Companies we’ve never heard of are IPO’ing before our very eyes. Instead of ringing the IPO bell after multiple years of operations, they are public from day 1. And instead of raising money by selling their company stock, they build distributed networks and sell their own tokens.

This new way of building companies is what Fred Ehrsam — founder of Coinbase — described as the Decentralized Business Model.

Many of the established rules about building and investing in businesses don’t apply to this new model. What can we learn from the companies going down this road?

Tokens

The mechanics of a token crowdsale are directly related to the kind of token issued. We identified three types of tokens:

User Tokens

Equity Tokens

Debt Tokens.

User Tokens

User Tokens — or Appcoins, as Naval and Balaji called them — are the digital currency needed to access the service provided by the distributed network. As Albert Wenger explains, you can think of these as tokens you buy at a fair to get on a ride.

In Ethereum, for example, you need Ether to build distributed apps on the platform. In the case of Sia — a distributed storage system— you need to own Siacoins to store files in the network.

User Tokens are earned by providing value to these networks. Contributions can take the form of mining, as in Bitcoin, Ethereum and Sia, or publishing stories, as in Steemit.

Since User Tokens are on a blockchain, they can be easily redeemed for any local or crypto currency.

Equity Tokens

Equity Tokens are used to finance the development of the network, but are not needed to access the services provided by the underlying protocol. As its name suggests, we can see Equity Tokens as crypto shares of a network.

In exchange for their investment, Equity Token holders are entitled to “dividends” in the form of revenue sharing or transaction fees in the network. For example, in the case of Sia, 3.9% of all successful storage payouts go to the holders of Siafunds, their Equity token.

In many cases, these Equity Tokens represent shares of a Distributed Autonomous Organization (DAO). The DAO’s code is responsible for issuing the tokens, holding the money collected from the token sale, and contracting a company to develop the network.

Besides receiving a pro-rated reward, Equity Token holders in the form of DAO shares are usually entitled to pledge on proposals for how the investment money will be used.

That’s the case of Digix, an asset-tokenisation platform built on Ethereum. DGD token holders (1) receive a reward on the transaction fees of the Digix Gold Network, and (2) are able to submit and vote proposals on the DigixDAO.

Debt Tokens

A third type of token is the Debt Token. We can see these as a ‘short term loan’ to the network, in exchange for an interest rate on the amount lent.

Steemit is one of the few networks with Debt Tokens, issued in the form of Steem Dollars. Steem, the cryptocurrency mined in the network, can be used to buy Steem Power or Steem Dollars. Holders of Steem Dollars receive a ~10% interest rate, paid in Steem Dollars.

Steem Dollars are unique to the economics of the Steemit protocol. Through buying Steem Dollars, people can invest in the network with sufficient liquidity, without committing to the 2-year vesting period Steem Power holders are subjected.