---
description: Active participants lock tokens for 3-6 months when voting on investments and earn additional emissions based on outcomes, replacing traditional fund fee structures with a system where successful decision-makers gain influence organically
type: claim
domain: internet-finance
created: 2026-02-16
confidence: experimental
source: "Living Capital"
---

# token economics replacing management fees and carried interest creates natural meritocracy in investment governance

Traditional investment funds charge management fees (typically 2% annually) regardless of performance and carried interest (typically 20% of profits) regardless of which decisions drove results. These structures create misaligned incentives: fund managers profit from gathering assets even when returns are mediocre, and individual decision quality within a fund is rarely distinguishable from overall fund performance. The structure rewards asset accumulation and tenure rather than decision quality.

Living Capital replaces this with token economics that directly reward decision-making quality. Active participants must lock their tokens for three to six months when voting on investment proposals, creating genuine skin in the game -- you cannot vote and immediately sell if the vote goes wrong. Based on investment outcomes, participants receive additional token emissions proportional to the quality of their decisions. Successful decision-makers accumulate more tokens over time, gaining more influence in future allocation decisions. Poor performers see their relative token holdings dilute as others earn more emissions. This creates a natural meritocracy without any central authority deciding who deserves influence.

The mechanism aligns with several core LivingIP principles. Since [[ownership alignment turns network effects from extractive to generative]], the token structure ensures that value flows to those who generate it rather than to intermediaries who merely facilitate access. Since [[blind meritocratic voting forces independent thinking by hiding interim results while showing engagement]], combining token-locked voting with blind mechanisms could further strengthen decision quality. Since [[gamified contribution with ownership stakes aligns individual sharing with collective intelligence growth]], the token emissions function as the ownership stakes that incentivize high-quality participation. The result is an investment governance model where authority is earned through demonstrated judgment rather than granted through capital contribution alone.


### Additional Evidence (challenge)
*Source: [[2026-03-20-pineanalytics-bank-ico-dilution]] | Added: 2026-03-20*

$BANK demonstrates the failure mode where token economics replicate rather than replace traditional fund extraction. The 95% insider allocation with 5% public float mirrors the carried interest structure of traditional funds, where GPs retain the majority of upside while LPs bear the risk. Pine Analytics notes that even at the high end of poker staking profit share (50-80% to backers), the economics don't justify 95% dilution, suggesting the token structure extracted more value than traditional fund terms would have.

---

Relevant Notes:
- [[ownership alignment turns network effects from extractive to generative]] -- token economics is a specific implementation of ownership alignment applied to investment governance
- [[blind meritocratic voting forces independent thinking by hiding interim results while showing engagement]] -- a complementary mechanism that could strengthen Living Capital's decision-making
- [[gamified contribution with ownership stakes aligns individual sharing with collective intelligence growth]] -- the token emission model is the investment-domain version of this incentive alignment
- [[futarchy is manipulation-resistant because attack attempts create profitable opportunities for defenders]] -- the governance framework within which token economics operates

- [[the create-destroy discipline forces genuine strategic alternatives by deliberately attacking your initial insight before committing]] -- token-locked voting with outcome-based emissions forces a create-destroy discipline on investment decisions: participants must stake tokens (create commitment) and face dilution if wrong (destroy poorly-judged positions), preventing the anchoring bias that degrades traditional fund governance

Topics:
- [[livingip overview]]
