Tokens serve as blockchain-enabled, tradable representations of value: from utilities like currency, governance, and incentives to cultural assets: driving speculation, liquidity, and coordination in crypto ecosystems amid tensions between utility holders and price speculators.
Nov 25, 2025
At the very basic level, tokens are just representations, they denote access, value, or status, much like the plastic chips at Walmart arcades or admission passes at an amusement park.
The real innovation that blockchains brought to tokens is that they made them tradable, programmable, and verifiable by anyone. Once anything can be tokenized and then traded, whether that's a meme, weather outcome, football score, or ownership in a project, it has been successfully turned that thing into a financial asset.
So yes, the birthcard your aunt gave you 10 years ago is a token too, an emotional underlying value one. You can't trade it easily, but if someone (say, your grandkid) values it enough, you could, in theory, sell it. The blockchain just gives us the rails to do this at scale, for anything. Once you can pair that token with a liquid market (by pricing it against something else), you’ve turned subjective value into something exchangeable.
What are Tokens Really About?
Tokens are distribution primitives, they distribute financial value in programmable ways. Today, the dominant use-case is in blockchain protocol tokens: startups/protocols that issue tokens to represent a piece of their infrastructure, utility, or economics.
These tokens represent different forms of underlying utility, which are assigned market or financial value which is most often rooted in speculation, where speculation can have a large spectrum of what the speculation is about itself.
Speculation, in simple terms, means assigning financial value to a token based on the expected future success or updates of the protocol it belongs to. However, these expectations often don’t materialize as promised. In such cases, the token doesn’t represent real utility; rather it becomes part of a player-versus-player (PvP) market.
Here, participants trade based on unequal access to information. The most informed traders understand that the market is driven purely by speculation. They also understand how liquidity moves and are able to exit at the right time, which is usually at the peak. These kinds of tokens tend to be short-lived in terms of trading activity, though the tokens themselves stay permanently recorded on the blockchain.
The basic utility of a token is to represent financial value of some kind, which is decided depending on the use-cases(or more utility) of the token, let’s break this down into five (blurry but useful) categories of token use-cases:
Currency / Medium of Exchange
Governance / Ownership Rights
Coordination Mechanisms (Consensus & Incentives)
Profit-Sharing / Value Accrual
Cultural Tokens / Social Assets
Some tokens (ETH, SOL, BTC) span all five categories. They are currencies, governance units, incentive systems, and cultural icons.
Also, every token market has two kinds of participants:
One who values the utility (they want to use the protocol, vote, or support the cause)
The other who values the price (they want to flip it for gains).
Both are valid. Both create liquidity. But the tension between them shapes everything in token design.
Now that we understand this, let’s dive deeper into each use-case and how tokens are deployed in different layers of crypto ecosystems.
Tokens as Currency
In a blockchain-enabled world, tokens are service-specific currencies that power distinct micro-economies. Each token represents a narrow economic zone where activity is paid for in its native unit.
1. Ledger-Level Microservice Currency (Base Protocols)
Tokens at this layer are used to pay for core blockchain operations such as computation, storage, or message execution.
ETH (Ethereum): Used to pay “gas” fees for smart contract execution and transfers on Ethereum. This turns the Ethereum Virtual Machine into a pay-per-use compute platform.
SOL (Solana): Similar to ETH.
These tokens represent the metered cost of using blockchain infrastructure, similar to paying cloud providers in compute units.
2. Service-Specific Utility Tokens
These tokens exist within protocol-level microservices, where specialized functionality (e.g. file storage, video streaming) is run over the blockchain infrastructure.
FIL (Filecoin): Currency for decentralized storage. Clients pay miners to store files reliably. FIL ensures accountability and incentivizes uptime.
3. Application-Level Economy Tokens
These tokens fuel product-level ecosystems, where users earn and spend value inside tightly scoped environments.
AXS/SLP (Axie Infinity): Dual-token model used for breeding, upgrades, and player rewards. Gamifies labor and ownership.
Tokens in Governance
DAO tokens are the most common example of governance-enabled tokens that distribute rights to users of a protocol. These rights are often speculative, meaning many market participants price them based on the potential future influence or value they could represent.
1. Protocol & Economic Control: Governing the Code and Policy
Tokens allow communities to collectively steer both the technical roadmap and economic design of a protocol.
