Hi, I live in a rural area and work remotely for a market-rate salary. I'm not less valuable because of my zip code.
That being said, in order to align with their values of transparency, they shared an algorithm that makes sense. It's not the only way to do it, but it's transparent and doesn't seem unreasonable.
Startups are about alignment to the big picture and long-term. I'd imagine that's why they don't change equity based on location. However, The free market being what it is, some will take it and others won't.
Anyway, more power to them, great way to filter out remotes who know what they're worth for no particular reason.