---
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: living-capital
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.

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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]]
