Common Types of Token Compensation Explained: RTAs, TPAs, RTUs & Token Options

How you structure your token compensation plan can have a massive impact on outcomes for employees, advisors, and investors. A well-designed plan doesn’t just reward contributors—it also ensures tax compliance, aligns incentives with company growth, and creates long-term value for both the organization and its team members.

In Web3, token compensation has emerged as a natural evolution of traditional equity-based incentives. But unlike stock options or restricted stock units, token compensation is shaped by new technologies, rapidly changing regulations, and evolving industry practices. This makes it essential for founders, HR leaders, and legal teams to understand the different forms of token compensation available today.

In this guide, we’ll review the four most common types of token compensation in the market:

1. Restricted Token Awards (RTAs)
2. Token Purchase Agreements (TPAs)
3. Restricted Token Units (RTUs)
4. Token Options

We’ll explore how each works, when they’re typically used, and how they differ from traditional stock compensation models.

Restricted Token Awards (RTAs)

Restricted Token Awards, or RTAs, are one of the most straightforward forms of token compensation. They give employees immediate ownership rights over tokens, but with specific restrictions that control when those tokens can be freely sold or transferred.

How RTAs Work

• Immediate Transfer: Tokens are granted right away and typically placed in the employee’s digital wallet or an intermediary wallet.
• Restrictions Apply: RTAs come with a lock-up period (when tokens cannot be sold) and clawback provisions (allowing the company to reclaim tokens if conditions like vesting aren’t met).
• Vesting Overlay: Although the tokens are delivered, the employee only gains full control once vesting and restrictions are complete.

When RTAs Are Used

RTAs are most commonly issued before a token launch for favorable tax treatment.

• In the U.S., employees can file an 83(b) election, recognizing the value of the tokens at the time of grant—usually minimal pre-release.
• This allows employees to pay less in taxes upfront, rather than waiting until the tokens increase significantly in value (when the tax bill would be much higher).
• RTAs are also useful when companies want contributors to feel immediate ownership, even if transfer rights are delayed.

Risks & Considerations

• Tax Timing: Without an 83(b) election, employees may face higher taxes later when tokens are worth more.
• Capital Gains Start Date: An early 83(b) election also starts the capital gains holding period, which can be advantageous for long-term tax planning.
• Administrative Complexity: To maintain restrictions, RTAs often require multi-signature intermediary wallets, making them slightly more complex to administer compared to RTUs.

📌 Key Takeaway: RTAs provide early ownership and potential tax advantages but require careful handling of restrictions and elections to avoid costly surprises.

Token Purchase Agreements (TPAs)

Token Purchase Agreements (TPAs) function similarly to RTAs, but with one key difference: contributors must pay a purchase price to acquire their token grant. This purchase element changes both the tax treatment and the psychological impact of the award.

How TPAs Work

• Purchase Price: At the time of grant, the employee or advisor pays a set price for the tokens.
• Restrictions Apply: Like RTAs, TPAs come with vesting schedules, lock-ups, and clawback provisions to prevent premature sale or transfer.
• Tax Treatment: Since tokens are purchased rather than “freely given,” the purchase price may offset taxable income at grant.

When TPAs Are Used

TPAs are often used before a token launch, similar to RTAs, because they allow employees to lock in favorable tax treatment.

• By setting the purchase price equal to the fair market value (FMV) of the tokens at grant, companies can minimize or eliminate taxable income at that point.
• The employee’s tax basis for the tokens is established at the purchase price, which means future taxes are only owed on appreciation beyond that value.
• TPAs can also demonstrate to regulators that tokens were acquired for value, reducing risk of classification as free, unearned compensation.

Risks & Considerations

• Employee Buy-In Required: Employees must spend money upfront to receive their tokens. For early-stage contributors, this can be unpopular or even financially challenging.
• Perception Risk: Some team members may prefer equity-style grants (with no upfront cost) over purchase agreements.
• Tax Complexity: Although TPAs can reduce taxable income at grant, companies must still ensure compliance with local securities and tax laws.

📌 Key Takeaway: TPAs can minimize taxable income at the grant date, but they shift some cost and risk to employees—making them best suited for contributors who are confident in the project’s long-term growth.

