Option #1—register under an exemption. But exemptions come with brutal restrictions: your token can't be freely traded, often can't even be transferred. It's cut off from exchanges, DeFi, smart contracts—everything that makes blockchain useful. You've created a tokenized share that nobody can actually use.

Option #2—full IPO-level compliance. Millions in legal fees. Months of regulatory review. A path that technically exists but is reserved for large corporations, not startups or small businesses.

Or, alternatively—and this is where founders get creative—you can make absolutely certain your token isn't classified as a security at all.

Now, how do you make sure a token isn't a security? Simple. You drain it of everything that makes it valuable. No promises. No guarantees. No substance. No connection to actual business performance. The token must be, by design, as close to worthless as possible.

This is the perverse logic that now dominates Web3. The safest legal strategy is to build nothing of value. The most dangerous path is trying to create something real.

Every founder launching a token understands this calculus intimately. They spend enormous sums on legal advice aimed at a single goal: making their token worthless enough to avoid regulatory scrutiny. That energy, that creativity, those resources—all directed toward ensuring they're NOT creating value.

Meanwhile, investors are playing a completely different game.

They see "digital collectibles" and "utility tokens" and "community governance" tokens. They read the disclaimers saying "this is not an investment" and "we make no promises about value." And they ignore every single word.

Why? Because they've learned from experience. They've watched people get rich in crypto markets. They've seen tokens skyrocket in value. They know that despite all the legal language, these markets behave exactly like investment markets.

So they buy. They speculate. They hope the price goes up so they can sell for more. The legal classification is irrelevant to their decision-making—it's just boilerplate text, like terms and conditions nobody reads.

But here's the trap neither side sees coming. These tokens really are worthless. Not as a legal fiction, but as an economic reality. They were deliberately designed that way. There's no underlying business creating value. No mechanism for sustainable price support. Just pure speculation.

Which means when hype fades—and hype always fades—there's nothing underneath. The price collapses toward the token's true intrinsic value: approximately zero.

This creates a paradise for bad actors.

If you're willing to take investor money with no intention of delivering value, this system is perfect. Launch a worthless token. Market it aggressively. Watch money pour in. Then walk away. No promises were made, so no promises were broken. No accountability was established, so no accountability can be demanded.

Rug pulls have become a defining feature of crypto markets. In 2021 alone, they accounted for $2.8 billion in losses. But the “soft rug pulls” might be even worse—projects that slowly fade, posting occasional updates while real work stops and funds disappear. Technically legal. Practically devastating.

Meanwhile, founders who want to do the right thing face the opposite incentive. Want to offer real equity? Real accountability? Actual substance? You're treated as a threat to investors. You face millions in compliance costs. Your token becomes incompatible with the ecosystem. You get punished for trying to create value.

We've now watched this play out three distinct times, and each wave followed the same script.

ICOs in 2017 were marketed as utility tokens—necessary for using some future platform. Over $50 billion raised. More than 80% turned out to be scams or failures. The utility never materialized, but by then, founders had the money.

NFTs in 2021 were marketed as digital art and collectibles. Investors spent $44 billion in a single year. By 2023, 95% had become worthless. The "art" nobody wanted, the "collectibles" nobody collected.

Memecoins in 2024 dropped even the pretense of utility or artistry. Just pure community vibes. The market hit $137 billion, then crashed to $54 billion in three months. $83 billion evaporated. Community solidarity didn't stop the collapse.

Different packaging each time. Identical outcome every time. Because the fundamental economics don't change. Assets with no intrinsic value, sustained purely by speculation, will eventually crash.

Here's what makes this truly tragic. Regulators believe they're being prudent. In their eyes, tokens without promises are safer for investors than tokens with guarantees.

No promises means no fraud, right?

But investors don't perceive safety—they perceive opportunity. They treat these tokens as investments regardless of legal classification. They buy them hoping to profit. And when the inevitable collapse comes, they suffer total losses without any of the protections that real securities regulation would have provided.

Current regulation achieves the exact opposite of its goal. It was meant to protect investors by ensuring they only access properly vetted, accountable investment opportunities. Instead, it blocks access to legitimate investments while leaving them exposed to a market designed to extract their wealth.

And yet, despite these massive waves of losses, investors keep coming back. This isn't stupidity—it's unmet demand. People want access to emerging opportunities. They want to participate in new technologies. They're excited by innovation. These are legitimate desires.

But without legitimate channels to satisfy those desires, they keep returning to the only options available: useless tokens in unregulated markets. The cycle repeats because we haven't given them anything better.

This isn't about whether speculation is good or bad. Financial markets have always included risky investments. People have always chased higher returns.

The real problem is that Web3 hasn't delivered on the innovation it promised. Not because the technology can't do it, but because regulatory structure makes it nearly impossible.

Think about what blockchain actually offers: transparent ownership records, instant settlement, global liquidity, reduced intermediary costs. These benefits should be transforming how small businesses raise capital. Instead, they're being used almost exclusively for speculation on intrinsically valueless assets.

