Bridge tokens are fee sinks. Protocols like Across and Stargate direct a portion of bridging fees to token buybacks and burns, creating a direct link between network usage and token value.
tokenomics-design-mechanics-and-incentives
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Why Bridge Tokens Are More Than Just Governance
A critique of governance-only bridge token models. We argue that effective cross-chain tokens must be work tokens that directly secure the network, using Axelar's AXL as a benchmark and analyzing the risks of models like LayerZero's ZRO and Wormhole's W.
introduction
THE VALUE CAPTURE
Introduction
Bridge tokens are evolving from governance placeholders into the primary economic engines for cross-chain infrastructure.
Governance is a secondary function. While LayerZero's ZRO and Wormhole's W enable protocol upgrades, their primary utility is securing economic alignment, not just voting on proposals.
The model mirrors L1s. Successful bridges monetize block space and sequencing, similar to how Ethereum and Solana capture value, moving beyond the limited Uniswap governance token precedent.
Evidence: Across has burned over $10M in $ACX from generated fees, demonstrating a sustainable flywheel where usage directly reduces token supply.
key-trends
WHY BRIDGE TOKENS ARE MORE THAN JUST GOVERNANCE
The Governance-Only Trap: Three Fatal Flaws
Treating a bridge's native token solely as a governance instrument is a critical design flaw that undermines security, economic sustainability, and user experience.
01
The Security Vacuum: Unbacked Governance
Governance-only tokens fail to align validator/staker incentives with the security of the bridged assets. Without a direct, slashable economic stake, the system relies on altruism.
- Fatal Flaw: No skin-in-the-game for relayers or provers.
- Result: Security becomes a cost center, not a revenue-generating asset, leading to underfunded and fragile systems.
0%
Direct Economic Stake
100%
Altruistic Security
02
The Fee Capture Problem: Value Leakage to L1s
When bridge fees are paid solely in the native gas token (e.g., ETH), all economic value accrues to the underlying chain, not the bridge protocol.
- Fatal Flaw: Protocol revenue is siphoned away, starving the token's treasury.
- Result: Projects like Across and LayerZero must innovate with fee models and staking to capture value, or risk becoming pure infrastructure commodities.
$1B+
Annual Fee Leakage
0%
Protocol Revenue Capture
03
The Utility Death Spiral: No Demand Beyond Speculation
A token with no utility beyond voting sees demand collapse when governance is inactive or perceived as low-impact. This destroys the flywheel needed for sustainable growth.
- Fatal Flaw: Tokenomics are decoupled from core protocol usage.
- Result: See the Wormhole airdrop model: massive initial distribution must be followed by rapid utility integration (e.g., Cross-Chain Messaging fees) to prevent a dump.
-90%+
Post-Airdrop Decline
Zero
Recurring Utility Demand
thesis-statement
THE ECONOMIC REALITY
The Core Thesis: Security Demands Skin in the Game
Bridge tokens are not governance coupons; they are the capital base that secures billions in cross-chain value.
Token as Bonded Capital: A bridge's native token is its slashing mechanism. For protocols like Across and Stargate, the token is the economic skin in the game that validators or liquidity providers must stake, creating a direct financial penalty for malicious behavior.
Governance is a Side-Effect: The primary function is risk absorption, not voting. Governance rights are a utility layer added to a security primitive, a design pattern also seen in EigenLayer where restaked ETH secures new services.
Counter-Intuitive Insight: A token with high market cap but low staking ratio (e.g., some early bridges) is a security liability. The effective security budget is the staked value, not the fully diluted valuation.
Evidence: Wormhole's $3.2B token airdrop was explicitly framed as a war chest for security, capitalizing a foundation to fund audits, bug bounties, and insurance backstops for its guardian network.
UTILITY BREAKDOWN
Bridge Token Model Comparison: Work vs. Governance
A first-principles analysis of how bridge-native tokens capture value, contrasting pure governance tokens with those that secure network operations.
| Core Utility / Metric | Pure Governance (e.g., Hop, Across) | Work Token (e.g., Axelar, LayerZero) | Hybrid Model (e.g., Wormhole) |
|---|---|---|---|
Primary Value Accrual Mechanism | Fee discounts & voting | Staking to perform validation work | Governance + potential future work utility |
Token Required for Core Protocol Security | |||
Relayer/Validator Incentive Source | Protocol treasury subsidies | Direct user fees & MEV | Treasury subsidies & planned fee-sharing |
Typical Staking APR Range | 0% (non-custodial) | 7-15% | 0% (pre-W) |
Fee Capture for Tokenholders | Indirect via treasury governance | Direct via slashing & execution fees | Planned via future fee distribution |
Protocol Revenue Dependency | High (requires sustainable treasury) | Low (self-sustaining via ops) | High (currently subsidized) |
Key Security Assumption | Economic trust of bonded relayers | Cryptoeconomic security of PoS validators | Economic trust of guardian set |
Example of Slippage/MEV Capture | Across (via RFQ system) | Axelar (via GMP execution) | N/A |
deep-dive
THE ECONOMIC ENGINE
The Mechanics of a Work Token: Axelar's AXL as a Case Study
Axelar's AXL token is a work token that secures cross-chain infrastructure by staking for validator roles and paying for generalized message passing.
