In Web3, the largest plays of the last 2 years have been in the DeFi & Metaverse niches. 2022 will see both these worlds come together in ways we only dreamed of as we navigate the Dark Forest of Ethereum, & beyond… However, In DeFi, we’ve become accustomed to the typical TradFi investing style of investing in what has the most eye-popping P.S/P.E ratio - paying out protocol profits to token holders, typically with no lockup, misaligning incentives between builders & holders. This is a fairly simple idea - The protocol that garners the most usage, making the most profit, distributing %’s of profit to its holders, should win. Right?

When trying to carry over what previously worked (I guess?) in Web2/TradFi, over to Web3/DeFi, we’re bound to see this happen - with the exception of Lido, which currently dominates the ETH 2.0 liquid staking niche. As well as CRV/CVX, which have kicked off the greatest shift in DeFi since its inception.

These protocols have in essence become their own L1’s, even though they were and still are pivotal to DeFi and Web 3 as a whole - they no longer fill the minds of Web3’s participants with wonder and innovation, it has all mostly become a bit more redundant if anything. Staking for protocol profits is exciting, but the way distributions are mostly structured make this a net negative for the protocol as token holders race for the exit, dumping their freshly “earned” fully unlocked tokens, and after that, there really is not much way of further engaging with the protocol besides using it for ones everyday needs. It’s why many don’t care to participate in governance, creating this shroud around governance tokens effectively rendering them “useless” to most of the community, but useful to whales which are largely comprised of funds & early investors, or just HNW’s.

After spending the better part of a year deep diving these 2 niches between hundreds of DeFi protocols, & metaverse/GameFi x NFT projects, I’ve come to the realization that the latter have a vastly distinct ability to garner, maintain and grow attention once they’ve bolstered their communities.

Creating & Building The Protocol Token Experience(s)

Protocol success aside

There have been 3 particular instances in which a protocol has either launched, or adjusted tokenomics to reflect token holder participation being rewarded for long term commitment:

1. GMX (esGMX) token model
2. Universe Protocol / xyzDAO $XYZ airdrop
3. Temple DAO’s Fire Ritual (First iteration of Metaverse meets DeFi)

There are certainly more out there, but these 3 are what come to mind at the moment, regardless of what actually happens on the backend. All have created memorable token designs/experiences that have resonated at some point, somehow with its previous or current users.

veTokens, in many ways have ushered in the new era of tokenomics.

NFT staking, in many ways have ushered in the new era of NFT utility.

Ever Expanding Utility ∞

Utility doesn’t mean there are no profit distributions. Utility, imo at least, means that the protocol has designed a way(s) for the token to be used outside of pure profit capture.

Example of ever expanding utility looks like (in no particular order):

1. Token needed to interact with the community and/or protocol
2. Token needed to mint, buy, sell NFT
3. Token must be locked in order to participate in governance
4. Distribution of profit (token) must be locked in order to continue receiving profit distribution.
5. Token bribes
6. Locks for certain amounts of time grant certain rewards such as but not limited to: whitelists, airdrops, increased governance power
7. Introducing token locks based on growth
8. ∞

IMO, garnering the massive swarm of attention that is CT (Crypto Twitter) is a feat to behold. The work has already started by the time this energy has been directed in the form of community building, and will require even more work to nurture it and to grow it, but if done properly can be one of the greatest outcomes of Web3 in the short, mid, and long term. The above mentioned is no recipe for success, but it could mark the beginning of a paradigm shift for protocols who have (sometimes unintentionally) wasted precious emissions, and placed the power of the protocol/DAO in the wrong hands through simply trying to acquire attention, which then went rogue. In many ways this is why I believe the NFT space has been a lot more successful in capturing, retaining and growing the attention of so many that are even outside of the native Web3 space, it is my belief that tokenizing NFT projects could spark the next bullish phase of this cycle. This is why, value capture in Web3 is a meme.

Profit isn’t something that should be outlawed. Protocols/DAOs should want their communities, and most loyal & active holders to profit. The problem exists when the community/holders profit at the expense of the protocol, and not with the protocol. In Web3, those that can most successfully align incentives between Protocols/DAOs and their communities will win. At least, that’s what my long term bet is. There has never been a better time to fully capitalize on the network = net worth mindset than in Web3. Tribalism still dominates not only Web3, but the world. Bridges between these tribes are meant to be built and used to their greatest capacity.

Disclaimooor

This is me channeling my thoughts in written pieces that may summarize current market thoughts but will never be to endorse any project, or method mentioned nor give any financial advice. Blz do not fomo into anything you may read from myself or any other anons. I also may or may not hold any of the tokens mentioned and/or contribute to any protocols/DAOs mentioned. Stay safe.

WAGMI,

0xOmnia