Why? Because founders who want to tokenize real equity—who want to give investors genuine ownership, legal protections, voting rights—face regulatory barriers that make it prohibitively expensive. Meanwhile, founders launching worthless tokens face almost no barriers at all.

Innovation is penalized. Deception is rewarded. And we wonder why Web3 has become synonymous with scams.

The solution isn't complicated. Give investors what they actually want: real ownership in real businesses.

Small businesses and startups are perfect for this. They offer the growth potential investors seek. They drive innovation, create jobs and produce real economic value. They're numerous enough to provide diverse opportunities. And capital access is exactly what they're starving for— fix it, and you unlock the economy's most powerful growth engine.

This is where Business Equity Tokens—BETs—enter the picture.

Instead of forcing tokenized equity through regulatory frameworks designed for different technology and different eras, BETs propose a new approach. One that maintains meaningful investor protections while embracing what makes blockchain valuable: accessibility, liquidity, and global reach.

BETs aren't about eliminating regulation—they're about right-sizing it. Targeted protections at the offering stage. Real accountability through corporate law. Genuine equity ownership with voting rights and economic interests. But without the million-dollar compliance costs that lock out legitimate small and medium-sized businesses.

We've already seen that without viable alternatives, investors seeking innovation and higher returns get channeled toward unregulated markets where they routinely fall victim to fraud.

We can continue watching this pattern repeat. Another wave will come—there's always a next big thing in crypto. More billions will flow toward speculation. More investors will lose everything. More scammers will get rich. And the economy will gain nothing.

The answer isn't fighting against human nature. It's redirecting it.

What if instead of pouring billions into worthless tokens, that same capital flowed toward real businesses? Startups and small companies that create jobs, develop products, and drive economic growth. What if blockchain's infrastructure—currently serving pure speculation—supported genuine productive investment instead?

This isn't theoretical. The pieces already exist. We just need to connect them properly. Here's why tokenizing equity in startups and small businesses makes sense for everyone involved.

Investors flocking to crypto aren't looking for stable 7% annual returns. They're chasing asymmetric opportunities—investments that could return 10x, 50x, 100x or more. They understand most bets fail. They're comfortable with that risk if the potential upside justifies it.

Early-stage companies offer exactly this profile. Most startups fail. Some survive. A few become enormously valuable. The risk-reward characteristics are identical to crypto speculation, but with fundamental business performance driving outcomes instead of pure hype cycles.

Here's the crucial difference from traditional public markets. By the time a company reaches IPO, venture capitalists and early investors have already captured most of the explosive growth. Retail investors buying public stocks get companies already valued at billions, where 2-3x returns are considered excellent and 10x is rare.

With startups and small businesses, retail investors access the same early-stage opportunities currently reserved for accredited investors and VCs. The potential for 10x or 100x returns isn't just theoretical—it's structurally more likely than with established companies trading at massive market caps.

The psychology stays the same. The substance changes. Investors still get the thrill of early discovery and explosive growth potential. But now there's actual business performance creating that value, not just speculation and timing.

One of crypto's persistent problems is incomprehensibility. Every token has unique mechanics. Complex whitepapers. Intricate tokenomics. Vesting schedules. Governance mechanisms. Utility functions. Staking rewards.

Retail investors rarely read these documents, and when they do, they rarely understand them. How could they? Each project invents its own structure. There's no standard model, no common framework. The complexity isn't accidental—it's often deliberately designed to obscure the fact that the token has no real value.

Equity tokens eliminate this problem entirely. One token equals one share in the business. Everyone already understands what company shares represent. Ownership percentage. Voting rights. Economic interest in business performance. This model has existed for centuries.

Yes, businesses can add features on top—shareholder discounts, loyalty rewards, tokens for active contributors. But the foundation remains simple and universal. You're not trying to understand novel economic models or trust that some untested mechanism will create value. You're buying ownership in a company, just like equity has always worked.

This transparency protects everyone. Founders can't hide behind complex structures. Investors can evaluate opportunities using familiar frameworks. Regulators can apply established corporate law. The simplicity itself is a safeguard.

The numbers are striking. In the European Union, small and medium-sized enterprises account for 99% of all businesses and create 85% of new jobs. In the United States, they too represent 99% of businesses and employ half the private workforce. Globally, SMEs contribute roughly 55% of GDP in developed economies.

These aren't peripheral players—they're economic engines. When small businesses grow, they hire locally. They source from other local businesses. They pay taxes in their communities.

Yet despite their importance, they face a massive obstacle: access to capital. Approximately 200 million firms worldwide lack the financing needed to invest, develop, and create jobs. Banks want collateral they don't have. Traditional investors want scale they haven't reached. Venture capital focuses on companies aiming for billion-dollar valuations, ignoring the vast majority of viable businesses.

