L1 & L2 Token Value Capture - DBA

Next, we will strip out inflation, giving us network REV (Real Economic Value):

REV = Network Fees + MEV Tips

REV excludes issuance, as that is not real value generated.

As you could see from the examples above, we’re trying to get at the “sustainability” of two related points here:

• Security – In the absence of indefinite subsidization (e.g., from token holders), you need REV to sustainably attract operators and potentially token stakers. An increase or decrease in REV can result in a corresponding increase or decr

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• Example 1 – We all agree that a token is worth $1bn based on the potential income from earning it. However, they have some weird really high issuance, and you live in a place where that would create a huge tax burden. You probably won’t buy the token, but someone living in a jurisdiction that doesn’t tax their issuance rewards should be willing to

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We covered a lot of ground here, so let’s summarize our key takeaways here:

• Cryptonetworks are not companies. Income/expense/profit metrics generally do not logically apply at this level. We can try to assess the profitability of all token holders, and/or subsets of them.


• PoS issuance to stakers is not a “cost to the network,” and it isn’t even a net

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• Operating expenses to run PoS networks are wayyyyyyy lower than PoW. The cost of running software will continue to approach 0.


• As I discussed in Endgame: Proof of Governance , and many others have before me, the superpower of PoS security is really accountability. If you double sign, everyone knows who you are. We tend to even know their real-world

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With all the basics in place, let’s put it together with a simple valuation example. Consider the price at which a single rational value investor would be willing to purchase all tokens for a given network:

• For simplicity, we will assume all REV for this network are paid in assets other than the native token (e.g., paid in USDC). This makes it possi

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Aside from being productive capital assets, you have likely heard some variation of these two other buckets for assets (neither of which are necessarily mutually exclusive with each other or capital assets):

• Consumable / Transformable Asset – Sometimes also classified as commodity or utility value. Cryptoassets offer infinitely programmable, fast,

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So as funny as it may sound, it should be clear now that issuance to stakers is not a “cost to the network”, even if it has potential associated “sell pressure.” Look, none of this is to say that inflation doesn’t matter. It does! That’s all the more reason why we need to start explaining it logically. Stop saying that inflation is a cost to the pr... See more