Protocol Upgrades: Token holders can vote to deploy new versions, activate hidden features, or approve architectural changes.
→ Example: AAVE holders approved the Aave V2 upgrade, which introduced gas optimizations and new collateral markets.
→ Uniswap’s UNI holders can activate the protocol’s “fee switch” to direct a portion of swap fees to the treasury.Risk and Fee Parameters: Governance also includes fine-tuning interest rates, collateral ratios, and reward emissions, effectively managing monetary policy.
→ MKR holders vote on DAI’s “stability fee” (borrow interest), and determine whether real-world assets like real estate loans can be used as collateral.
→ AAVE token holders adjust loan-to-value ratios, reserve factors, and liquidity mining incentives to calibrate risk and capital efficiency.
2. DAO Operations: Appointing Leaders and Delegates
While DAOs aim to be autonomous, they still need people to propose, review, and execute the collective will. Token holders appoint those people who actively shape the protocol’s day-to-day leadership through on-chain elections and budget votes.
Optimism DAO: Governed through its “Token House,” OP token holders vote on protocol missions, elect reviewers and council members, and control grant flows.
Optimism’s Mission system lets token holders fund specific outcomes (e.g. public goods tooling, onboarding efforts) by backing team proposals.Arbitrum DAO: ARB holders voted to create one of the largest DAO treasuries (~$200M) and to direct its use through elected delegates. Roles include a security council (for emergency upgrades), delegate onboarding teams, and incentive allocation committees.
A thing to consider here is even in protocols with real governance utility, most trading activity still comes from speculators. This is expected when tokens are used for governance, they tend to be held or locked, reducing their velocity and liquidity. While this might suggest less accurate pricing, low liquidity doesn’t mean inefficient markets.
Prices still move just with sharper swings and they reflect what’s possible to express at the margin. In this sense, speculation drives volume, while governance utility shapes holding behavior.
What looks like “price distortion” is often just a reflection of deeper asymmetries, not just in access to data, but in how participants value the system itself. This can be called interpretive asymmetry: different participants understand the same thing differently, so they trade on different beliefs.
This asymmetry is the reason behind concentrated token holding by different participants like a16z in UNI, which is why they are the main pushers behind DUNA.
Tokens as Coordination Mechanisms (Incentives and Consensus Systems)
In Ethereum and other general-purpose blockchains, every unit of computation is metered and priced in the native token (e.g. ETH). That makes profit or economic cost as the baseline coordination metric. From this baseline emerge higher-order mechanisms like consensus, staking, or bandwidth/resource networks, each of which uses tokens to coordinate human and machine labor at scale.
Consensus as Economic Incentive
Proof-of-Stake (PoS) systems use native tokens to secure the chain via economic alignment. Validators must stake their tokens (collateral) to earn rewards and secure the network. Honest participation earns income (via new token issuance or fees); dishonest behavior risks “slashing” their stake. This ties financial outcomes to protocol health.
Tokenized Infrastructure for Real-World Coordination
Beyond consensus, tokens also coordinate resources like storage, bandwidth, or compute. These systems pay contributors to grow the network and penalize bad actors. For Example:
→ Helium (HNT): pays users to host wireless hotspots, building a global IoT network.
→ Filecoin (FIL): rewards miners for offering decentralized storage.
→ Render (RNDR): pays GPU providers to render 3D content.
These “work tokens” act like protocol-native micro-economies. They use incentives to bootstrap infrastructure without central planning.
Coordination as the Foundation of Revenue Sharing
Blockchain Coordination Mechanisms use the revenue-sharing token models in their very core. After all, if a blockchain is a global coordination engine, then fee distribution and protocol profit-sharing are simply downstream expressions of that same logic. Revenue sharing is simply coordination in its most direct form the protocol rewarding contributors, stakers, or governors for participation.
Let’s see how these protocols distribute the economic value they capture and how that value flows through governance, speculation, and token mechanics.
Tokens for Value Accrual (Profit-Sharing, Buybacks, Burns)
Some crypto tokens are designed to capture economic value and return it to holders, aligning incentives between users and the protocol’s financial success. This is often achieved through fee sharing, token buybacks, or deflationary mechanisms that resemble dividends or stock repurchase programs.
