Thread by @amrali0fx

#Week_1: #Tokenomics, Day 3: Tokenomics 103: Utility by @nateliason

"Even if a token has a great supply model, it still needs
a good reason to exist and for people to hold it."

Utility is a subsection of the demand side of the tokenomics equation.
So let’s dig into utility:

2- We’re going to cover:
1-Spending vs Holding
2-Cash flows
3-Governance
4-Collateral

Spending vs Holding:
The first question we have to ask when looking at a token is: are you supposed to hold this token as an investment? or spend it?

For example, let’s look at @chainlink.

3- Chainlink is an important service in crypto. It is core infrastructure for keeping our various DAPPS running.

So buying LINK should be a good investment, right? Check out the chart against ETH: if you bought LINK after July 19 and held it, you’ve lost 50-90% against ETH

4-at first, $LINK seemed like a great investment. capped supply, valuable infrastructure, all good. But the problem is the utility. LINK is mainly used to pay for Chainlink services, so it’s a spending token. Not an investing token.
Chainlink will release staking revenue sharing-

5- this year, but for now the only use is to spend it,

Another issue with the spending tokens, the team is restricted from letting the price go parabolic, they might end up with chainlink services being more expensive, people will look for other platforms

6-The issue with LINK as an investment right now is:
-The only use is to be spent
-Chainlink doesn’t want its services getting crazy expensive
-No cash flows or other utilities holding LINK

Chainlink is a very important project in the space. But-

7- that doesn’t mean its token is necessarily a good investment!
Another good example of this is in-game tokens for P2E games, like $SLP for @AxieInfinity, or $AURUM for @crypto_raiders those tokens are meant to be spent on stuff not being held, no cashflow, not much utility

8- Cash Flow: one of the most compelling form of utility that makes a token worth holding is cash flows.
Fee sharing is an example, if you buy $sushi you can just hold it, investing in the long term value of @SushiSwap. Or, you can stake it to earn a revenue sharing income: 👇

9- Another cash flow token is $cvx the current APR on locked Convex is 44%, if you look at the chart against ETH, it has held much better, Even if you bought the top of CVX in January, three months of yield (about 10% ROI) makes up for a lot of the drop between then and now.

10- The last thing you want to make sure of is how the revenue is being generated. If staking the token is just earning you more of that same token coming from staking reserve, so you are not earning anything, You want to look for projects where cash flows based on actual revenue

11- Governance: If you love a protocol and you want to be involved in shaping its decisions, then here is another utility, So if your goal is participating in a community you truely believe in, governance is a good token's utility. but it’s rarely enough reason on its own.

12- Collateral: If you’re buying into a project and you want to hold it long term, the last thing you want to have to do is sell that token if you suddenly need liquidity. So one question you might ask is whether you can use this token as collateral to borrow against or not,

13- The xSUSHI above as an example, since you can deposit xSUSHI on AAVE to borrow against. It doesn’t pay much interest, but you’re still earning 10% while it’s deposited, and you can borrow up to 50% of the value in any other asset on AAVE like $ETH or $USDC

14- My main take: projects should have solid revenue sharing way for their tokens, we need web3 principals, we don't want to see a successful protocol with a bad price action token(this exists)

As usual, thanks to @nateliason's contributions, full article:every.to/almanack/token…