This gap has measurable consequences. When small businesses gain better access to capital, economic growth follows. The pattern is consistent across markets: improved financing access correlates directly with higher innovation levels and stronger economic performance.

This isn't about helping a niche sector. It's about unlocking the potential of the economy's most productive segment. The financing gap for SMEs globally is estimated in the trillions. Even a small reduction in this gap would have enormous economic impact.

Here's the fundamental difference between tokenized equity and speculative tokens: where the money goes.

When someone buys a memecoin, that money goes to whoever sold the token. When the price rises, wealth transfers from later buyers to earlier ones. When it crashes, most participants lose. The total economic value created is zero or negative—it's purely extractive.

When someone invests in business equity, that capital goes to the company. The business uses it to hire employees. Develop products. Expand operations. Acquire customers. This creates real economic activity. Jobs. Wages. Tax revenues. Products and services people actually use.

Even when businesses fail—and many will—the capital wasn't simply extracted. It paid salaries. It funded experiments. It created knowledge about what works and what doesn't. Failed businesses teach valuable lessons that inform future success. The economy benefits even from failures in ways it never benefits from collapsed speculation.

Consider the employment impact alone. If billions currently flowing into memecoins instead funded small businesses, we're talking about tens of thousands of new jobs. Every $100,000 raised might support two or three new hires. Every successful business might eventually employ dozens or hundreds.

Tax revenues follow. Employed workers pay income taxes. Profitable businesses pay corporate taxes. Successful exits generate capital gains taxes. Instead of billions disappearing into collapsed speculation, much of that value cycles back through productive economic activity and public coffers.

This is the difference between a zero-sum game and economic growth. One transfers wealth between speculators. The other creates jobs, innovation, and community prosperity.

Perhaps the most elegant aspect of tokenizing equity is that we're not inventing new protections—we're applying proven ones.

Corporate law has governed equity ownership for centuries. Directors owe fiduciary duties to shareholders. Fraud is illegal. Misuse of company funds triggers liability. Shareholders have rights to vote on major decisions, inspect company records, and pursue legal claims for misconduct.

These protections don't need to be designed, tested, or hoped for. They already work. Courts understand corporate law. Precedents exist. Enforcement mechanisms are established. When founders tokenize real equity, they automatically become subject to these frameworks.

For investors, this is transformative. You're not trusting anonymous creators to keep promises they never legally made. You're not hoping a project will deliver on vague roadmaps with no accountability. You're buying ownership in a registered entity with known founders who have legal obligations.

For regulators, this is practical. You're not trying to create novel frameworks for unprecedented asset types. You're applying familiar tools to familiar instruments. When problems emerge, you have clear jurisdiction and established enforcement powers.

Does this eliminate all risk? Of course not. Businesses fail. Founders make mistakes. But it eliminates the category of risk that dominates current crypto markets: deliberate scams and abandoned projects where investors have zero recourse because no legal obligations ever existed.

The legal infrastructure doesn't need building. It just needs to merge with the blockchain one.

This might seem counterintuitive. Isn't letting retail investors buy startup equity introducing new risks?

Not compared to what they're doing now.

For investors, the risk fundamentally changes. Current crypto markets ask: "Will this worthless token maintain speculative interest?" That's essentially unknowable—it depends entirely on hype, timing, and manipulation. Equity investment asks: "Will this business succeed?" That's still risky, but it's entrepreneurial risk that investors can actually evaluate. Business model. Market opportunity. Team capability. Real metrics to analyze rather than pure speculation on speculation.

For businesses, regulatory clarity eliminates an enormous source of risk. Right now, any company attempting tokenization lives in constant uncertainty. Will we be deemed a security? Will regulators come after us retroactively? Did we structure this correctly? This uncertainty kills legitimate innovation. Clear frameworks for equity tokenization remove that paralysis. You know the rules. You follow them. You build with confidence rather than fear.

For regulators, the risk profile improves dramatically. Instead of chasing anonymous creators across jurisdictions with unclear authority, you're dealing with registered entities and known founders. When intervention is needed, you have clear jurisdiction and established legal tools. The very transparency of blockchain makes monitoring easier, not harder—all transactions are visible and traceable.

For the broader economy, the systemic risk shifts. Current crypto speculation creates periodic crashes that destroy billions in paper wealth with no productive offset. When real businesses fail, yes, investors lose money. But that capital had already funded real economic activity—jobs, products, learning. The total economic impact is far less destructive.

The question isn't whether we want risk-free markets—that's impossible. The question is whether we want calculated business risk or pure speculative chaos.

Here's an irony of current crypto regulation: it prevents companies from doing what would actually make sense.

Right now, if a business wants to reward community participation—giving tokens to people who contribute marketing, provide feedback, or help develop products—they face a legal minefield. The moment you promise tokens in exchange for contribution, regulators start asking questions. Is this an investment? Are contributors providing value in exchange for tokens? Could this be considered a security offering?