Restricted Token Units (RTUs)

Restricted Token Units (RTUs) are the token-world equivalent of Restricted Stock Units (RSUs) in traditional equity compensation. Unlike RTAs, tokens under an RTU plan are not delivered immediately. Instead, employees are promised a fixed number of tokens, which they receive only when the vesting schedule is met.

How RTUs Work

• No Immediate Delivery: Employees do not hold or control tokens until vesting.
• Standard Vesting Schedules: RTUs often follow a four-year vest with a one-year cliff, followed by monthly or quarterly vesting.
• Tax Trigger at Vesting: Tokens typically become taxable to the employee when they are actually delivered at the end of each vesting period.

When RTUs Are Used

RTUs are most often used after a token launch because tokens are already liquid and have a clear fair market value.

• They simplify administration since no intermediary wallets or lock-ups are required pre-vesting.
• They delay taxable income for employees until tokens vest, which can help with cash flow planning if liquidity is available.
• RTUs are especially attractive to organizations that want token compensation to look and feel like traditional RSUs.

Risks & Considerations

• Tax at Vesting: Employees must pay income tax on the FMV of tokens at vesting, even if they don’t sell them — which can be burdensome if token prices rise but liquidity is limited.
• Valuation Challenges: Local tax authorities may require a specific valuation method, which can complicate administration.
• Market Volatility: If token prices fall after vesting, employees may face taxes on a higher value than they could realize by selling.

📌 Key Takeaway: RTUs are straightforward and easy to administer, but they can create tax and liquidity challenges at vesting if token values rise or markets are volatile.

Token Options

Token Options give employees or contractors the right—but not the obligation—to purchase tokens at a predetermined price (the “exercise price” or “strike price”) within a specific timeframe. This mirrors traditional stock options, but with the added complexities of token markets and regulatory treatment.

How Token Options Work

• Grant: Employees receive the option to buy a fixed number of tokens in the future.
• Vesting: Options typically vest over time (e.g., a four-year vest with a one-year cliff). Employees can only exercise vested options.
• Exercise: Once vested, employees may exercise their options by paying the strike price to acquire tokens.
• Liquidity & Market Impact: Exercising is usually attractive if the current fair market value (FMV) of tokens is higher than the strike price, allowing employees to capture the difference as gain.
  
  

When Token Options Are Used

Token options are often chosen when organizations want to:

• Delay Taxes for Employees: Since many jurisdictions tax only at exercise (not grant), employees aren’t taxed until they choose to exercise.
• Align Incentives with Growth: Employees benefit most if the token appreciates, encouraging long-term alignment with the project’s success.
• Offer Flexibility: Options can be structured with flexible vesting and exercise windows, making them adaptable across global teams.

Risks & Considerations

• Tax Complexity: Different jurisdictions treat token options differently. In some cases, exercising may trigger income tax, while in others it may be treated under capital gains.
• Liquidity Issues: Employees must have sufficient cash to pay the exercise price and possibly cover taxes, even if they can’t immediately sell tokens.
• Market Volatility: Sudden drops in token value after exercise can leave employees holding tokens worth less than the taxes they owe.
• Regulatory Oversight: Some regulators may view token options as securities, triggering registration or disclosure obligations.

📌 Key Takeaway: Token options can be an attractive, flexible tool for incentivizing employees—especially when designed to align with growth—but they require careful tax planning, liquidity considerations, and legal compliance.

Simplify Token Grants and Ensure Compliance with Toku

Understanding the different forms of token compensation—RTAs, TPAs, RTUs, and Token Options—is the first step toward building a compliant and effective rewards strategy. Each structure carries unique tax, legal, and administrative implications, and choosing the right one can significantly impact your ability to attract, retain, and motivate talent.

The complexity of token compensation doesn’t stop at knowing the options—it extends into how grants are allocated, how vesting is structured, how tax withholding is managed, and how compliance is maintained across multiple jurisdictions. For Web3 organizations, the stakes are high: mistakes can lead to financial penalties, regulatory risk, or unhappy contributors.

At Toku, we work with leading organizations like Protocol Labs and Gnosis to simplify token grant administration, tax compliance, and payroll. By partnering with us, you gain not just a solution, but a trusted partner who understands both tokens and the global regulatory environment.

🚀 Make token grants simple, compliant, and stress-free—work with Toku today.

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