Why Your Token Needs a Sink, Not Just a Faucet

Fees accrue to Uniswap LPs, not the protocol treasury. The token becomes a pure governance voucher with no cashflow claim.

• Result: Token trades at a massive discount to protocol earnings (e.g., >90% discount for many DEX tokens).
• Solution: Implement a fee switch to direct a portion of swap fees to buy back and burn the native token, creating a direct value sink.

Force utility by requiring token staking for core protocol functions. This locks supply and creates a recurring burn.

• Example: GMX requires staking of $GMX/$GLP to earn 30% of protocol fees.
• Mechanism: Fees are distributed in ETH/AVAX, creating sell pressure on those assets and buy pressure on the native token, establishing a perpetual value loop.

Voting power alone doesn't consume tokens. Governance participation is low, and tokens are often lent out or sold immediately after airdrops.

• Result: <5% voter turnout is common, with tokens treated as mercenary capital.
• Solution: Integrate token burns into governance actions. For example, proposal submission or vote execution could require a small, non-refundable token burn, aligning voter skin-in-the-game.

Use the native token as the exclusive currency for minting high-demand, non-fungible assets within the ecosystem.

• Example: LooksRare required $LOOKS to mint Artist Editions.
• Mechanism: This creates predictable, event-driven demand spikes and permanently removes tokens from circulation. The sink's strength is tied to the desirability of the minted asset.

Emissions-based staking rewards just re-distribute inflation; they don't reduce net supply. This leads to staking APY chasing and eventual sell pressure when rewards unlock.

• Result: High nominal APY masks continuous dilution.
• Solution: Implement a ve-token model (like Curve/Curve Wars) where locking tokens for longer periods boosts rewards and voting power, actively reducing liquid circulating supply.

Abstract gas fees for users and pay for them with the protocol token, then burn those tokens. This turns every user action into a micro-sink.

• Example: BNB Chain burns gas fees based on usage.
• Mechanism: Creates a direct, usage-based deflationary pressure. The sink's throughput scales with network adoption, making it a powerful built-in stabilizer.

Fees accruing to a treasury or LP pools create no buy pressure. Your token is a governance coupon, not a value-accrual asset.\n- Example: Uniswap's $1B+ annual fees bypass UNI holders.\n- Result: Token price disconnects from protocol success, leading to mercenary capital.

Force the protocol's primary economic activity to consume the token. This creates a direct, non-speculative sink.\n- Mechanism: Use token as gas, require it for listings, or burn a % of all fees.\n- Case Study: Ethereum's EIP-1559 burns ~$10B+ in ETH annually, creating a deflationary yield for holders.

Emissions to stakers are pure inflation. High APY attracts farmers who dump, creating sell pressure that outweighs the temporary lock-up.\n- Outcome: Token supply inflates >20% APY while price bleeds.\n- This is a subsidy, not a sustainable model.

Transform staking from a faucet into a sink by making the lock-up the value proposition. Borrow from Curve's veCRV and Balancer's veBAL.\n- Mechanism: Longer, irreversible locks grant boosted rewards and governance power.\n- Result: Reduces liquid supply, aligns long-term holders, and creates a non-dilutive reward stream from protocol fees.

If a token's only utility is voting on treasury grants or parameter tweaks, it has no fundamental floor. Governance is a public good, not a revenue stream.\n- Evidence: Low voter turnout and apathy plague most DAOs.\n- The token becomes a target for governance attacks, not value accumulation.

Merge governance with the fee sink. Token holders don't just vote—they direct cash flows. See Compound's and Aave's transition to fee-sharing models.\n- Mechanism: Use ve-model to distribute a portion of protocol fees to locked holders.\n- Outcome: Governance has tangible economic stakes, creating a positive feedback loop between participation and token value.