Stock Options vs. Protocol Tokens

I want to share my experiences with startup equity and protocol equity.

Richard Burton
Published in
5 min readAug 25, 2017


My work for the Ethereum protocol in 2014:

When I joined Stripe in 2012, I was offered an incredibly generous package of stock options. These gave me the right to buy shares in the company at a future date if I succeeded as an employee. After three months at Stripe, it became clear that I was not able to keep up with the incredible team and I was let go. At the time it was devastating — I knew that Stripe was going to do amazing things — but on reflection I realise they made the right call. I am unemployable.

Cliffing has become a verb in Silicon Valley. It represents the moment when you have a right to buy stock in the startup you work at. The cliff is there for a reason — if people fail to do their job they do not get the right to buy equity in the company.

Painful Exercise

Over the next few years, some of my friends who worked at other incredibly successful startups started to learn another lesson of startup equity: you probably can’t afford to exercise your options. There have been lots of great posts about stock options. I helped Alex MacCaw write An Engineer’s Guide to Stock Options, which was received well on Hacker News. If you are at a startup that is wildly successful and want to leave, it is basically impossible unless you have the money to buy your stock and pay the taxes on the paper gains.

A bunch of companies have fixed this by giving their team 10 years to exercise their options. Kik was an early leader here and then Pinterest made a big splash with their commitment. This is a great step in the right direction. The standard exercise window used to be 90 days. I have met engineers who missed out on millions of dollars of Twitter stock because they did not understand the complex financial instrument that they were being compensated with.

Along comes the token

A new way to compensate early-stage contributors has emerged: protocol equity. I am one of the early examples of someone who was rewarded for helping a protocol when no one else cared. Some people have said I am lucky, I think I am just an early adopter of a new kind of compensation: tokens.

One month of work on Ethereum has given me the financial freedom to work on things I really care about.

I like the idea that luck is a combination of preparation and opportunity. I had been designing things in the blockchain space. I was listening to hours of podcasts on the topic of blockchains. Bill Tai had told me to look into Ethereum. As luck would have it, Gavin Wood came to speak about Ethereum at a hacker house in San Francisco where I was staying. We talked for a couple of weeks, I met Vitalik, and I worked on the project for a month when I was in United Kingdom. I ran out of money and had to go back to freelancing for the most traditional currency I know, the Great British Pound. The Ethereum Foundation promised to pay me in tokens at some point in the future. Those tokens have changed my life.

Options are traditional and stored in a private database.

Tokens are programmable and stored on a public chain.

Options are transferred through email, PDFs and centralised equity management systems. Protocol equity is transferred through transactions, blocks and distributed token ledgers.

Options are valuable at the end.

Tokens are valuable from the beginning.

I have been able to sell Ether to fund Balance. All of my friends who have huge stock option grants have to sit on their hands until the company is sold or goes public.

Working for a startup vs. working on a protocol

I have always been drawn to startups. They are incredible change agents. I love the passion of the people who work at them. However, I hate the way most of those people get treated. The employees slave away and the spoils go to the founders and a few investors.

The great startups turn a few people into billionaires. The great protocols turn lots of people into millionaires. The equity distribution in a startup is often exponential — a few people take the vast majority of the money. The equity distribution at a protocol is usually linear—everyone wins.

I think this trend will really accelerate when the best engineers, designers and business people start realising that the working for protocols is a lot more compelling. You can work at one startup for 4 years or work on 8 protocols for 6 months. If you find a protocol you really believe in, you can work with the team for as long as you’d like. The teams creating them will compensate you with traditional currency to pay the bills and tokens to help align your interests with the long-term success of the project.

Working for an App Store vs. working for a protocol

I have only met a handful of people who make their living on an App Store. I now know hundreds of people who make their living building things for blockchains. The money developers are making is fantastic because it allows them to stop worrying about going broke and focus on building great software.

Open blockchains are much better places to build a business than closed app stores.

After decades of centralisation, where Google, Apple and Facebook took control of the open internet, it feels like the pendulum is swinging back. The open interchain—the fast-growing set of blockchains—is the decentralised answer to this concentration of power.

Tokens have problems too

Describing shares on a blockchain does not change the fundamental laws of business. Right now, we are in a manic market where everyone is rushing into tokens. Everyone is desperate to make a quick buck and every protocol token is exploding. There will be a huge correction. Nearly all tokens will be worthless. I worked for Ethereum because I believed they were doing something meaningfully different and the founders were amazing. If you are going to work for a protocol, pick one with a founding team who are in this for the long term.

The Internet produced a trillion websites and a hundred of them changed the world. The Interchain will produce a trillion chains and a hundred of them will change the world. The people who work for those protocols will have an incredible time and do the greatest work of their lives. They will be compensated with tokens, not options.

Follow the talent flow from the Internet to the Interchain

In the last 6 months, the number of people I know who are changing their careers to focus on blockchains is unbelievable. I get dozens of messages a week from people who want to know the best way to get started. This is why I do not care about the price of Ether. In the long term, the flow of talent is all that matters.

If you are interested in working on a protocol but do not know which one to get started with, you should send me a Direct Message me on Twitter.