An example is a for-profit company that makes an app and charges fees to its users. It then issues a token. The purpose of the token is to be used to pay the app fees. The company sells the token in the offering with the promise that as the app becomes more popular, the token will appreciate in value.
This creates two groups of stakeholders that sooner or later will have opposing interests: the equity holders in the company, and the token holders. The team has a responsibility towards both of these groups, which puts them in an impossible situation.
Founders are blinded by the promise of raising money without being diluted. Instead, they create a second mechanism for extracting value (tokens) that becomes competitive with the first (shares).
They have effectively diluted anyways -- there is a finite amount of value that can be extracted, regardless of the mechanism.
The main problem is the conflict of interest. It will likely lead to both shares and tokens to zero.
It’s frustrating because some of these projects could have been successful companies otherwise.
Thanks to Tomek Kolinko for the conversations that led to this writing.