Platform Revenue Sharing: Certain platforms distribute a portion of their earnings to token holders, creating a profit-sharing dynamic. For Example, Synthetix (SNX) distributes fees generated from synthetic asset trading to SNX stakers ,while SushiSwap’s xSUSHI model automates this: staking SUSHI gives users a proportional claim on platform fees.
Buyback-and-burn models: Rather than paying rewards directly, some projects use revenue to buy back tokens from the market and then burn them. This reduces circulating supply, which theoretically increases the value of remaining tokens. Binance pioneered this with its quarterly BNB burns, initially funded by 20% of profits, aiming to permanently destroy half the token supply.
Uniswap’s fee switch offers a similar option, if activated, it would redirect a slice of swap fees to the treasury, potentially funding UNI token buybacks and burns. These deflationary tactics operate as indirect returns for holders, raising scarcity instead of issuing dividends.
DUNA and the Nonprofit Boundaries of Token Utility
The Wyoming DUNA (Decentralized Unincorporated Nonprofit Association) framework imposes a key structural rule: DAOs registered as a DUNA cannot distribute profits directly to token holders. This mirrors traditional nonprofit principles with no dividends, no pro-rata payouts.
However, indirect value sharing is allowed, and this has opened a playbook of creative tokenomic strategies:
Buyback-and-burn programs reduce token supply using protocol revenue, increasing scarcity and potentially boosting token value.
DAO treasury spending via market makers or liquidity providers can support the token’s market health without transferring profits outright.
Direct compensation to contributors (e.g. for governance participation, development, or operations) is permitted as long as it serves the DAO’s mission — reframing “yield” as labor payment rather than passive return.
This structure lets DAOs capture and distribute value in ways that don’t resemble dividends but still provide utility and upside for active participants.
Uniswap’s proposed “DUNI” setup aims to activate its fee switch and manage protocol earnings in this legally compliant, nonprofit-aligned way.
DUNA draws a bright line around passive profit-sharing and also opens a gray zone, it will be a funny & interesting story of how far can protocols go in rewarding token holders without crossing that line, especially US based Protocols.
Tokens as Cultural or Social Assets
What is a token, really? Let’s revisit this again, remember that card your Aunt gave you, yup that, how it gets converted into something of a financial value, can we call that card a token?
At its simplest, a token is a digital representation of something; it could be money, access, a meme, or even shared emotion. And once blockchains made tokens tradable, anything that could be represented as a joke, a protest, a fandom could now also move through markets.
So there emerged a whole category of tokens whose value doesn’t come from code or cash flows, but from narrative, cultural resonance, or social identity. These tokens aren’t "useful" in a technical sense. They’re expressive. They mean something. And that meaning gets financialized. But why do people want to trade these ideas for money?
Because money is the way to distribute earth’s resources among humans and when there is information asymmetry across the real value of Earth’s resources, caused by the inherent nature of human beings which is random and can’t be decoded yet fully according to Science(some prefer religious scriptures).
Think of meme coins like DOGE, PEPE, or $PNUT. These don’t offer yield or governance. What they offer is collective narrative:
DOGE began as a joke and became a myth. Its meme is optimism. It’s the internet’s first native folk currency and my personal take is it’ll be the currency of Mars.
PEPE is about identity. Every PEPE has the same face, a caricature that symbolizes humaneness where “Every PEPE is a Human and every Human is PEPE”.\
$PNUT was a political message, propelled by U.S. conservative Circles during an election cycle, it was a memetic campaign masked as a coin. People bought into the narrative without realizing it was a gift/bribe to encourage civic behavior (like voting).
The same logic applies to Fan Tokens (like $BAR for FC Barcelona) or creator tokens. Holding these isn’t about financial return it’s about signaling alignment, fandom, status. You aren’t just watching a club or supporting a creator, you’re part of it/them.
Conclusion
Whenever something i.e. tangible or intangible is valued by even a single person, that value can be expressed through money, turning it into a token of that value.
Tokens assign exchangeable weight to things we value: infrastructure, labor, politics, jokes, and identity. And by doing so, they reveal something deeper: the market is not just a pricing engine, rather it’s a reflection engine. It reflects what we(arguably) believe is worth building, protecting, speculating on, and belonging to.
That’s why tokens matter. Not because they’re perfect, but because they expose the messiness underneath coordination and value and then let us try to structure it.
This is the next new language of coordination.
