Token warrant

Startups that may or may not issue a token often raise money by selling shares through a standard equity agreement and adding a side letter or warrant. If a token is later created, the warrant holder receives an allocation, usually proportional to their stake or to a fixed percentage of the supply reserved for investors.

The structure became common after regulators targeted early token sales, because it lets investors fund the company under normal securities rules while keeping upside in a future token. It is frequent in seed and Series A rounds of wallets, infrastructure and DeFi teams, and differs from a SAFT, which promises tokens directly in exchange for the investment.

Warrant terms vary widely: some cap the token share, others leave it to the board, and vesting schedules usually apply once tokens exist. Disputes can arise over how much supply investors get versus the community. Their legal and tax treatment depends on jurisdiction and on whether the eventual token is considered a security.