The answer is often yes. When people invest time, effort, or even small amounts of capital (like gas fees for transactions) based on a promise of tokens, courts and the SEC have interpreted this as "consideration"—the kind that transforms a free gift into an exchange and potentially triggers securities classification.

So what do projects do? They invent elaborate workarounds. Tokens with no promises. No explicit connection between contribution and distribution. Complex mechanisms designed to look like gifts rather than compensation. Founders spend enormous resources on legal engineering to make participation rewards seem random or voluntary, all to avoid the dreaded securities label.

This is absurd. We've created a system where companies can't straightforwardly compensate contributors with ownership stakes without risking regulatory action.

With equity tokenization, this problem disappears entirely. A company can openly say: "Help us grow and receive ownership stakes." Contribute to marketing? Here's equity. Provide valuable product feedback? Here's equity. Become an early customer? Here's equity. Help develop features? Here's equity.

This creates genuine alignment. People who help build the business own part of its success. Their incentives perfectly match the company's growth. It's not manufactured hype or speculative gambling—it's collaborative value creation that makes economic sense.

The tax treatment is straightforward: equity received as compensation is classified as income, just like traditional stock grants. Recipients pay taxes on fair market value at receipt. Clean. Simple. Established.

Compare this to how many crypto airdrops actually work: projects distribute tokens to generate hype, often with lock-ups for recipients, and once the market forms—founders dump their massive pre-allocated holdings onto retail buyers. Insiders extract millions while the "rewarded" community watches values collapse. One system builds genuine ownership. The other is disguised wealth extraction.

Here's what makes this remarkably practical: we're not building from scratch. We're connecting systems that already function.

We already have startups raising capital and issuing equity. Corporate law governing this has worked for centuries. We already have cross-border equity investment with established rules and frameworks. We already have unregulated crypto tokens trading globally—billions in daily volume, trillions transferred through these systems, with law enforcement and regulators learning to work with this reality.

Smart contracts already enforce compliance requirements. Stablecoins like USDT and USDC routinely freeze addresses when suspicious activity is detected. The technical capability exists and functions right now.

Here's the crucial insight: modern altcoins already act as quasi-securities. Despite technical classifications, people view them and use them as investments. They buy hoping for appreciation. They analyze projects like equity opportunities. All the regulatory concerns about securities—speculation, manipulation, information asymmetry, retail investor risk—are already fully manifested in unregulated crypto markets at massive scale.

And somehow, it works. You could even say it’s harmonized internationally. Enforcement agencies find ways to make people comply despite decentralization. Courts assert jurisdiction despite borderless networks. The system isn't perfect, but it functions.

Now consider tokenized equity. Identifiable entities. Known founders with legal responsibilities. Real businesses with physical locations. Transparent blockchain records. Corporate law providing accountability.

From a regulatory perspective, equity linked to real businesses is objectively easier to oversee than anonymous decentralized tokens. Which poses more regulatory risk: a registered Delaware company issuing tokenized shares, or an anonymous team launching a memecoin? Which is easier to investigate? Which provides better protection?

The case for tokenizing business equity isn't complicated. It aligns with what investors actually want. It's simple to understand. It addresses the financing needs of the economy's most important sector. It creates real value instead of extracting it. It leverages existing legal protections. And it reduces risk for everyone compared to the current alternative.

This isn't about creating something radically new. It's about connecting proven elements—equity ownership, corporate accountability, small business finance—with blockchain infrastructure in a way that actually makes sense.

The question isn't whether this could work in theory. The question is whether we're willing to make it work in practice.

If tokenizing business equity makes so much sense, why isn't it happening already? Why haven't thousands of small businesses rushed to leverage blockchain for capital formation?

The answer reveals both how close we are to a solution and how one specific barrier is blocking everything.

The first piece—actually creating tokenized equity—is surprisingly straightforward in many jurisdictions.

Switzerland's DLT Act explicitly recognizes shares on distributed ledgers as legally equivalent to traditional equity. The UAE has established regulatory frameworks enabling tokenized securities. In the United States, Delaware and Wyoming have amended their corporate laws to permit companies to maintain shareholder records on blockchain.

The process isn't complicated. Companies amend their corporate charters and bylaws to authorize tokenized shares. These amendments specify that blockchain entries represent valid ownership stakes with full legal effect. The token becomes the share. The blockchain becomes the official record. Corporate law—with all its protections and accountability mechanisms—applies automatically.

This part works. Multiple jurisdictions have proven that tokenizing equity issuance is legally viable and practically achievable.

The second piece—actually offering these tokens to investors—also has existing solutions.

Yes, full public offerings requiring million-dollar prospectuses remain prohibitively expensive. But that's true for traditional equity too. What matters is that exemptions exist specifically for smaller enterprises.

The United States offers Regulation A+ for raises up to $75 million and Regulation Crowdfunding for raises up to $5 million, both with simplified disclosure requirements. Europe provides prospectus exemptions for offerings below €8 million. Many jurisdictions have similar frameworks allowing small businesses to raise capital without full IPO-level compliance.

