Which tokens are well-designed? Which tokens need improvement?

Author: Nate | eatsleepcrypto.eth

Compiled by: Deep Tide TechFlow

I've been thinking about token design recently and have created a token economic grading list. This article will rate and analyze the token designs of several well-known Defi protocols, discussing the elements that a good token economic model should have, including capturing value, governance rights, and economic security, which are crucial for understanding the intrinsic value of tokens. Let's see which tokens are well-designed and which ones need improvement, and draw inspiration from them.

Of course, these are not investment advice—while a good token economic model is necessary, it is not a sufficient condition for long-term returns, and a high ranking does not guarantee the economic security of these protocols.

In the S tier, I excluded all tokens because…

1) I will never give full marks; 2) I even hesitate to give an A; 3) I am not familiar with the "S" grade.

The criteria for rating in this article are: protocol utility, value capture, and economic security each account for 30%—these are demand-side factors; the remaining 10% is based on supply-side factors.

I would give Curve Finance an A-.

$CRV has supply issues, some of which are quite bad, but they are cleverly addressed with veTokenomics. However, I am more concerned with demand than supply, as demand is important in the long run. The demand for $CRV is directly proportional to the flow value of bribes paid to $veCRV holders.

Curve Finance's fundamental innovation is not the ve token economics, but the bribery system.

Liquity Protocol is also rated A.

Liquity uses the amount of over-collateralized $ETH to mint $LUSD. Liquity Protocol's $LUSD is a secure decentralized stablecoin, which can protect its peg.

$LUSD is not without risk, but it has come as close as possible to solving the stablecoin trilemma. In addition, Liquity rewards $LQTY holders with real returns.

The Maya Protocol is also in the A tier.

Maya has a dual token system, with $CACAO used for liquidity pairs and $MAYA capturing system fees.

Nym Project has A-tier demand token economics. On the supply side, it's a different story, as once they stop distributing $NYM tokens to miners, the price will rebound. It is recommended that Nym allocate these rewards to community managers who recruit real users in online workshops.

I rank Synthetix at C+.

$SNX has captured a lot of value, but its utility is limited because it is not private and has a public founder. If its DAO stops manipulating monetary policy, everything will fall apart.

Synthetix operates similarly to Mirror on Terra, but with less asset diversification. Because the founder of $SNX is not anonymous, Synthetix cannot issue synthetic forms of commodities or traditional assets (such as $TSLA, $GOOG, etc.).

The resulting lack of diversification also makes $SNX more vulnerable and susceptible to economic security vulnerabilities, just like Terra's Anchor protocol.

I hesitated between B-tier and C-tier and ultimately decided to place SushiSwap in the C tier.

Sushi was lucky in the vampire attack on Uni, but since then it has not innovated. Real returns are good, and $SUSHI surpasses $UNI, but this standard is set very low. In addition, real returns are not only the easiest way to capture value, but also one of the worst ways, as it does not leave much economic moat.

Aave is placed in the C tier.

Frequent defaults and a governance council full of Degen really do not benefit it. Especially after the recent GHO release, the current price of $GHO is still at $0.97.

Aave's central bank strategy reminds me of the USD/JPY arbitrage trades of several funds before the Bank of Japan announced its intention to raise interest rates. I am interested to see how this will develop when Aave raises rates.

Uniswap is placed in the D tier.

I often write articles about Uniswap's failures. As expected, v4 did not solve the obvious lack of value capture for UNI, and then there's impermanent loss…

Rocket Pool is placed in F. I was going to give it a D, but it has a very bad flywheel design, especially in front of competitors. $RPL is inserted as an arbitrary staking requirement, and its reward is not $ETH, but its native token.

Optimism is also placed in F.

The price of $OP is completely driven by speculation, and Optimism has not taken any action. Optimism hopes to capture value through sequencers—I bet it won't. In the end, $OP still relies on sustained speculation to maintain its price, just like meme coins. But unlike $DOGE, OP is not even used in the circular economy.

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