Why Your Token's Utility Is Being Eroded by Its Own Incentives

Protocols pay >30% APY to mercenary capital, creating a perpetual sell-side. This dilutes token holders and disincentivizes real usage, as seen in early Curve wars and SushiSwap emissions.

• Real Yield Divergence: Token inflation outpaces protocol fee generation.
• Voter Extortion: Governance is gamed to direct emissions, not improve the product.
• Permanent Dumping Pressure: Rewards are instantly sold for stablecoins.

Tokens like UNI and AAVE grant voting rights over $10B+ treasuries but no claim on fees. This divorces governance value from economic value, making tokens purely speculative.

• Fee Switch Paralysis: Community votes down revenue sharing to avoid being labeled a security.
• Voter Apathy: <5% turnout is common, leaving control to whales and delegates.
• Zero-Cashflow Asset: Token accrues governance overhead without underlying cash flow.

Users don't need the token to use the protocol. Uniswap works fine with ETH, and LayerZero's OFT standard lets apps mint native tokens directly. The utility token becomes a vestigial fundraising artifact.

• Gas Token Dominance: Users pay fees in the chain's native asset (ETH, SOL).
• Appchain Native Tokens: dApps on Polygon, Arbitrum issue their own token for gas and governance.
• Stablecoin Settlement: USDC is the default trading pair and store of value.

The SUSHI token was the original liquidity mining weapon, but its emissions became a permanent subsidy for mercenary capital. The protocol's core utility—deep liquidity—became a cost center funded by perpetual inflation.

• TVL dependency: Liquidity fled when $SUSHI emissions slowed, proving no organic demand.
• Governance capture: Tokenholders voted for inflationary policies to protect their yields, not protocol health.
• Result: ~90%+ drawdown from ATH as utility was decoupled from token value.

OHM's "protocol-owned liquidity" was a novel utility, but its bonding mechanism required selling OHM at a discount for assets. This created a death spiral where the primary token utility was to be sold to fund the treasury.

• Reflexive utility: The main use case for $OHM was to mint more $OHM via staking, creating circular demand.
• Treasury drain: Bonding sold tokens below backing, eroding the "floor price" narrative.
• Result: $OHM price fell >99% from peak as the incentive model consumed its own capital base.

The LOOKS token rewarded users for trading volume, directly incentivizing wash trading. The protocol's core utility—a marketplace—was gamed to the point where >95% of volume was fake.

• Adversarial utility: The token's primary function was to reward activity that destroyed real platform value.
• Zero-sum extraction: Miners extracted $ETH from the treasury via fake trades, leaving genuine users with a worthless token.
• Result: Real volume collapsed after emissions, proving the token created no sustainable utility.

Curve's veCRV model locked tokens to direct emissions, creating a utility of "governance yield." This spawned a meta-game where protocols like Convex bribe voters, diverting emissions from end-users to mercenary capital.

• Utility hijacking: Token governance power was leased to the highest bidder, not used for protocol alignment.
• Capital inefficiency: Billions in TVL were locked not for trading but for vote-farming, creating systemic fragility.
• Result: The core CRV token became a yield-bearing instrument for whales, eroding its utility for the broader ecosystem.