These exemptions already accommodate the vast majority of small business financing needs. The average SBA loan is under $500,000. The average pre-seed funding round is under $900,000. The €5-8 million caps in most jurisdictions are more than sufficient.

Are these exemption frameworks perfect? No. Could they be improved? Absolutely—and we'll examine specific improvements when discussing the BET framework. But the fundamental pathway exists. Regulators have already acknowledged that smaller offerings need lighter requirements.

This part works too. Companies can legally offer tokenized equity to investors under existing exemptions.

Here's where it all falls apart: secondary trading.

Those tokenized shares, legally issued and properly offered? They can only trade on licensed platforms within their respective jurisdictions. And these platforms are... essentially nonexistent as functional markets.

The numbers tell the story brutally. According to Security Token Market data, regulated security token platforms collectively generate a little more than $100,000 in daily trading volume. That's not a typo. One hundred thousand dollars. Total. Across all platforms.

For context, mainstream crypto exchanges process tens of billions in daily volume. Even mid-tier decentralized exchanges handle hundreds of millions daily. The entire regulated security token market does less volume than a single small-cap memecoin.

Why such pathetic liquidity? Because these platforms face massive regulatory burdens. They often restrict access to qualified investors only, further shrinking the user base. They exist in regulatory compliance but not in economic reality.

And here's the killer: these tokens can't participate in existing Web3 infrastructure. They can't interact with DeFi protocols. They can't be easily transferred between wallets. They can't access the global liquidity pools that make cryptocurrency valuable.

What you end up with is essentially an expensive blockchain-based shareholder registry. Sure, your cap table is on a blockchain. Congratulations. But you've gained nothing that matters. No liquidity. No global access. No integration with crypto markets. Just compliance costs and technical complexity for zero practical benefit.

This is why almost no one tokenizes equity under current frameworks. Why would they? You get all the regulatory burden of securities, all the technical complexity of blockchain, and none of the benefits that make either worthwhile.

Let’s step back and look at the full picture.

We can legally create tokenized equity. ✓ We can legally offer it to investors under exemptions. ✓ We cannot let it trade in any meaningful way. ✗

It's like being allowed to build a car and sell it to customers but being prohibited from driving it on roads. The entire value proposition—the reason anyone wanted the car in the first place—is eliminated by the final restriction.

Meanwhile, unregulated tokens trade freely on global markets with billions in daily volume. They access every exchange, every DeFi protocol, every liquidity pool. They transfer instantly peer-to-peer without intermediaries. They function globally without jurisdictional restrictions.

These unregulated tokens represent nothing. They have no legal standing. No accountability mechanisms. No underlying value. Many are deliberate scams.

Yet they can trade freely while legitimate equity tokens—backed by real businesses, bound by corporate law, offering actual ownership rights—are trapped in regulatory amber.

The infrastructure exists. The legal frameworks exist. The technology exists. Even the regulatory recognition exists for issuance and offerings.

The only missing piece is allowing secondary trading that actually works.

Apply the same rules for secondary trading that govern unregulated crypto tokens to company shares. Let them access existing crypto exchanges and infrastructure. Let them trade peer-to-peer. Let them participate in global liquidity pools. Let them function like the digital assets they technically are.

We've already established that altcoins—which act as quasi-securities despite technical classifications—somehow work internationally. Enforcement agencies figure it out. Courts assert jurisdiction when needed. The system functions imperfectly but adequately.

Tokenized equity would be easier to regulate, not harder. You have identifiable companies. Known founders with legal obligations. Registered jurisdictions with clear authority. Real assets that can be frozen. Transparent records showing every transaction. Everything regulators need for oversight is built in.

The final piece isn't creating something new. It's removing the artificial barrier preventing tokenized equity from accessing infrastructure that already exists and already works for assets with far less accountability and far more risk.

Pair this with a robust framework designed specifically for tokenized equity offerings—tightening protections where appropriate, clarifying requirements, establishing guardrails—and you have a complete system.

We're not missing technology. We're not missing legal frameworks. We're missing regulatory permission to let the pieces connect. That's it. That's the entire gap between the broken system we have and the productive alternative we could have.

Successful regulations need more than technical soundness—they require an intuitive framework that captures imagination and drives adoption. Even the most carefully crafted regulatory system will fail if it cannot attract participants away from unregulated alternatives.

The success of NFTs in 2021 demonstrates how a simple concept—"non-fungible tokens"—can catalyze massive market adoption despite being little more than a wrapper for unique digital assets. This simplicity sparked creativity and experimentation, attracting talent and capital to build an entirely new market segment.

Small business tokenization needs the same clarity: an attractive, intuitive framework that captures its essence while differentiating it from both traditional securities and unregulated crypto assets.

