Governance is not a product. Token voting is a coordination mechanism, not a revenue stream. Protocols like Uniswap and Compound treat governance as a feature, not the core value proposition.
the-creator-economy-web2-vs-web3
Blog
Why Your Governance Token's Value Is Tied to Its Curation Utility
A first-principles analysis arguing that a token's fundamental utility and price are a direct function of its power to curate quality, filter noise, and direct capital within a protocol's ecosystem.
introduction
THE REALITY CHECK
Introduction: The Flawed Governance Narrative
Governance token value is not derived from voting rights but from the protocol's curation utility.
Value accrues via curation. A token's price reflects its ability to curate high-quality protocol parameters, such as fee switches or treasury allocations. Poor curation destroys value faster than any exploit.
Compare Uniswap vs. SushiSwap. Uniswap's fee switch debate demonstrates governance's real utility: deciding how to capture and distribute billions in generated fees. SushiSwap's governance struggles directly impacted its token price.
Evidence: The Curve Wars are the ultimate proof. Protocols like Convex and Stake DAO battle for CRV to curate liquidity gauge weights, directly influencing billions in capital allocation and protocol revenue.
thesis-statement
THE VALUE CAPTURE
The Core Thesis: Curation is the Killer App for Governance
Governance tokens derive fundamental value from their exclusive utility in curating and governing critical protocol resources.
Governance tokens are curation rights. Their value is not speculative; it is a function of the economic power they grant over a protocol's core assets and parameters.
Curation creates a moat. A token that solely votes on treasury allocations is weak. A token that governs a Uniswap fee switch, an Aave risk parameter, or an Arbitrum sequencer has tangible, recurring utility.
Compare Uniswap vs. Compound. UNI's governance controls a multi-billion dollar treasury and critical protocol upgrades. COMP's governance is largely symbolic after the decentralized oracle shift to Chainlink. The market cap differential reflects this.
Evidence: Protocols with strong curation, like MakerDAO governing the PSM and real-world assets, demonstrate sustainable fee revenue and token utility that transcends pure voting.
key-trends
THE VALUE SHIFT
The Market Context: From Passive Voting to Active Curation
Governance tokens are being revalued based on their ability to actively curate and secure the network, not just signal preferences.
01
The Problem: Governance-as-a-Spectator-Sport
Token voting is plagued by apathy and plutocracy. <5% voter participation is common, delegating real power to whales and DAO service providers. This creates misaligned incentives and security risks.
- Value Leak: Token utility is reduced to a passive yield asset.
- Security Risk: Low participation enables low-cost governance attacks.
<5%
Avg. Voter Turnout
1000x
Whale Voting Power
02
The Solution: Curation-as-Collateral
Protocols like EigenLayer and Babylon are pioneering restaking and staking-as-a-service. Here, the governance token's utility is its ability to be staked to actively curate and secure other networks.
- New Yield Source: Earn fees from AVSs or Bitcoin staking.
- Value Accrual: Token demand is tied to productive utility, not speculation.
$15B+
TVL in Restaking
2-5%
Additional Yield
03
The Model: Fee Capture via Active Work
Look at Uniswap's fee switch debate versus Aave's Safety Module. Value accrues to tokens that backstop real risk or perform verifiable work. Passive voting tokens are being outcompeted by active curation tokens.
- Direct Value Flow: Fees are distributed to stakers/curators.
- Sustainable Demand: Utility creates a perpetual sink, reducing sell pressure.
100%
Fee Capture
>TVL
Protocol Revenue
04
The Benchmark: MakerDAO's Endgame
Maker is explicitly shifting MKR from a governance token to a curation token for its new SubDAOs. Holders must stake and curate ecosystem assets to earn rewards, directly linking token value to productive activity.
- Forced Participation: Passive holding is economically suboptimal.
- Aligned Incentives: Token value scales with SubDAO performance.
6 SubDAOs
Curation Markets
Yield-Bearing
New MKR
05
The Risk: Centralization via Professional Curators
Active curation professionalizes governance. Entities like Figment and Staked.us become dominant stakers, potentially recreating walled gardens. The token's value is now tied to the competitiveness of its curator ecosystem.
- New Oligopoly: Curation markets may centralize.
- Liquidity Fragmentation: Smaller holders are priced out of active roles.
>60%
Stake Controlled by Top 5
High
Barrier to Entry
06
The Metric: Utility-Adjusted Market Cap
Forget FDV. The new valuation model is Total Value Curated (TVC). Compare Curve's veCRV model (curating gauge weights) to a generic voting token. The market is pricing the cash flow rights from active work, not governance rights.
- Valuation Shift: Price/TVC is the new P/E ratio.
- Clear Signal: Tokens without curation utility will trade at a steep discount.
TVC
New Core Metric
50-80%
Discount for Passive Tokens
deep-dive
THE TOKEN FLYWHEEL
Mechanics of Value Accrual: How Curation Drives Demand
Governance token value is a direct function of its utility in curating and securing a protocol's core resource.
Curation is the value engine. A token's primary utility is governing a high-value resource, like a liquidity pool or data feed. The governance token becomes the required tool to influence that resource, creating direct demand from users who need to affect outcomes.
Demand scales with resource value. As the curated resource (e.g., Uniswap's fee switch treasury, Aave's asset listings) becomes more valuable, the stakes of governance increase. This forces speculators and participants to acquire the token to protect or direct that value, creating a positive feedback loop.
