Where a token’s value comes from, and how you see whether it gets there

Why is bitcoin the simplest case to read?

That’s the whole comparison with ordinary currencies. A central bank can decide to print, and a meeting makes that call: that’s discretionary monetary policy. Bitcoin runs its monetary policy on autopilot, and no meeting can change it. Issuance went from 50 bitcoin a block in 2009 to 3.125 in 2024, and it will keep halving. Calling it digital gold is, for once, a description of the rule rather than a slogan.

Two warnings, though, and the first is a big one. Bitcoin holds up as a store of value as long as the market treats it as one. Like gold, it rests on an agreement about what something is worth, and agreements can come apart. The second is practical. It swings far more than physical gold, but it sells at any moment and in any amount, and it divides down to the eighth decimal. It also costs nothing to keep in a vault, because there is no vault.

What does it mean for a token to capture value?

That’s what separates a token from a share. A share gives you a right to the profits by law, and if the company makes money that right is worth something even when nobody exercises it. A token gives you what the protocol’s code gives it and nothing more. If the code provides for no transfer of value, there’s no court to ask.

There are four possible roads: burning the tokens used to pay, paying whoever stakes the token, handing out a share of the revenue, or granting nothing but a vote. The next sections take them one at a time. The first three move value. The fourth, on its own, moves only the hope that one of the other three shows up one day.

How does burning the fees work?

The big example is Ethereum after its 2021 change, which introduced the base fee: the mandatory part of every fee, and the part that gets burned. When the network is busy, Ethereum burns more than it issues and the supply in circulation falls. When it’s quiet, the supply grows again. That way demand for the network and the scarcity of the token are tied together, without anyone having to decide it.

The warning sign here is theater. A project that announces it’s burning tokens while it keeps issuing them with no cap is doing a subtraction with two wrong numbers: burn a hundred and issue a thousand, and the scarcity exists only in the press release. The figure to watch is always the net one, issued minus burned, and you watch it over months, not on the day of the announcement.

Where do the staking rewards come from?

A staking reward that comes from users’ fees rises and falls with how much the protocol is used and dilutes nobody. One that comes from new issuance pays whoever stakes by diluting everyone else, and holds only while the price rises.

If it comes from fees, the loop is a healthy one: the more the protocol is used, the more fees come in and the more there is to hand out. If use falls, the pay falls too. That’s uncomfortable, and it’s exactly the sign that it’s real. If it comes from new issuance instead, everyone else gets diluted to pay the stakers. That works while the price rises, and stops working precisely when you’d need it.

Ethereum, after the move to proof of stake, sits in an interesting middle ground. It issues very little, around half a percentage point a year, and burns the base fees at the same time. The result is a system close to break-even, which turns negative in periods of heavy use. The validators’ yield therefore comes largely from the people using the network, more than from the people holding it.

Is revenue sharing a dividend?

GMX, where perpetuals trade on Arbitrum, passes 30% of its trading fees to whoever stakes its token. The more volume goes through, the more fees come in and the more reaches you, and you can follow the link onchain, fee by fee. Beyond the transparency there’s an advantage that matters more: alignment. Whoever holds the token wants the protocol used, because that’s where the money comes from, and for once users and holders pull the same way.

Here too the warning sign is easy to check: a protocol that promises to share its revenue but has no users is sharing zero, to many decimal places. Before you look at the share, look at the volume, and look at it over a long stretch, because volume bought with rewards leaves along with the rewards.

Is a voting right, on its own, worth anything?

Put bluntly: governance tokens are democratic in theory, and in practice whoever holds the most wins, which makes it a vote weighted by wealth.

In theory, controlling a protocol that moves billions is worth something, and that value should end up in the token’s price. In practice, if the vote is tied to no flow of money, you’re buying the chance that one day the vote decides to give you one. That’s a wait. And over those years UNI’s price did worse than the tokens that already had a road written in.

Then the wait ended: in November 2025 the governance turned the fee switch on, and from there part of the fees started coming back to the token. It confirms the rule: the value arrived when someone wrote the mechanism, after years in which it had only been promised.

What are the signs that the tokenomics are broken?

The five signs of broken tokenomics: endless issuance, which is continuous dilution; three-figure yields, which are paid by printing; invented utility, which is forced demand; unlocks close by, which are sales coming; capital inflated by rewards, which is adoption on rent.

The second is the three-figure yield, which almost always means they’re paying you by printing, and it holds only while new people keep arriving. The third is invented utility: the token you “need to use the platform” when the platform would work perfectly well with ether or a stablecoin. It’s an internal currency made compulsory to create demand that isn’t there.

The fourth is in the calendar, and you read all of it: if millions of tokens held by the team and the investors unlock three months from now, that date matters more than any chart. The fifth is capital inflated by rewards, which looks like adoption and is really rented. As soon as the rewards come down, that capital moves elsewhere the same week.

Put bluntly: a token that exists only to use the site of whoever issued it is Netflix making you buy NetflixCoin to watch the shows.

How do you judge a token, in practice?

Two: follow that value’s road all the way to the token. Is it burned, handed out, paid to whoever stakes, or does it never arrive? Three: check that it holds without incentives. Take the rewards away and ask whether anyone would still use that protocol. If the answer is no, you’re looking at a promotion, not an economic activity.

Four: look at the supply numbers: how much is issued, how much is burned, who already holds how much and when they can sell. Five: ask whether the product solves a problem somebody really has. Five out of five is rare, four out of five is worth discussing, and three out of five is a no dressed up as a maybe.

Where are the tokenomics that work?

The four families of tokenomics that hold: yield from real fees, recognizable because it follows the volume; tokens burned by use, where scarcity grows with no announcements; declared revenue sharing, with a fixed and verifiable share; governance with locked tokens, where whoever votes lives with the decision.

The second is tokens that burn when the protocol is used, so if use grows, scarcity grows by itself, with no announcements. The third is declared revenue sharing: a fixed share of the revenue to whoever holds the token, written down and verifiable. It’s so simple that it’s hard to fake for exactly that reason.

The fourth is governance with something at stake: to vote you have to lock up your tokens, so whoever decides also lives with the consequences. It isn’t value capture yet, but it’s the difference between a vote and an opinion poll. Everything outside these four is the same old thing under a new name: unsustainable yields, uncapped issuance, promises with no users.

What is left to ask, every time?

The market is full of projects with excellent marketing and badly built tokenomics. Telling them apart takes no talent, just half an hour with the protocol’s public data. Whoever does it buys a mechanism. Whoever doesn’t buys the hope that someone will buy after them, which is a different trade, and a far more crowded one.

The uncomfortable part is that this check rules out almost everything. Most tokens don’t get past the first step, and in those cases the right answer is not to buy. It will feel like missing out, but the money you don’t put there stays yours.