The collapse of FTX was an iteration of an idea that did not work as intended. FTX was a material deviation from the original ideas that underpin blockchain technology, and more specifically, the Bitcoin protocol — the longest running and most decentralized blockchain. As I have continued to reflect on FTX, I’ve come to believe it also highlights another poor iteration of an existing idea: the idea that every blockchain needs a token.
In short, most tokens — except for Bitcoin and maybe Ether — in their current form represent unregulated digital securities with poor incentive mechanisms relative to traditional equity securities. The unregulated nature and misalignment of incentives can lead to fraud and erode the long-term thinking the industry needs to continue to scale infrastructure and increase adoption.
What is a token?
A token is a digital asset that can be transferred between two parties over the internet without requiring the consent of a third party. Bitcoin is the original token. Today, there are approximately 20,000 tokens connected to blockchains and other use cases.
Tokens play three fundamental roles. First, capital formation: tokens can act as a digitally native crowdfunding currency, allowing new protocols to fund development — similar to how startups have used Kickstarter. Second, customer acquisition: protocols offer tokens to bootstrap new user growth, analogous to the free products that Google and Facebook offer, except tokens allow early adopters to participate in the economic upside. Third, digital commodities: Bitcoin is currently the only token recognized by both the SEC and CFTC as a commodity — not a security — a distinction that matters enormously.
The key takeaway: Bitcoin’s commodity status, combined with its finite supply and decentralized architecture, makes it categorically different from the vast majority of tokens in the market. Most tokens are unregistered securities dressed up as something new.