Fee capture is secondary. Protocols like Compound and MakerDAO demonstrate that direct fee distribution is not the primary driver. Value accrues from the right to control critical parameters (collateral factors, stability fees) that determine system profitability and risk.
Evidence: The collapse of ve-tokenomics models like Curve's CRV shows that when curation power (vote-locking) is decoupled from long-term token holding, the value accrual mechanism fails, leading to inflationary spirals and governance apathy.
GOVERNANCE TOKEN UTILITY
Protocol Curation Levers: A Comparative Analysis
A comparison of how major protocols leverage governance tokens to curate and secure their ecosystems, directly impacting token value accrual.
| Curation Mechanism | Uniswap (UNI) | Curve (CRV) | Aave (AAVE) |
|---|---|---|---|
Fee Switch Activation | |||
Direct Treasury Revenue Share | 0% | 50% of admin fees | Staking yield from treasury |
Vote-Escrowed Model | |||
Bribe Market Integration (e.g., Votium) | |||
Governance-Controlled Parameter | Factory fee tiers | Gauge weights, Fee levels | Risk parameters, Asset listing |
Staking APY Source | N/A | Trading fees + bribes | Protocol revenue + safety module |
Proposal Bond Requirement | 2.5M UNI | 10 CRV | 80,000 AAVE |
Avg. Vote Participation (30d) | 8.2% | 55.7% | 12.1% |
counter-argument
THE CURATION THESIS
Steelman: "Governance Tokens Are Still Useless"
Governance tokens derive value not from voting rights, but from their role in curating and aligning a protocol's core economic activity.
Token value stems from curation. The governance token is the protocol's capital asset, whose price signals the market's belief in the quality of the economic activity it governs, like Uniswap's fee switch or Aave's asset listings.
Voting is a secondary function. Most token holders delegate; the real power is the delegated curation right granted to sophisticated actors who manage critical parameters, making the token a staking mechanism for trusted operators.
Compare MakerDAO's MKR to a meme coin. MKR's value is backed by the right to manage a multi-billion dollar balance sheet of real-world assets and DAI stability. A meme coin governs nothing of economic substance.
Evidence: Look at delegation rates. Protocols with high-value, active curation like Compound or Optimism see >70% of tokens delegated to experts managing risk or grants, creating a tangible demand sink for the token.
takeaways
GOVERNANCE VALUE THEORY
TL;DR for Builders and Investors
Governance tokens are not just voting slips; their fundamental value accrues from their role in curating and securing the protocol's core resource.
01
The Problem: Governance as a Cost Center
Most DAOs treat governance as a pure voting mechanism, a cost with no direct revenue loop. This leads to:
- Token value decoupled from protocol performance.
- Voter apathy and low participation, often below 5%.
- Speculative volatility as the only price driver.
<5%
Avg. Voter Turnout
High
Speculative Premium
02
The Solution: Curation as a Revenue-Generating Primitive
Anchor token value to the act of curating a high-value resource (e.g., liquidity pools, validator sets, oracle data).
- Token staking directly influences protocol quality and fee generation.
- Fees are recycled to stakers, creating a tangible yield (see Curve's veCRV model).
- Value accrual is non-speculative and tied to fundamental metrics like TVL growth and fee volume.
$10B+
TVL in ve-Tokens
Direct
Fee Capture
03
The Blueprint: Look at Frax Finance
Frax's veFXS model demonstrates curation utility in action. Stakers vote to direct emissions and fees.
- Curates the algorithmic stablecoin (FRAX) collateral mix and AMO (Algorithmic Market Operations) parameters.
- Captures revenue from the entire Frax ecosystem (FRAX, frxETH, sFRAX).
- Creates a virtuous cycle: better curation → more protocol usage → more fees → higher staking rewards.
Multi-Chain
Revenue Sources
Ecosystem
Fee Capture
04
The Investor Lens: Measure Curation Yield, Not Just APY
Evaluate governance tokens based on the sustainability of their curation mechanics.
- Fee-to-Stakers Ratio: What % of protocol fees are distributed to token lockers?
- Curation Leverage: How much does a staker's vote influence a $1B+ economic resource?
- Avoid tokens where voting only controls a treasury, not an income-generating asset.
Fee %
Key Metric
$1B+
Resource Leverage
05
The Builder's Mandate: Design for Sticky Capital
Implement mechanisms that make curation capital sticky and aligned for the long term.
- Time-locked staking (ve-model) to align voter incentives with long-term health.
- Clear fee distribution logic that is transparent and automatic.
- Avoid dilution: New token issuance should be primarily directed to and governed by existing curators.
ve-Tokens
Standard Model
Auto-Compound
Fee Stream
06
The Risk: Centralization via Liquid Staking Tokens
Liquid wrapper tokens (e.g., Lido's stETH, Aave's aTokens) can abstract away governance rights, centralizing curation power.
- Protocols like Convex (cvxCRV) can capture voting power from passive holders.
- Builders must design to resist vote-buying cartels that can degrade curation quality for short-term gain.
- The voting power vs. liquidity trade-off is a critical attack vector.
Cartel Risk
High
Lido, Convex
Case Studies
ENQUIRY
Get In Touch
today.
Our experts will offer a free quote and a 30min call to discuss your project.
NDA Protected
Confidentiality24h Response
Time to ValueDirectly to Engineering Team
No Sales Fluff10+
Protocols Shipped
$20M+
TVL Overall