Bryant Nielson | February 10, 2025
Token emissions in DeFi protocols often resembles a speedrun of historical monetary policy disasters, but with smart contracts. Let’s explore how protocols systematically inflate their way to irrelevance while calling it “community incentives.”
Token emissions – the crypto equivalent of running the money printer – typically follow a predictable lifecycle:
Phase 1: The Honeymoon
- Astronomical APYs attract liquidity faster than free pizza at a college event
- Token price pumps because early investors are locked in vesting schedules
- Everyone’s a genius in a bull market
- Community celebrates their “organic growth”
Phase 2: Reality Checks In
- Emissions continue but token price starts dropping
- Early investors’ tokens unlock, creating selling pressure
- APYs still look great (in absolute tokens)
- Protocol team starts discussing “emission optimization”
Phase 3: The Death Spiral
- Token price crashes faster than you can say “sustainable tokenomics”
- Liquidity providers exit en masse
- Governance proposals to “adjust emission schedule” multiply like rabbits
- Team announces a “v2 with improved tokenomics”
Some protocols attempt to fix this through:
- Emissions backed by protocol revenue (revolutionary concept)
- Vote-escrowed tokens (because regular tokens weren’t complicated enough)
- Dynamic emission rates (hoping mathematics will save them)
- Buyback and burn mechanisms (fighting inflation with deflation)
The harsh truth? Most emission schedules are just elaborate Ponzi dynamics dressed up in financial jargon. But hey, at least we get some entertaining governance forums out of it.
Remember: If your protocol’s sustainability plan involves printing tokens indefinitely, you might want to brush up on your Zimbabwe economic history. Not financial advice, but maybe consider actual value creation instead of inflation-based tokenomics.
In the end, the only sustainable token emission model is one where value created exceeds value distributed. But that’s not nearly as exciting as 1,000,000% APY, is it?