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.

We reduced inflation, but the token holders’ profit is unchanged. The only difference is that there is directionally less incentive to stake rather than hold idly (because the staking yield is reduced). On its own, PoS issuance is simply an internal tax which redistributes network ownership among token holder subsets to incentivize staking.

The same logic holds in accounting for operator payments from a token holder’s perspective. Even if the network’s operators are being subsidized in some external way, the payment from a token holder’s perspective is only that which they pay today. It’s important to understand these subsidies though, because they may indeed be unsustainable. For exa... See more

This is the price of decentralization. This investor would need to keep paying these decentralized and independent operators if that’s what’s required to keep the REV coming in. In reality, this is a very difficult number to assess. What is the marginal value provided by additional network operators vs. the marginal cost added, and when does that s... See more

When people argue that “issuance is a cost” in PoS networks, it’s usually a fuzzy attempt to get at “isn’t inflation bad for token value capture somehow? It seems like it should be bad, right?” However, the only real expense to token holders in aggregate is the payment made to operators. This is usually seen in staking commissions in PoS vs. PoW wh... See more

As noted above, we also assumed 100% token ownership so as to isolate the asset’s ability to generate income vs. its utility value as a currency. However, an alternative scenario to consider would be if there remained a subset of holders who own the token and keep it un-staked , perhaps even paying inflation to token stakers. This should only occur... See more

PoS – Imagine a PoS network with 1mm validators, costing $100mm p.a. to run. Users pay $200mm p.a. in REV, and the chain issues $800mm in tokens p.a. to stakers. Operators take a 10% cut on TEV ($100mm here). The “profit = fees – issuance” proponents will say this is unsustainable: $200mm fees – $800mm issuance = $600mm loss! This doesn’t hold up.

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In both cases though, you also need to care about the net income of all token holders in aggregate. That is the measure of the token’s overall value capture from generating income, and hence is a major component in its valuation. Imagine a network with high issuance and low staking participation. The income statement for stakers might look great. B... See more

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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