Why Appchain Tokens Are Not Meant to Be Stores of Value

Appchains must pay for their own security via token emissions to validators. This creates persistent sell pressure from staking rewards, directly opposing price stability.

• High native issuance (often 5-20% APY) dilutes holders.
• Security budget is a continuous operational cost, not a one-time fee.
• Models like Celestia's data availability or shared security (e.g., EigenLayer, Cosmos Hub) externalize this cost, making it explicit.

The optimal design burns fees or uses them to fund protocol treasury, creating a velocity sink. The token's value is derived from usage demand, not speculative holding.

• Burn mechanisms (e.g., EIP-1559) turn network activity into deflationary pressure.
• Value accrual is non-custodial; you capture value by providing a service (staking, liquidity), not just holding.
• See dYdX v4 moving to its own chain to capture 100% of sequencer fees as a case study.

Appchain token demand is tightly coupled to its specific application's growth cycle. It lacks the diversified demand base of a Layer 1 like Ethereum.

• Demand spikes during airdrops, new feature launches, or hype cycles, then collapses.
• Low liquidity depth outside of major pairs exacerbates volatility.
• Contrast with BTC/ETH, which benefit from being collateral assets across DeFi (MakerDAO, Aave, Lido).

An appchain's token is a tool for governing and optimizing a single application stack. Its value is in enabling sovereignty, custom fee logic, and maximal extractable value (MEV) capture.

• Sovereignty allows forking Uniswap without UNI's governance, making the token's role purely operational.
• Custom fee markets let apps like a Perp DEX prioritize keepers over simple transfers.
• This specialization makes it a high-beta, high-utility asset, not a stable reserve.

A store of value requires perceived neutrality and censorship resistance. An appchain is, by definition, optimized for a specific use case and often a core team.

• Investors question long-term neutrality if the chain is controlled by a single entity (e.g., dYdX).
• The monetary premium enjoyed by Bitcoin stems from its lack of a leader and single purpose.
• Appchains like Axelar or Polygon zkEVM are utilities, not digital gold.

The successful appchain token model is a work token: its value is the right to perform work (validate, sequence, govern) and capture fees. It's a claim on cash flow, not a passive store of wealth.

• Think equity, not currency. Value scales with application revenue and utility.
• Staking is a job, providing security and services, not just yield farming.
• This aligns with models from Livepeer (LPT) to Osmosis (OSMO).

Monolithic L1s like Ethereum bundle security, execution, and data availability into a single asset (ETH). This creates a store-of-value premium that misaligns incentives for application-specific chains.

• Inflexible Fee Markets: App usage competes with DeFi and NFTs for block space.
• Misaligned Security Budget: Apps pay for the entire network's security, not their own.
• Value Capture Leakage: Protocol revenue flows to L1 validators, not the app's own stakeholders.

The dYdX token is a pure utility instrument for its Cosmos appchain, governing staking, fees, and security. It is explicitly not an investment contract.

• Fee Payment: Users pay transaction fees in USDC, not the native token, decoupling usage from token speculation.
• Staking for Security: Token holders stake to run validators and sequencers, earning USDC fees as rewards.
• Sovereign Security Budget: The chain's security cost is directly funded by its own application revenue.

Celestia's TIA token has a singular, critical utility: paying for data availability (DA) space on its modular blockchain. This creates a pure utility sink.

• Resource Access: Rollups and appchains burn TIA to post data blobs, creating direct demand from builders.
• No Execution Overhead: The token is not used for gas, avoiding speculative fee market distortions.
• Scalable Demand: Token demand scales with rollup adoption, not with speculative trading volume.

Legacy DeFi protocols like SushiSwap used token emissions to bootstrap liquidity, creating a ponzinomic death spiral. The token's only utility was farming more tokens.

• Inflationary Rewards: >100% APY emissions diluted holders and created sell pressure.
• No Value Accrual: Protocol fees were not directed to token holders (until later ve-token models).
• Vampire Attacks: The model was easily forked, as the token had no technical utility anchoring it to the protocol.

EigenLayer's model repurposes a store-of-value asset (staked ETH) to provide security for new systems. The appchain (AVS) does not need its own high-value token.

• Rented Security: AVSs pay fees in ETH or stablecoins to pooled Ethereum validators for cryptoeconomic security.
• Zero-Inflation: The AVS can issue a minimal governance token without needing it to secure billions in stake.
• Capital Efficiency: Leverages the existing $80B+ Ethereum staking market instead of bootstrapping a new one.

A successful appchain token is a consumable resource. Its value is a function of the cost to use the network, not a bet on future cash flows.

• Demand-Driven Valuation: Price should correlate with network usage and throughput, not speculation.
• Controlled Supply: Inflation is tied to security/staking needs, not investor rewards.
• Exit to Community: The end state is a token held primarily by users and operators, not passive investors.

An appchain's security is a recurring operational cost, not a permanent asset. The token's primary utility is to pay validators for this service. This creates a constant sell pressure as stakers cover operational costs, structurally opposing price appreciation as a pure SoV.

• Key Insight: Token value is pegged to the cost of security, not speculative future cash flows.
• Builder Action: Design tokenomics that explicitly fund validator rewards via protocol revenue, not just inflation.

The viable path for appchain token appreciation is direct fee capture and burning, akin to EIP-1559. This transforms the token from a pure utility coin into a revenue-share asset.

• Key Insight: Look for appchains that implement a substantial burn mechanism on transaction fees or MEV.
• Investor Signal: Scrutinize the % of protocol revenue that is burned or distributed to stakers versus paid to the foundation.

Every new appchain (dYdX, Sei, Berachain) fragments liquidity and investor attention. This limits the total addressable market for any single appchain token as a dominant SoV.

• Key Insight: Appchain tokens compete in a winner-take-most market for speculative capital.
• Builder Action: Pursue deep integration with DeFi liquidity hubs (Ethereum L2s, Solana) via canonical bridges to mitigate fragmentation.

ATOM's historical price stagnation showcases the utility token trap. Despite securing a vast ecosystem, its value accrual was weak until recent governance proposals (like Interchain Security) tied its security service to direct revenue.

• Key Insight: A token securing other chains (via shared security like EigenLayer, Babylon) can become a more robust asset.
• Investor Signal: Favor appchains whose token is essential for securing high-value external chains or rollups.

Native L2 tokens (e.g., Arbitrum, Optimism) often have weaker SoV claims than ETH, but they benefit from Ethereum's base-layer security and liquidity. Their success is tied to scaling ETH's SoV, not competing with it.

• Key Insight: An appchain that doesn't need its own token for security (e.g., using Ethereum or Cosmos for settlement) removes the core utility-driven sell pressure.
• Builder Action: Seriously evaluate rollup frameworks (OP Stack, Arbitrum Orbit) vs. a sovereign chain.

Evaluate an appchain token by comparing its market cap to the value it secures (TVL + annualized fee revenue). A low ratio suggests the token is undervalued for its utility; a high ratio implies it's priced as a pure speculative SoV.

• Key Insight: Sustainable tokens have a market cap justified by the economic activity they protect and facilitate.
• Investor Action: Calculate this ratio. Avoid tokens where MCap >> (TVL + 5*Annual Fees).