This proposal offers a new classification: Business Equity Tokens (BETs). The terminology encapsulates the fundamental nature of these instruments—they represent genuine equity stakes in real businesses while acknowledging their appeal to those seeking higher investment risks with meaningful upside potential.

The term "BET" serves multiple purposes:

Unlike the ambiguous terminology that plagues crypto markets, BETs represent a standardized concept: straight equity in legitimate businesses. When investors encounter a BET, they immediately understand they're purchasing legal ownership in a real company with all associated rights and protections.

The centerpiece of an effective regulatory framework requires a fundamental reversal of current approaches: implement strong protections at the entry point while allowing unrestricted activity after tokens enter circulation.

Jurisdictions would establish their own comprehensive requirements for BET issuance and initial offerings. But once these tokens reach investors' hands, they function exactly like any other cryptocurrency in secondary markets.

This grants BETs access to the complete global trading infrastructure that makes unregulated tokens attractive:

Unlike unregulated tokens, however, BETs represent legitimate equity in real companies, with founders and directors bound by fiduciary duties and corporate law. This accountability—not trading restrictions—provides meaningful investor protection.

Jurisdictions adopting this framework can select from various protective measures tailored to their specific risk tolerance and market conditions. The framework doesn't prescribe rigid one-size-fits-all rules, but offers a menu of options that regulators can adopt, modify, or combine based on their unique market needs and regulatory philosophies.

This flexibility is key. With secondary trading unrestricted, these initial protections become more acceptable to market participants and less burdensome to innovation. Jurisdictions can implement conservative measures during early adoption, then gradually relax requirements as the ecosystem demonstrates stability and success.

The following options represent potential building blocks for a tailored regulatory approach:

1. Capped Offering Size

While current $5-8 million exemption limits work well for BETs, more cautious jurisdictions might initially implement a $1 million cap. This still adequately serves most small businesses—PitchBook Data shows the average pre-seed round at just $886,802, while LendingTree reports average Small Business Administration loans of only $458,584.

These limits could gradually increase as the framework proves successful.

2. Per-Investor Limits

Instead of using minimum investment thresholds like many jurisdictions—which restrict participation to wealthy individuals on the theory that those who can afford large investments can afford to lose them—a better approach would be to focus on minimizing downside risk. Germany does this with its €1,000 per-project limit for retail investors.

A $1,000 cap per investor per project offers an optimal starting point, and applying it universally to all investors—regardless of accreditation status—makes even more sense.

Here's why:

3. Initial Lock-Up Periods

Initial 12-month lock-ups between offering and secondary trading could serve multiple functions: discouraging speculation, allowing businesses to demonstrate traction, giving regulators time to identify misconduct, and aligning with long-term capital gains thresholds where investments held over a year receive preferential tax treatment.

As the framework proves effective, these periods could progressively shorten to 6 months, 3 months, 1 month, and potentially disappear entirely as market maturity permits.

4. Additional Restrictions for Insiders

Founders, affiliates, and other company insiders should face stricter limitations than regular investors—extended lock-ups, vesting schedules, or specific selling rules to prevent "dump" scenarios where insiders liquidate large token positions suddenly, crashing prices and extracting liquidity. This practice, essentially a form of rug pull, occurs frequently in unregulated crypto markets and severely harms retail investors.

Rather than prescribing one-size-fits-all approaches, the framework should allow founders to design their own insider restrictions. The only requirements: these measures must exceed standard investor protections and be clearly disclosed during the offering process. This flexibility creates space for market-driven experimentation while enabling investors to evaluate each project's insider safeguards as part of their due diligence.

5. Minimum Equity Allocation

To prevent artificial valuation inflation seen in unregulated markets, BET offerings should require minimum equity allocations. Y Combinator guidance suggests 10-25% for early funding, supported by Carta data showing 20.5% median dilution among companies at early stages.

With a $1 million offering size, this requirement places BET companies' market caps in a reasonable $4-10 million range, ensuring tokens represent meaningful rather than misleading valuations.

6. Simplified Disclosure Documents

Instead of full prospectuses, BET offerings should utilize simplified offering memorandums covering essential details: business description, team, equity structure, investor rights, risks, and technical implementation. This provides necessary transparency without prohibitive costs.

Each jurisdiction can develop its own disclosure requirements based on local priorities, fostering experimentation with different documentation approaches while ensuring investors receive material information. This regulatory diversity allows jurisdictions to test various disclosure models tailored to their markets. As the framework matures, successful approaches naturally spread, with jurisdictions adopting proven practices from one another.

7. Intermediary Options for Compliance

Companies should have flexibility to manage compliance independently or partner with specialized intermediaries—cryptocurrency exchanges, crowdfunding platforms, or financial institutions offering KYC infrastructure and investor networks.

Some jurisdictions might initially require intermediary participation to ensure compliance with investment limits, lock-ups, and other protective measures. These intermediaries can also provide additional due diligence, creating quality filters that enhance investor protection.