Work tokens secure infrastructure. AXL is not a governance token; it is a stake-for-work mechanism. Validators must stake AXL to join the network and execute cross-chain logic, aligning security with economic skin in the game.
AXL pays for generalized computation. Unlike simple asset bridges like Stargate, Axelar's General Message Passing enables arbitrary logic. Users pay gas fees in AXL for this cross-chain computation, creating a direct utility sink.
This contrasts with pure fee tokens. LayerZero's OFT standard uses native gas, while Wormhole uses a fee abstraction model. AXL's model ensures the token captures value from all network activity, not just governance votes.
Evidence: Axelar processes over $2B+ in monthly transfer volume. This volume requires constant validator work, which is secured and paid for via the AXL token, demonstrating its core utility beyond governance.
risk-analysis
BEYOND VOTING RIGHTS
The Bear Case: What Happens When Governance Isn't Enough
Governance tokens for bridges are often dismissed as low-utility. The real value is in their role as economic backstops and coordination mechanisms for critical infrastructure.
01
The Problem: A Bridge is a Bank Without a Balance Sheet
Governance alone can't secure $10B+ in TVL. A token must provide economic skin in the game to disincentivize attacks and cover shortfalls.\n- Slashing Mechanisms: Tokens like Axelar's AXL can be slashed for validator misbehavior.\n- Insurance Pools: Across uses a $50M+ backstop pool funded by token stakers to cover bridge exploits.
$10B+
TVL at Risk
$50M+
Backstop Pool
02
The Solution: Protocol-Owned Liquidity as a Utility
A bridge token's primary utility is often securing its own liquidity, creating a self-reinforcing flywheel. This is the core innovation of LayerZero's Stargate and Wormhole.\n- Fee Capture: Staking STG earns a share of all bridge fees.\n- Bootstrap Liquidity: The protocol uses its treasury to seed deep pools, reducing slippage and attracting volume.
100%
Fee Capture
>0.1%
Typical Slippage
03
The Meta: Interoperability as a Coordination Token
Tokens like Polkadot's DOT and Cosmos's ATOM are not just bridge tokens; they are the economic glue for entire ecosystems. Their value accrues from securing the entire interchain, not a single route.\n- Shared Security: Validators secure hundreds of chains, amortizing cost.\n- Sovereign Coordination: The token governs upgrades and economic policies for the entire network of chains.
100s
Chains Secured
~$3B
Securing DOT
04
The Future: Token as a Universal Gas Abstraction Layer
The endgame is a bridge token that pays for gas across any chain, abstracting away native tokens. This is the vision behind Axelar's GMP and Circle's CCTP.\n- Single Token for Fees: Users pay with the bridge token; the protocol handles multi-chain gas.\n- Developer UX: DApps can offer gasless transactions, subsidized by the protocol's treasury and fee model.
1
Token for All Gas
~500ms
GMP Latency
counter-argument
THE INCENTIVE MISMATCH
Counter-Argument: Isn't Governance Valuable?
Governance tokens for bridges are a flawed incentive model that misaligns value capture with core utility.
Governance is a cost center. Protocol upgrades are infrequent and security-critical, making broad tokenholder governance inefficient and risky. The real value is in securing economic activity, not voting on technical parameters.
Value accrual is misaligned. A token like Stargate's STG or Across's ACX captures fees from cross-chain swaps, but governance rights do not scale with this revenue. The token is a fee-bearing security wrapper, not a governance tool.
Compare to L1s and L2s. The governance of Arbitrum or Optimism manages a sovereign execution environment and a treasury. A bridge is a financial messaging service; its 'governance' should be automated by its security model, not a token vote.
Evidence: The Wormhole W airdrop allocated 17% to community and launch incentives, framing the token as a 'community membership' tool. This is a marketing wrapper for a token whose primary function is to stake and secure the protocol's economic throughput.
protocol-spotlight
THE VALUE ACCRUAL ENGINE
Evolving Models: Beyond Pure Staking
Modern bridge tokens are evolving into core economic primitives, capturing value from cross-chain activity and securing networks through mechanisms far more sophisticated than simple governance voting.
01
The Problem: Fee Abstraction & Slippage
Users hate managing dozens of gas tokens and suffer from poor liquidity on destination chains. Pure governance tokens do nothing to solve this.
- Solution: Tokens like $STG (Stargate) and $AXL (Axelar) enable gas abstraction and fund liquidity pools.
- Result: Users pay with any token; protocols capture swap fees and message fees from billions in volume.
