How Protocol Labs Streamlined Token & Equity Grant Management with Toku

Protocol Labs partnered with Toku to simplify its global token and equity grant administration, particularly in Italy. The collaboration enabled compliant token grant accounting, sell-to-cover execution and audit-ready documentation across its distributed workforce.

The Challenge

Facing Complex Token and Equity Grant Administration in Italy

Protocol Labs operates globally with a distributed workforce earning a mix of fiat salary, token grants and equity. While that compensation model is attractive for talent, it introduced serious operational and compliance challenges - especially in jurisdictions like Italy.

In one case: an employee had multiple overlapping token grants (in Filecoin tokens), equity grants, and a unique tax and immigration status. Traditional EORs and payroll providers lacked processes for this level of crypto-native complexity. Specific hurdles included:

• Calculating tax withholding obligations on token and equity grants under Italian law.
  
• Executing a sell-to-cover process so tokens could be converted to fiat to satisfy withholding.
  
• Navigating Italian token taxation rules - e.g., capital gains vs income treatment, 30-day average price vs exchange FMV.
  

Protocol Labs needed a partner with both crypto-payroll infrastructure and local jurisdiction expertise to build a compliant, scalable solution.

The Approach

Toku Enables Token-Native Compliance for Grant Administration

Protocol Labs selected Toku to deliver a unified solution for its token and equity grant challenges in Italy. Toku’s approach brought together crypto-native infrastructure and local tax expertise.

1. Centralised Token & Equity Grant Administration

Toku consolidated multiple overlapping token and equity grants for Protocol Labs. This included tracking vesting schedules, managing grant types under labour and securities law, and calculating the fair market value of tokens at required trigger points. The manual guesswork and fragmented processes were replaced with a structured system.

2. Automated Tax Withholding & Sell-to-Cover Execution

Under Italian law tokens needed to be converted to fiat for tax remittance. Toku automated this process by determining tax liabilities, executing sell-to-cover at market rates and remitting to the Italian tax authority (Agenzia delle Entrate). This gave Protocol Labs both compliance and operational simplicity.

3. Italian Local Tax Code Expertise

Italy’s tax rules for tokens are complex: capital gains vs ordinary income, varying FMV definitions, exemptions depending on timing. Toku brought in local competence to navigate these rules and apply them to token compensation. Protocol Labs benefited from this hybrid of crypto pay and jurisdictional compliance.

4. Contributor-Centred Experience

Toku provided transparency to the employee: detailed breakdowns of token/equity grants, tax treatment, net take-home, and immigration/financial implications like mortgage eligibility. The improved clarity boosted trust and retention.

Results

Transforming Manual Admin into Compliant, Scalable Workflow

With Toku’s help, Protocol Labs converted one of its most complex jurisdictional compensation cases into a streamlined, compliant, and contributor-friendly process. The company now manages token and equity grants under a robust infrastructure that meets local tax, employment and audit requirements. Finance and legal teams can operate with confidence, contributors receive clear and legally-sound compensation, and Protocol Labs has a scalable foundation to grow its global operations. What started as a manual headache is now a strategic capability.

Key Takeaways

1. Crypto-native compensation demands crypto-native compliance. Traditional payroll/EOR tools often fall short when tokens and global grants enter the mix.
   
2. Sell-to-cover is non-optional. When tokens are part of compensation, you need automation to convert them to fiat for tax and withholding, especially in jurisdictions like Italy.
   
3. Jurisdiction-specific tax expertise matters. Token tax rules vary widely by country; local knowledge is essential to avoid risk.
   
4. Scalable infrastructure reduces future burden. Building the system once means repeating it efficiently across geographies later.
   
5. Transparency builds contributor trust. When employees understand their grant value, tax treatment and documentation, retention improves and risk drops.
   

The Outcome

Protocol Labs now operates with a compensation model that aligns its token-native culture with rigorous regulatory standards. Grants and equity are administered compliantly, contributors receive full clarity, and the company has a scalable infrastructure to support future growth. Toku helped bridge the gap between innovative Web3 compensation and global legal compliance.

Next Steps

Toku helps organizations handle token and equity grants anywhere in the world - compliantly, transparently and at scale.

Partner with Toku!