When does a promise become a liability? For South Korea’s Wemade, the answer was clear: the moment it told employees they would receive WEMIX tokens. A Seoul court recently ordered the company to deliver over $7 mn worth of tokens after failing to honor those commitments.
While this ruling is not binding in the US, it shines a bright light on a risk many companies overlook, e.g., if you promise compensation tied to assets that don’t yet exist, courts and regulators may still hold you to it.
A cautionary tale
Wemade’s story is a cautionary tale. The company pledged token-based compensation before its crypto product was fully minted or liquid. When delivery became inconvenient or impossible the court gave little weight to those defenses. A promise was treated as enforceable, plain and simple.
Even though this case unfolded in Seoul, the logic resonates worldwide. Compensation commitments are rarely treated as casual. Once made, they can stick, regardless of whether the asset is cash, stock or crypto still on the drawing board.
This risk underscores the importance of how compensation promises are framed, reviewed, and approved at the board/committee level, where fiduciary oversight and governance expectations are highest.
Crescent Moran Chasteen, Morrison Foerster
Why boards can’t ignore this risk
Litigation headaches: Courts in the US are unlikely to be swayed by the novelty of crypto terminology. They will ask the same questions they do in traditional compensation disputes: was a promise made and did employees reasonably rely on it? If so, contract law or doctrines like promissory estoppel may treat the commitment as enforceable, whether the asset is cash, stock, or an unminted token. Even casual language in offer letters, recruiting materials or internal announcements can be enough to create binding rights. For boards, this means that what may feel like aspirational or forward-looking statements can quickly become the basis for expensive litigation if delivery falls short. Regulators in the mix: Token-based compensation doesn’t live in a regulatory vacuum. The SEC may view certain tokens as securities; the IRS expects accurate valuation and proper withholding; and the Department of Labor may challenge whether crypto can satisfy wage-and-hour rules. To make matters worse, guidance from these agencies has been inconsistent, creating a gray zone for employers. Missteps can snowball – what starts as a contract dispute could escalate into parallel tax inquiries, securities investigations or employment-law claims. The price of volatility: Crypto’s defining feature, i.e., price swings, turns compensation planning into a gamble. A token worth little at grant (or upon a promise to grant) can appreciate dramatically, creating an unexpectedly large liability for the company. If values collapse, employees may feel shortchanged and pursue claims to recover promised value. Unlike stock in a public company, many tokens lack deep markets or reliable valuations, making it nearly impossible to hedge or predict outcomes. Without careful drafting of contingencies and substitution rights, volatility can turn an incentive into a major financial strain.Designing incentives that inspire without trapping the company
Employees need incentives that feel concrete and motivating, while companies must retain flexibility to navigate regulatory, market and delivery risks. The most successful arrangements balance both, giving employees a sense of real upside without binding the company to promises it cannot safely keep. When structuring token-based awards, companies should aim for balance, building in features that keep employees motivated while also incorporating protections that guard the company. The lists below highlight examples from both perspectives.
Employee-friendly features (motivation)
Performance-based milestones: Link awards to product launches, funding rounds or regulatory approvals so employees see a concrete connection between their efforts and potential upside. Transparency on upside: Communicate a clear path for how tokens are expected to be minted, valued and distributed, even if the legal language is cautious. Blended incentives: Pair token eligibility with cash bonuses, equity or stablecoins so employees feel tangible rewards while awaiting tokens. Framing flexibility as mutual protection: Position substitution rights as ensuring employees still receive value, even if tokens can’t be delivered.Company-protective features (risk management)
Make grants conditional: Tie eligibility to actual minting, regulatory clearance and availability. Build in substitution rights: Allow delivery in cash or equity if tokens can’t be issued. Use clear disclaimers: Frame early communications as ‘intentions’ rather than binding promises. Time announcements wisely: Don’t commit before the product is deliverable. Document everything: Anticipate contingencies in award agreements. Stay on top of legal considerations: Monitor the evolving landscape with counsel before finalizing awards.Striking this balance is essential. Awards that are too vague won’t inspire, while promises that are too rigid can trap the company in costly obligations. The Wemade case underscores the importance of getting it right and designing incentives that motivate performance without sacrificing flexibility and protection.
Questions boards/founders should be asking now
Are we making promises tied to tokens or products that don’t yet exist? Do our award agreements give us clear substitution rights (cash or equity instead of tokens)? Are our communications to employees carefully worded to avoid binding commitments? Do we have contingencies if regulators restrict delivery or if the market shifts?Bottom line
The Wemade decision is a reminder that in the compensation world, optimism can become obligation overnight. Pre-mint token promises are widespread in the crypto sector, but they carry real legal and economic risk. Similar lawsuits could follow in other jurisdictions, especially where US companies employ staff or operate abroad.
For boards and GC, the takeaway is simple, stress-test your compensation plans now. A few careful adjustments can preserve flexibility, protect governance and still keep employees motivated. Take action now to prevent the next multimillion-dollar issue.
Crescent Moran Chasteen is Morrison Foerster’s co-chair of the executive compensation and benefits practice.