$10B+
Cumulative Volume
0.06%
Typical Fee Take
02
The Solution: Intent-Based Execution as a Service
The future is declarative, not procedural. Bridges are becoming intent solvers, and their tokens back the solvers' bonds.
- Mechanism: Protocols like Across and UniswapX use solver networks. Tokens like $ACX are staked to guarantee execution and earn rewards.
- Value Capture: Token stakers earn fees from solving cross-chain intents, not from passive validation.
~2s
Optimistic Latency
>90%
Solver Uptime SLAs
03
The Evolution: Shared Security Hub
Why secure just one chain? Bridge validators are becoming a generalized security layer for the modular stack.
- Model: Tokens like $TIA (Celestia) and bridge tokens are positioned to secure Actively Validated Services (AVSs) on EigenLayer.
- Yield Source: Stakers earn dual rewards: native bridge fees + AVS rewards from rollups and oracles.
10-15%
Combined APR
50+
Potential AVSs
04
The Arbitrage: MEV Capture & Order Flow
Cross-chain latency creates arbitrage. Bridge operators see everything first.
- Opportunity: Protocols like LayerZero and Wormhole enable secure cross-chain messaging. Their future tokens could be staked to run order flow auctions.
- Value: Stakers earn a share of cross-chain MEV and arbitrage profits, a revenue stream orders of magnitude larger than basic transfer fees.
$100M+
Annual MEV Opportunity
<1s
Arb Window
future-outlook
THE VALUE ACCRUAL
Future Outlook: The Inevitable Pivot to Work
Bridge tokens must transition from governance placeholders to instruments that capture economic value through direct protocol utility.
Governance is not a business model. Tokens like $STG and $AXL currently trade on governance rights, which fails to capture the billions in fees their protocols generate. This misalignment is unsustainable for long-term security and valuation.
The future is fee capture. Successful bridges will embed their token into the core transaction flow. This means requiring $AXL for security staking on Axelar or using $STG as the gas token for cross-chain messages, directly linking token demand to network usage.
Proof-of-Work is the precedent. The Ethereum Merge demonstrated that a token's fundamental value derives from the work it performs. Bridge tokens must follow this model, where holding the token represents a claim on the protocol's economic output, not just voting power.
Evidence: LayerZero's $ZRO airdrop required users to pay a fee in ETH/USDC, explicitly avoiding a pure governance model. This sets the precedent for future bridge tokens to be work-based assets from launch.
takeaways
BEYOND VOTING
Key Takeaways for Builders and Investors
Bridge tokens are evolving from governance placeholders into core economic primitives that secure networks and capture value.
01
The Problem: Governance is a Weak Value Accrual Model
Voting rights alone don't justify a multi-billion dollar valuation. Tokens like early $MULTI or $HOP struggled with this, leading to price decay and voter apathy.\n- Low Sticky Yield: Governance rewards are insufficient to attract serious capital.\n- Misaligned Incentives: Voters lack skin-in-the-game for security outcomes.
<5%
Voter Participation
High
Sell Pressure
02
The Solution: Staking-as-Security (e.g., Axelar, Wormhole)
Modern bridges use the token as a staked bond to slash validators for malicious behavior, directly tying token value to network security.\n- Economic Security: A $1B+ staked token creates a quantifiable cost to attack.\n- Real Yield: Stakers earn fees from cross-chain message passing, not just inflation.
$1B+
Staked TVL
5-10%
Real Yield
03
The Problem: Liquidity Fragmentation and Slippage
Users face high costs moving assets. Native mint/burn bridges (like Polygon PoS) create wrapped assets that dilute liquidity and introduce bridging risks.\n- Capital Inefficiency: Liquidity is locked in bridge contracts.\n- Slippage: Large transfers on AMM-based routes are expensive.
15-30 bps
Typical Fee
High
Slippage
04
The Solution: Token-as-Liquidity Backstop (e.g., Across, Stargate)
The bridge token acts as a capital reserve and backstop layer, enabling instant, guaranteed liquidity from professional LPs.\n- Capital Efficiency: $10M in tokens can secure $100M+ in transfer volume via insurance.\n- Better UX: Users get instant confirmation with no slippage.
10x
Leverage Ratio
<2s
Confirmation
05
The Problem: Interoperability is a Commodity
Basic token bridging is a race to the bottom on fees. Protocols like LayerZero and CCIP abstract the bridge away, making the underlying token irrelevant if it has no utility.\n- Low Margins: Pure message passing has thin fees.\n- No Moat: Technology is easily forked.
~$0.10
Avg Fee
Many
Competitors
06
The Solution: Token-as-Universal Gas (e.g., $AXL, upcoming $W)
The bridge token becomes the payment unit for any cross-chain service—gas, data queries, compute—creating a universal settlement layer.\n- Demand Capture: Every interchain action burns or fees the token.\n- Network Effects: Becomes the standard for developers building omnichain dApps.
1000+
Chains Served
Deflationary
Token Model
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