For market competitiveness, intermediary qualification should involve straightforward requirements rather than artificial barriers to entry.

8. Self-Determined Transparency Standards

Beyond baseline requirements like material event disclosures and annual audited financials, companies should establish their own reporting commitments. These self-determined standards might include real-time financial dashboards, regular operational updates, shareholder webinars, or community discussion forums.

Companies outline and disclose their chosen transparency approach during initial offerings, allowing investors to evaluate this factor alongside other investment criteria.

By enabling companies to design their own transparency frameworks, the system creates natural market competition for investor trust. Businesses offering greater visibility into operations and financial performance likely attract more investor interest, creating evolutionary pressure toward openness while preserving flexibility. This market-driven approach minimizes information asymmetry—a persistent problem in traditional early-stage investment and unregulated token markets.

9. Smart Contract Compliance Features

Jurisdictions may establish technical requirements for BET smart contracts based on their specific regulatory needs. These specifications could include document publication capabilities for storing corporate records on-chain, transfer restriction mechanisms for enforcing lock-ups, address-specific freezing functions for legal enforcement, and upgradeability to adapt to evolving requirements.

Implementation could occur directly or through standardized templates verified by qualified third parties. This approach gives jurisdictions flexibility to define technical standards while ensuring BET smart contracts support whatever regulatory requirements they deem necessary for their market conditions.

10. Tax Simplification

The tax treatment for BETs is straightforward. BET companies pay corporate taxes in their jurisdiction of incorporation and operation, while token holders pay capital gains taxes in their jurisdiction of residence—mirroring how cryptocurrency investments are currently taxed globally.

Dividend taxation, however, presents unique challenges in tokenized environments. While technically feasible to distribute dividends directly on-chain, complexity arises from withholding tax requirements that vary based on investor residency and applicable tax treaties. Managing these obligations requires sophisticated verification processes and ongoing compliance monitoring across multiple jurisdictions.

To streamline tax administration and reduce compliance burdens, jurisdictions might require BET companies to adopt no-dividend policy. This approach, already standard practice among growth-focused technology startups, offers multiple advantages: it encourages reinvestment in business development rather than profit distribution, eliminates complex international withholding requirements, allows companies to focus resources on growth rather than tax compliance, and creates consistency with how most early-stage enterprises actually operate.

In liquidation or acquisition scenarios, proceeds are treated as capital gains rather than dividends, maintaining tax simplicity throughout the company lifecycle. This practical approach removes significant administrative burden while aligning with the growth-oriented nature of most small businesses seeking tokenization.

The BET legal framework relies on traditional corporate law as its foundation, with companies establishing tokenization rights and governance processes in their charters (articles of incorporation) and bylaws (articles of association). This creates an enforceable bridge between blockchain tokens and real-world equity rights.

Companies can experiment with various governance models—from traditional structures to innovative on-chain voting mechanisms. Shareholders execute their rights by connecting wallets containing BETs and cryptographically signing their votes, creating auditable records of governance activities.

Another benefit of the BET framework is that it enables equity distribution through airdrops—small token allocations to incentivize customers, contributors, or community members. This will allow companies to reward early adopters, provide alternatives to stock options, and create engaged communities with financial stakes in company success.

To address potential tax complications, BET airdrops should be structured as optional claims, with recipients taxed only on tokens they actively claim, at fair market value at the time of claiming. This prevents tax liabilities on tokens that may decline in value before recipients can sell them.

Implementing a BET framework requires a simple three-step approach:

Step 1 – Corporate Law Amendments

Jurisdictions must first amend corporate laws if necessary to explicitly recognize tokenized shares as legally equivalent to traditional equity. These amendments specify that properly documented blockchain tokens can represent valid ownership stakes with all associated rights and responsibilities when authorized in a company's charter and bylaws.

Step 2 – Regulatory Exemptions

Securities regulators issue exemptions specifically tailored to BETs, authorizing small businesses to conduct token offerings under specified conditions and—critically—permitting secondary trading without traditional securities infrastructure requirements. These exemptions establish BETs as a distinct asset class with proportionate regulatory treatment.

Step 3 – International Harmonization

The greatest potential benefit of BETs lies in creating global investment opportunities for small businesses. Jurisdictions implementing BET framework should adopt reciprocity principles, allowing domestic investors to participate in foreign BET offerings while welcoming international investors to local offerings. This approach creates a global marketplace for small business investment while maintaining appropriate regulatory oversight based on issuer location.

The BET framework fundamentally reimagines small business equity regulation while addressing traditional regulatory concerns more effectively than current frameworks:

Investor Protection

Rather than restricting retail access to tokenized securities, the BET framework embraces broader participation while implementing specific protective measures: per-investor limits prevent excessive exposure, lock-up periods discourage short-term speculation, comprehensive disclosure requirements ensure informed decisions, smart contract compliance features enable targeted intervention when necessary, and self-determined reporting creates unprecedented transparency.

