Single-Token Model

The protocol's security and economic value are anchored to a single asset. This creates a direct alignment between the token's market capitalization and the network's overall health, as staking, fees, and governance power are all derived from the same source. Examples include Ethereum's ETH for consensus and gas, and Solana's SOL for staking and transaction fees.

Reduces complexity for end-users and builders by requiring interaction with only one primary asset. Users don't need to manage multiple tokens for gas fees, staking, or governance participation. This lowers the barrier to entry and reduces friction in the protocol's user journey, as seen in networks like Avalanche (AVAX) and BNB Chain (BNB).

All protocol-generated value—such as transaction fees, MEV (Maximal Extractable Value), or staking rewards—is directed to a single token and its holders. This creates a clear and direct value capture mechanism, as the token's utility demand directly supports its price. The burn mechanisms in Ethereum's EIP-1559 or the fee distribution in Cosmos (ATOM) are key examples.

Governance rights are exclusively held by stakeholders of the native token, ensuring that voters have skin in the game proportional to their economic stake. This alignment mitigates conflicts of interest that can arise in multi-token models where governance power might be separated from economic interest, as practiced by Uniswap (UNI) and Compound (COMP) governance.

Unlike single-token designs, multi-token models separate functions: one token for governance (e.g., MakerDAO's MKR), another for utility/staking (e.g., Lido's stETH), and potentially a third for fee sharing. This can allow for specialized tokenomics but adds complexity and can fragment liquidity and community focus.

Concentrates trading volume and liquidity into a single liquidity pool, typically improving market depth and reducing slippage. This strong liquidity base becomes a foundational network effect, attracting more developers and users because the primary asset is deeply integrated into the ecosystem's DeFi primitives and financial infrastructure.

Users interact with a single asset for all protocol activities, reducing complexity and cognitive load. This eliminates the need to manage multiple token balances for staking, voting, and fee payments, lowering the barrier to entry for new participants.

All economic activity and value accrual are concentrated into one token, creating a powerful flywheel effect. As utility (e.g., paying gas fees) and security (e.g., staking) demand increases, it directly enhances the token's value and security, which in turn attracts more users and developers.

The token's value is directly tied to the success and usage of the underlying protocol. Revenue from transaction fees, service payments, or other mechanisms typically flows to token holders via staking rewards or buy-and-burn mechanisms, creating a transparent economic model.

Capital is not fragmented across multiple tokens, leading to deeper liquidity pools on decentralized exchanges (DEXs). This improves price stability, reduces slippage for traders, and makes the token more attractive for integration by other DeFi protocols as collateral or a liquidity pair.

Stakers securing the network (validators/delegators) are inherently aligned with governance participants, as they are the same token holders. This reduces governance attack vectors and ensures those with skin in the game are making long-term decisions for the protocol's health.

While not eliminating regulatory risk, a single functional token can present a clearer case as a utility token rather than a security, especially if its primary use is for accessing a network service (e.g., paying for computation) rather than purely speculative investment.

A single token consolidates all governance power, creating a single point of failure. This can lead to voter apathy, low participation rates, and increased risk of hostile governance takeovers if a malicious actor accumulates a majority stake. Unlike dual-token systems that can separate utility from governance, all value and control are tied to one asset.

The token must simultaneously serve as a governance instrument, fee capture mechanism, and speculative asset. This can create conflicting incentives:

• High volatility from speculation can destabilize protocol utility.
• Fee revenue may be insufficient to support the token's market cap, leading to sell pressure.
• Users may be disincentivized to hold the token for utility if its primary use is governance.

Staking a single token for security (e.g., in Proof-of-Stake sidechains or shared security models) locks up capital that could otherwise be used for yield farming or providing liquidity. This creates a high opportunity cost for token holders. In contrast, systems with a separate staking token can isolate security deposits from the protocol's economic activity.

Combining utility, governance, and profit-sharing into one token increases the likelihood it will be classified as a security by regulators like the SEC. The Howey Test is more likely to be satisfied when a token offers a potential profit derived from the efforts of others (via fee sharing) and has a common enterprise (the protocol). This exposes the project to significant legal risk.

Disagreements within the community can lead to contentious hard forks. With a single token, forking the protocol also requires forking the token's economic and governance model, which is complex and can lead to value dilution across both chains. This contrasts with modular systems where components can be upgraded or forked independently.

A high-value, multi-purpose token is a prime target for Maximal Extractable Value (MEV) strategies and market manipulation. Attackers can profit by:

• Front-running governance proposals that will affect token price.
• Manipulating oracle prices if the token is used as collateral.
• Executing flash loan attacks to temporarily gain voting majority for malicious proposals.

The primary advantage is simplicity and liquidity concentration. Users and developers interact with a single asset, reducing cognitive overhead and creating a deep, unified liquidity pool. This can enhance capital efficiency and reduce friction for activities like staking, fee payment, and collateralization.

Token holders' economic and governance interests are inherently aligned, as the same asset used for voting also derives value from protocol usage. This can strengthen the fee-sharing mechanism and voter participation. However, it can also lead to conflicts, such as tension between short-term speculators and long-term governance participants.

In Proof-of-Stake networks, the single token typically serves as the staking asset for network security. This creates a direct link between the token's market value and the cost to attack the network (the staking economic security). The model requires careful design of inflation schedules, slashing conditions, and delegation mechanics to balance security with token supply dynamics.

The token must serve multiple, sometimes competing, economic functions. Protocol designers must manage:

• Inflation: For staking rewards and ecosystem funding.
• Burn Mechanisms: To counter inflation or capture value.
• Treasury Management: For grants and development. Balancing these without causing excessive dilution or volatility is a key challenge.

Multi-token models (e.g., MakerDAO's MKR & DAI) separate functions: a stable utility token (DAI) and a volatile governance/recapitalization token (MKR). This specialization can isolate risk and tailor tokenomics but fragments liquidity and complicates user experience. The choice depends on the protocol's need for functional separation versus network effects.