Air Freshener for Your Shit(Coins)
A quick whiff of your favorite ponzinomics
Your favorite project’s token sucks.
Most tokens are launched for exit liquidity and transfer of legal liability rather than decentralization. Heck, decentralization probably isn’t even a consideration when launching tokens. You can tell because these tokens are completely useless. All you can do with them is review customer service complaints in the project forums and stake them for more useless customer service tokens. Muh responsibility.
Then, in defense of projects, if the market will buy anything you sell, then why tf not launch a token? You can blame VCs, you can blame greedy teams, you can blame dumb degens, you can blame the Fed, do what whatever you want if it eases your soul. At the end of the day it is a cycle of incentives that is broken and there really is no one group to blame if everyone is fueling the cycle. Just assume that everyone is out to pump their bags. The cycle should reset itself in the bear market to some degree as much of the excess gets flushed.
Over time, market participants have become sharper and realized that most tokens are just useless governance tokens. So projects have to up their game in order to sell their useless
products tokens. You can’t launch with just a governance token anymore. You need *tokenomics* and various air fresheners to mask how bad your dogshit token reeks. In most cases it will get flushed to zero, thankfully. And to be fair, a lot of these projects have great, innovative products. But that doesn’t mean their tokens are great.
Some tokenomic designs we can learn from:
Every shitcoin that has staking. Staking is just the shitcoin paying you to hold the shitcoin and temporarily reduce selling pressure. The APY means nothing since it’s priced in the shitcoin, which is worth shit. Because it makes the asset more illiquid by locking away supply it also makes it more reflexive in both directions. We saw this especially pronounced in the Cosmos ecosystem with Osmosis and Juno. Once demand and price start collapsing then massive unstaking lead to massive retraces. Staking is a double edged sword.
Every shitcoin that has liquidity mining. Paying people to use your product is great for early traction but you also end up conditioning them to only use them for the rewards. Crypto natives are gold diggers. Once you run out of money no one wants you anymore. 99%+ of protocols pay out more in LM rewards than they make in revenue. These tokens are designed for only down because of the consistent sell pressure. This is why DeFi token charts look like they have a date with zero.
Solana eco with low float, heavy VC allocations, and early perps. Enabled insiders to just lock in gains with perp hedging at insane FDVs due to low float, which then dumped tokens to the gulag.
Sushiswap fee distribution to token holders. Decreased resources/runway for team, which already had minimal protocol ownership to begin with. Poor incentives for teams to focus on the project.
OHM bonding and insane APY’s created a reflexive monster that led to excessive speculation and inflated valuation multiples above treasury value and subsequent crash due to massive token inflation from the high APY’s. (-3,-3).
Terra stablecoin burn/mint mechanic and Anchor reserve. There’s a million articles and substacks on this already so go read those for more nuance. Basically, you can only pay people to use your stablecoin for a limited amount of time, and if it can’t catch traction before money runs out then it’s probably cooked.
Axies SLP model. Infinite supply breeding coins don’t work if there isn’t new capital inflow into the game to support the prices. Designed to go only down as mercenary guilds pour in and farm it to zero.
Airdrop coins. Quick pump at beginning because of broad distribution and high attention but then bleed to zero because free money is free money and everyone will take it off the table after a certain point leading to sell pressure and an ugly chart.
Paraswap anti-sybil attack. Turns out saying f you to your users isn’t a good marketing strategy. Excessive sybil filtering has the side effect of alienating users and narrowing distribution too much. Token distribution is you best marketing tool, you want people talking about your shitcoin and if you cut out everyone then no one will talk about it.
Solidly ve(3,3) and token distribution. The game theory of the SOLID token distribution led to mercenary projects launching with insane APY’s to draw in as much TVL as possible before the snapshot in order to garner the most SOLID tokens. We never got to see the ve(3,3) mechanic play out fully because Andre quit, but it likely would’ve been a similar run like OHM with extremely reflexive parabolic run before buying interest ran out and high APY’s nuked price.
Chainlink. Who knew team publicly dumping token would be bad for token price? Alas, someone has to fund the public good, so shoutout LINK marines for continuing to buy the dip, we salute you.
Not enough nuance in any of these token analyses, each could use its own substack. Yes I’m shitting on the majority of the token models in the space without offering a solution, deal with it. I’m definitely forgetting a few too. Either way, hopefully it’s a good overview.
There are still hugely successful tokens despite using one or more of these models and there are other improved token models out there as well which deserve their own deep dive. But overall, token incentives are broken and as long as tokens continue to dilute their supply without improving profitability their destiny is ultimately zero. And if your protocol needs a token to function it’s probably meant to die anyways. Tokens are meant to augment the user incentives and experience, not be the entire experience.
We are still in the early stages of token design and experimentation, and without these examples the space wouldn’t be advancing. There are a lot more tokens to sacrifice to zero, a lot more failures to make shitpost about, and a lot more to learn. The crypto industry moves on. And one last thing:
Not everything needs a token. Yet.