For years, the crypto-token market has focused on quick returns, with exciting ideas introduced under bold claims and token prices skyrocketing, only for everything to eventually crash.
In every instance, early investors had sold out while the communities that were invested in the project saw their money evaporate, over and over again. There are so many examples of this type of hype-and-bust model that it is safe to assume that all new token launches will be met with skepticism.
Something is different now, however. The few projects that continue to be successful after the initial hype phase have one thing in common: they have created sustainable economic models that encourage participants to remain for the long haul rather than exit quickly.
The transition from extractive tokenomic models to sustainable value-creation models marks an important shift in how we view and interact with digital assets and the communities that form around them.
From Speculation to Participation
Token models have long been centered around speculation. Buy a token at inception, bet it will increase in value, and sell before the inevitable decline.
Tokens are treated as little more than lotto tickets. This model has ultimately produced no lasting value for the projects involved, nor provided any benefit to the communities left behind by the burn of these projects’ tokens.
The new model is different. Projects today are creating tokens as participation tools, not speculative vehicles. When you hold a token, you don’t bet on a price movement, but you instead gain access to a community, voting power, or a utility within an ecosystem.
$MAXI exemplifies this shift, where the community challenges, tipping mechanisms, and on-chain applications provide Maxi Doge holders with many reasons to remain invested in the project after the price has moved past their initial purchase price.
Token holders can interact directly with the project, influence its development, and participate in all aspects of it.
This participation-first approach aligns an investor’s interests with the project’s overall performance. When a project’s long-term performance incentivizes investors, they become stakeholders rather than mere speculators, which motivates them to assist in the project’s development through idea generation, tool-building, and advocacy, driven by their vested interest in its success rather than by compensation as marketing representatives.
The Mechanics of Sustainable Token Design
Having good intentions isn’t enough when you’re creating a token-based economy that will last. People have been trading token-like objects for hundreds of years, so you must build mechanisms to support natural behaviors that benefit the overall ecosystem. The best-performing projects use a variety of strategic approaches to achieve this.
The first approach is to use vesting schedules to prevent whales (early adopters) from selling all their tokens immediately upon acquisition.
As time goes on, when team members and early investors cannot sell their tokens, they will have aligned incentives with the community to focus on the project’s performance in the next 2-3 years.
The second approach is to provide utility within the model over an extended period. Tokens should have value beyond being a speculative asset.
For example, the token can grant governance votes, grant users access to certain product features, or reward users for contributing to the project. A utility provides people with a reason to hold and use tokens rather than flip them.
The third approach is to create deflationary or balanced supply mechanisms for your project. Unlimited token creation will dilute existing holders and destroy trust and confidence in your project.
The best models either “burn” tokens generated by utilization or create new tokens based on the actual increase in the ecosystem’s size.
Value Creation vs. Value Extraction
Many projects are confused about how to create real value, conflating the activities they undertake with the act of making.
For example, a crypto project may generate a large amount of trading volume (i.e., $millions). Still, if this is based on speculation and the token provides no underlying utility, then the project’s value is zero. In other words, you are simply moving money around in circles between different traders.
True value creation occurs when the token builds an ecosystem that produces something people want to use.
This could include: allowing users to vote on important decisions about a functional protocol, providing access to exclusive tools and/or content, offering incentives to contributors who produce work that others can use, etc.
Here, the token serves to facilitate coordination among individuals working toward common goals and to share in the results of their efforts.
When projects extract value (i.e., take money from their community) without providing any return to the community, they do not survive.
Community members have seen enough projects go down this path. They are well aware of the warning signs of such behavior, including teams remaining anonymous, a lack of a clear roadmap, tokenomics that give team members an unfair advantage, and excessive marketing without substance.
Conclusion
Token economics is maturing. The token economy of the future belongs to the projects that can build long-term value versus extract it quickly, and as communities continue to grow in sophistication, and regulators develop a better understanding of how these projects work, the tokens that survive will be the ones that were built for participation, utility, and aligned incentives from the beginning. There may still be some pump-and-dumps, but their days are numbered.
