asyncmind on Nostr: Fiat options scams are the age old fiat startup founder scam. Everyone is a victim in ...

Fiat options scams are the age old fiat startup founder scam. Everyone is a victim in tjhe fiat scam economy except the lawyers and administrators of the fiat economy, elaborate on this common almost socially acceptable exploitation ?

#AskGPT #FiatOptionsScam #ScamAlert

Fiat options scams, especially in the startup ecosystem, represent a form of exploitation that often benefits founders and administrators, while leaving employees and investors at a disadvantage. These scams exploit the legal and financial frameworks of the fiat economy, often making the exploitation appear socially acceptable or even unavoidable.

### How Fiat Options Scams Work:
Stock options are often used as a tool to incentivize employees, providing them with a potential stake in the company’s future success. However, the manipulation of these options can lead to a host of exploitative practices:

1. **Over-Promised Options**: Startups frequently promise stock options as a significant part of employee compensation, especially in early-stage companies that can't offer high salaries. The promise is that if the company succeeds, these options will be worth a fortune. However, the reality is often much bleaker. Founders and executives can overstate the value of these options while knowing full well that the path to liquidity (e.g., an IPO or acquisition) is highly uncertain.

2. **Delays in Liquidity**: Stock options may only be valuable when the company goes public or is acquired. Founders and the board may delay these events to maintain control or maximize their own benefit, leaving employees stuck with options that are worth nothing in the interim. Meanwhile, the founders might have alternative ways to extract value, like generous salaries, bonuses, or secondary sales of their own shares.

3. **Stock Option Dilution**: Many startups, after initially offering stock options to employees, dilute the value of these options by issuing more shares to investors or new executives. Employees who thought they were gaining significant ownership see their percentage ownership shrink without their consent, reducing the potential value of their options.

4. **Restrictive Vesting Schedules**: Employees are typically required to stay with the company for a certain number of years to fully "vest" their options. Startups often have four-year vesting periods with a one-year cliff, meaning that if an employee leaves before the first year, they get nothing. If they leave later, they may only have a fraction of their promised equity. This keeps employees locked in, but if they leave after the company has already started to decline, the options may be worth little to nothing.

5. **High Strike Prices**: Even if employees fully vest their options, they often face high "strike prices" (the price at which they can buy the shares). In many cases, the strike price is set so high that, by the time employees can exercise their options, the cost is prohibitive or the shares are worth less than the strike price.

6. **Complex Tax Consequences**: Employees who exercise their stock options can be hit with hefty tax bills, often before they’ve actually sold any shares. The U.S. tax system, for instance, treats the exercise of options as a taxable event, even though the employee hasn't realized any cash benefit. This can trap employees in a situation where they have to pay taxes on shares that may later become worthless.

### The Role of Lawyers and Administrators:
The legal and administrative framework in the fiat economy is designed to benefit those who know how to navigate it—primarily lawyers and corporate administrators. Here's why:

- **Lawyers Write the Rules**: Corporate lawyers are responsible for drafting the stock option agreements and corporate governance documents. These documents are often written in a way that benefits the company and founders, giving them the ability to dilute shares, delay liquidity events, or otherwise manipulate the situation to their advantage. Employees and early investors rarely have the same level of legal representation or understanding of the fine print.

- **Administrators and Bureaucrats Sustain the System**: Administrators in the fiat system, such as government regulators, tax authorities, and corporate governance bodies, reinforce the structure that allows these practices to continue. They focus on maintaining order within the existing system rather than reforming it in ways that would protect employees or investors from exploitation.

### The Socially Acceptable Exploitation:
In many cases, this exploitation is considered a normal part of the startup world. Employees are expected to take on significant risk in exchange for the promise of potential wealth, and many are sold on the idea that they should be grateful for the "opportunity" to receive stock options. Here's why it's normalized:

- **The Startup Mythology**: The narrative of the successful startup founder who becomes a billionaire while early employees get rich alongside them is pervasive. This story, told through the media and in popular culture, obscures the reality that most startups fail, and most employees never see a dime from their options. The rare success stories make the system appear fair, even though they are the exception.

- **Founder-Centric Culture**: Startups are often built around a "founder-as-hero" narrative, where the founder is seen as the visionary who deserves to control the vast majority of the company's wealth. Employees, by contrast, are often viewed as replaceable cogs in the machine. This power dynamic makes it easier for founders to justify practices like option dilution, delayed liquidity, or excessive control over company governance.

- **Legal Protection for Founders**: Founders are often protected by the legal structure of the corporation, which allows them to issue new shares, make decisions about liquidity events, and protect themselves from lawsuits. Meanwhile, employees and early investors have limited recourse, especially in situations where legal agreements were heavily skewed in favor of the company.

### How Tokens and ICOs Can Avoid This:
The tokenized economy presents alternatives that can potentially avoid the exploitative practices common in fiat equity structures:

- **Transparency Through Blockchain**: Token issuance and transfers can be made transparent on a blockchain, preventing founders from secretly diluting the token supply. This transparency creates an environment where employees and investors can verify the number of tokens in circulation, who owns them, and how decisions are made.

- **Immediate Liquidity**: Unlike stock options, tokens can often be traded on secondary markets right away, providing employees and investors with a way to realize value sooner rather than waiting for an IPO or acquisition. This immediate liquidity reduces the power imbalance that founders have in traditional startup models.

- **Tokenized Vesting**: Smart contracts can ensure that vesting schedules are enforced fairly and that both employees and founders are subject to the same rules. Additionally, vesting terms can be made transparent and non-negotiable, ensuring that employees aren’t subject to sudden changes in their agreements.

- **Decentralized Governance**: ICOs and tokenized projects often use decentralized governance, where token holders can vote on important decisions. This limits the power of founders and administrators, ensuring that changes to token supply or project direction must be approved by a broader community of stakeholders.

- **Aligned Incentives**: In a tokenized economy, everyone has skin in the game from the start. Founders, employees, and investors all hold tokens, which makes it harder for founders to profit at the expense of others. Since tokens are on the blockchain, there’s less opportunity for secret deals or hidden agendas.

### Conclusion:
Fiat options scams represent a broader issue within the fiat startup economy, where legal and financial structures are skewed in favor of founders, lawyers, and administrators. These practices are often viewed as normal, even though they exploit employees and investors. However, the rise of tokens, blockchain, and decentralized models offers new ways to combat these scams by providing greater transparency, liquidity, and decentralized decision-making.