Why Your Token's Value Should Be a Function of Work Done, Not Promises Made

Traditional PoS chains reward capital at rest, creating extractive rent-seeking and misaligned incentives. The token's value is a function of promises, not utility.

• Value Leak: Tokenholders extract fees without contributing work.
• Security vs. Utility: High staking yields can signal inflation, not network growth.
• Capital Inefficiency: Billions in TVL sits idle, not powering applications.

Turns idle staked ETH into productive, cryptoeconomic security for new services (AVSs). Value accrues to restakers who perform verifiable work for rollups, oracles, and bridges.

• Work Verified: Slashing ensures operators perform duties for protocols like Altlayer and Espresso.
• Capital Efficiency: $18B+ TVL secures multiple services simultaneously.
• Fee Capture: Restakers earn fees from the services they secure, not just inflation.

The LPT token is a pure work token. Orchestrators stake to perform video transcoding work; fees are paid in ETH. Token value is a direct function of network usage.

• Work-for-Pay: Fees flow to stakers who actually transcode, not passive holders.
• Provable Output: Fraud proofs and slashing guarantee correct work.
• Real Demand: Token utility scales with video streaming hours, not speculation.

Compare MakerDAO's MKR (governance) to Chainlink's LINK (work). LINK's value is backed by oracle query demand and node staking for work. Governance tokens often devolve into political vehicles.

• Fee-Driven Accrual: Work tokens capture fees from service consumption (e.g., Arweave, Render).
• Anti-Fragile: Demand for work increases during bear markets as real-world usage persists.
• Clear Metric: Value is modeled on network revenue, not voting power.

Governance tokens with no cashflow mandate become pure speculation tools. Voters are incentivized to extract maximum short-term value, leading to treasury drain and protocol capture.

• Ponzi Dynamics: New buyer inflows are the only source of 'yield'.
• Real-World Example: Many DAO treasuries have been depleted funding vanity projects or marketing, not core protocol work.
• The Antidote: Token value must be backed by a verifiable, on-chain revenue stream from actual usage, not governance promises.

Emitting tokens to rent TVL creates a hyper-inflationary feedback loop. When emissions stop, liquidity evaporates, revealing the protocol had no organic demand.

• Temporary Alignment: Liquidity providers are mercenaries, not stakeholders.
• Capital Efficiency Collapse: Protocols like SushiSwap and many DeFi 2.0 projects saw >95% TVL drop post-emissions.
• The Antidote: Reward work (e.g., fulfilling intents, providing data) that generates real fees. Token emissions should be a function of fees earned, not promises of future fees.

When token value is based on off-chain promises or subjective metrics, it becomes a target for manipulation. Attackers can spoof 'work' or 'usage' to drain value.

• Attack Vector: Fake transactions, sybil-attacked votes, or corrupted data oracles (like Chainlink) can falsely inflate the perceived work done.
• Systemic Risk: See the $100M+ Mango Markets exploit where price oracle manipulation led to insolvency.
• The Antidote: Work must be cryptographically verifiable on-chain with strong economic finality. Think verifiable compute proofs or atomic cross-chain transactions.

Protocols funded by token sales operate on a finite financial runway. When the bear market hits and speculative demand dries up, development halts.

• Burn Rate Crisis: Teams like Terraform Labs and Alameda Research were effectively using token treasury as a central bank.
• Real Consequence: Core protocol development and security audits get defunded, leading to technical debt and exploits.
• The Antidote: A work-based token model creates a perpetual funding engine. The protocol's ability to function and earn fees is decoupled from market sentiment.

Tokens whose value is derived primarily from the efforts of a central team to build and promote a future ecosystem fit the Howey Test definition of a security.

• Existential Risk: SEC actions against projects like Ripple and Telegram's Gram token show the severe consequences.
• The Flaw: A promise of future profits from a common enterprise is the textbook security definition.
• The Antidote: A token that is a direct claim on a share of protocol fees generated by automated, decentralized work (like a bond) more closely resembles a commodity or utility, as argued by models like Helium and Livepeer.

A token with unstable, promise-based valuation is a poor primitive for DeFi Lego. It cannot be reliably used as collateral or in money markets without risking systemic contagion.

• Contagion Example: The collapse of LUNA wiped out ~$40B in value and crippled protocols like Anchor that were built on its false stability.
• Network Effect Limitation: Builders avoid integrating tokens that could implode and destroy their own product.
• The Antidote: A work-backed token with predictable, fee-based cashflows creates a stable primitive. It can be valued using traditional DCF models, making it a reliable building block.

Tokens launched on future utility create misaligned incentives and regulatory risk. Value is decoupled from the protocol's actual function, leading to speculative cycles and eventual collapse.

• Key Risk: Regulatory scrutiny as unregistered securities (e.g., SEC actions).
• Key Failure Mode: Price crashes when roadmap milestones are missed or delayed.
• Key Symptom: High FDV/TVL ratios with minimal protocol revenue.

Token value should be a direct function of fees paid to use the protocol. This creates a verifiable cash flow and aligns tokenholders with network growth.

• Key Mechanism: Direct fee burn (e.g., Ethereum post-EIP-1559) or revenue sharing.
• Key Metric: Protocol Revenue / Token Market Cap (P/S ratio).
• Key Benefit: Sustainable value accrual independent of hype cycles.

LDO's value is derived from governing the $30B+ staking infrastructure. The token's purpose is clear: secure the network and direct fees, not promise future features.

• Key Utility: Governance over fee parameters and node operator sets.
• Key Alignment: Tokenholders incentivized to maximize secure, reliable staking volume.
• Key Contrast: Unlike 'governance tokens' for dormant protocols, LDO governs an active, revenue-generating service.

UNI is the canonical example of a valuable protocol with a non-revenue capturing token. Its value is purely speculative and governance-based, creating constant pressure to 'switch on' fees.

• Key Problem: No direct value accrual despite $1T+ annual volume.
• Key Tension: Fee switch proposals highlight the community's desire for work-based valuation.
• Key Lesson: Even dominant protocols struggle without a designed work function.

Design token mechanics where demand is an unavoidable byproduct of protocol use. Burn mechanisms, staking for service access, or collateral requirements create intrinsic buy pressure.

• Key Tactic: Use token as the exclusive medium for protocol fees (e.g., GMX for perpetual swaps).
• Key Design: Sink-and-faucet models that balance emission with burn.
• Key Avoidance: Do not rely on treasury-funded liquidity incentives as a long-term model.

Due diligence must shift from roadmap promises to on-chain forensic accounting. Evaluate the direct, measurable work the token performs within its ecosystem.

• Key Question: What specific, on-chain action requires holding/spending this token?
• Key Analysis: Track fee revenue, burn rates, and utility-driven vs. incentive-driven volume.
• Key Red Flag: High inflation with no compensating sink or utility.