Tokenomics are broken, and only contribution can fix this

Opinion by: Naman Kabra, co-founder and CEO of NodeOps

​​For years, staking was the gold standard in crypto. Stake tokens, secure the network and earn simple, elegant and trustless rewards. Somewhere along the way, we drifted.

Staking stopped being about contribution and started being about capital. Rewards ballooned, emissions exploded and tokenomics shifted from supporting long-term infrastructure to chasing short-term yield.

The hard questions were forgotten. What’s truly being rewarded — and at what cost? What real work is being done? And what happens when the rewards run out?

We’ve seen this play out up close. DeFi protocols are promising sky-high APYs. Layer 1s are flooding the market with incentives to bootstrap usage. The pattern is always the same: Capital gets rewarded, contribution does not. It works until it doesn’t. Capital can spark activity, but it can’t sustain ecosystems. That takes value creation. Without it, all you’re building is a bubble.

When capital-only incentives aren’t enough

The logic is easy to sell: If users lock tokens, they’re “committed.” If they stake, they’re “securing.” But staking alone doesn’t tell you anything about participation. It doesn’t say who’s running infrastructure, who’s onboarding users, who’s building real apps or who’s solving real problems. Capital is passive. Networks don’t run on passivity; they run on performance.

The core flaw in some token economies is that value is extracted, not created. Early users get paid with emissions funded by new entrants. There’s no underlying productivity. And when demand slows, the whole model collapses under its own weight.

A better model exists; it just needs to be built.

Rethinking network incentives

What if, instead of staking capital, we began staking effort? What if tokens were distributed not based on wallet size, but on meaningful contribution?

That’s the vision behind performance-based tokenomics. Participants who compute, maintain uptime, process transactions reliably or onboard developers and users are directly rewarded for their influence. The objective isn’t just to distribute tokens; it’s to align incentives with the network’s actual growth and utility.

This shift is already visible across parts of the decentralized physical infrastructure network (DePIN) ecosystem. Operators are compensated not for locking tokens but for staying online, meeting reliability benchmarks and delivering infrastructure. It’s a more sustainable model that enables economic coordination through verifiable contribution, not idle capital.

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The aim is to move beyond artificial staking loops and unsustainable, emission-driven models and toward usage-based economics rooted in measurable contribution. Engagement becomes consistent and meaningful when participants are rewarded for tangible performance metrics like uptime, latency and reliability. The formula is straightforward: align incentives with real output

This model offers both sustainability and credibility. It fosters ecosystems where rewards are earned, not inflated — where capital flows toward productivity rather than speculation.

Research from Messari’s 2023 report, “The Efficacy of Token Incentives in DeFi,” reinforces the fragility of emission-driven ecosystems. The study found that protocols heavily reliant on inflated token rewards, like OlympusDAO or early SushiSwap, experienced sharp declines in total value locked (TVL) once incentives waned.

In contrast, protocols that tied rewards to real utility, such as Aave’s lending activity or Lido’s validator performance, demonstrated significantly higher user retention over time. The report says, “When incentives are disconnected from utility, participation collapses the moment the yield dries up.”

Tokenomics 2.0 is where design meets actual value

At their core, most tokenomic failures are design failures. Incentives break down when teams prioritize short-term hype over long-term sustainability and when emissions are treated as revenue and white papers promise more than products can deliver.

The solution isn’t more tokens — it’s better alignment. Tokens must be tied to outcomes: infrastructure delivered, compute executed, applications deployed and real problems solved. In Web2, performance is measured through KPIs. In Web3, it should be encoded directly into token flows.

The ecosystem doesn’t need more staking dashboards; it needs scoreboards. Dashboards tell you who’s locked up the most tokens. Scoreboards tell you who’s building, contributing and improving the network. In the next era of Web3, tokens shouldn’t just sit idle in wallets; they should move in sync with value creation. Validators who stay online, node operators who hit benchmarks, developers who ship and community members who drive adoption are the contributors who should earn and be visible.

This is the shift from passive capital to active contribution. A move away from inflating numbers to measuring real effect — uptime, performance, participation and delivery. When incentives are tied to work, not just wealth, ecosystems don’t just grow — they thrive.

The future of token economies is dynamic, accountable and composable. And the teams designing with that in mind today? They’ll be the ones still standing when the hype fades and the emissions dry up.

Opinion by: Naman Kabra, co-founder and CEO of NodeOps.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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• #Rewards
• #DeFi
• #Tokenomics
• #Staking
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