Market Integrity

By bringing tokenized equity into a regulated framework while permitting access to existing crypto infrastructure, BETs create a competitive alternative to purely speculative tokens. Founders face legal accountability through corporate frameworks. Corporate documents create enforceable obligations. Regular reporting requirements reduce information asymmetry. Director fiduciary duties apply to company operations.

Illicit Finance Prevention

The BET framework maintains appropriate guardrails: KYC/AML procedures for initial offerings, smart contract capabilities for freezing suspicious addresses, and transparent on-chain transaction records.

Addressing Broader Regulatory Concerns

For other issues—from market manipulation to asset seizure—the BET framework proposes treating these tokens like existing cryptocurrencies for matters beyond initial offerings. This eliminates the need for complex new regulations while leveraging established approaches.

Market manipulation, bankruptcy claims, inheritance disputes, and illicit finance concerns can all be managed using methods already developed for cryptocurrency markets. Courts and enforcement agencies have demonstrated remarkable adaptability, successfully seizing Bitcoin in high-profile cases and freezing stablecoins linked to illegal activities despite blockchain's borderless and permissionless nature.

This pragmatic approach acknowledges a fundamental truth: most post-issuance challenges don't require reinventing the wheel. By applying existing cryptocurrency frameworks to BETs, regulators maintain appropriate oversight without creating barriers that undermine competitiveness with unregulated alternatives. The result is an asset class that offers blockchain's innovative potential with significantly stronger investor protections than completely unregulated tokens.

The Web3 vision has been undercut by speculation, scams, and market instability despite its profound technological potential. This failure stems not from inherent flaws in the technology but from regulatory structures that inadvertently push innovation toward unproductive channels. By erecting high barriers around regulated tokenization while leaving unregulated alternatives unchecked, current frameworks have created a perverse incentive structure that rewards speculative tokens over productive investments.

The Business Equity Token (BET) framework presented in this article offers a path to redirect Web3's innovative energy toward genuine economic growth.

By creating a regulated alternative that can effectively compete with unregulated crypto markets, this approach harnesses blockchain's potential to democratize capital formation for small businesses while maintaining appropriate investor protections.

If people are determined to speculate and trade in digital assets, it is far better that they do so with tokens representing genuine ownership in productive enterprises rather than valueless digital collectibles. The BET framework channels this market energy toward funding real businesses that create jobs, develop innovations, and generate economic value—transforming what is currently a zero-sum or negative-sum game into an engine for genuine economic growth.

Ultimately, the success of this framework depends on regulatory courage—the willingness to acknowledge that protecting investors sometimes requires giving them more opportunities, not fewer. By creating accessible, legitimate pathways for small business investment, regulators can achieve what restrictive approaches cannot: steering capital away from speculation and toward productivity by offering a more attractive alternative.

The future of Web3 should not be defined by speculative bubbles and digital trinkets but by transforming how businesses raise capital, engage with customers, and create value. The BET framework represents a crucial step toward realizing this vision—unleashing blockchain's potential to fuel small business growth while providing investors with legitimate opportunities to participate in the upside of entrepreneurial innovation.

If you're a regulator or policymaker, this is your moment. Be the jurisdiction that moves first. Set the standard others will copy. The first mover captures the economic benefit: startups incorporate there, capital flows there, jobs get created there, tax revenues grow there.

Want to discuss things further? Get in touch. I'll help however I can to make this real.

If you're an influencer, you have the platform that drives change. Regulatory reform doesn't happen in silence—it requires public attention and demonstrated demand. Share this framework. Tag policymakers. Start conversations. Make this impossible to ignore. When enough people understand the problem and see the solution, regulators have to act. Your reach can transform this from just a proposal into a movement that demands response.

If you're a Web3 enthusiast—your voice matters more than you think. If you resonate with this proposal and believe Web3 can be much more than a playground for scammers—here's how you can help:

Engage publicly. Like, comment, share the post wherever you can. Tag people who need to see it. Discuss what works and what doesn't. Your engagement shows this isn't one person's opinion—it's something real people care about.

And reach out directly. DM me on X, Telegram, or LinkedIn.

Tell me what resonates, what concerns you, what you'd change. Even a quick message saying "this makes sense" matters enormously. It shows I'm not alone in thinking the change is needed.

This all helps build the evidence base that makes regulatory action viable.

Because that's what it ultimately requires: enough people willing to believe Web3 can be more than it's been, and determined enough to make this vision real.

The technology exists. The legal foundations exist. The economic need exists. The investor demand exists. Everything required to make this work is already here.

Now it's up to us.

Thank you for your time. And thank you for choosing to be part of this conversation.

P.S. If you want to follow the progress of this framework and receive my other thoughts on the topic of Web3, make sure you subscribe to my newsletter.

P.P.S. This article draws from my Master's thesis, which got me a degree in blockchain and digital currencies. The complete research—with full analysis, references, and more insights—is available here for those who want to dig deeper.