5 Token Demand Models

If supply models determine how tokens enter the system, demand models determine why anyone would buy and hold them. Without sustainable demand, any emission turns into an inflationary spiral.

What Is a Demand Model

A demand model (also called a utility model) is a mechanism that creates an ongoing need for participants to buy or hold the token. It answers three questions:

1. Why buy the token? What benefit does the holder receive?
2. Why hold the token? What incentivizes not selling?
3. Where does demand come from — real economic activity or speculation?

In practice, there are five core demand models, each solving a distinct class of problems. A project can combine several.

1. Discount — Fee Reduction for Token Holders

In short: token holders receive a discount on the protocol’s services or products.

This is the simplest demand model. A user buys the token to pay for a service at a lower cost than in fiat or stablecoins. The discount creates price arbitrage: as long as the savings exceed the cost of acquiring the token, using it is rational.

Mechanics

1. The protocol charges a fee for its service (e.g., 1% per transaction)
2. Paying with the protocol’s token reduces the fee (e.g., to 0.5%)
3. The user buys the token on the market, pays for the service at a discount
4. The token is burned or returned to the treasury

Price Ceiling Formula

If the fee is 1% on $100M/year volume, the discount is 50%, and 10M tokens are in circulation:

Examples

BNB (Binance). Trading fee discount when paying in BNB: originally 50% (2017), currently 25% on spot and 10% on futures. Per the original schedule, the discount was meant to decrease to zero, but Binance has maintained it. Additionally — access to Launchpad, IEOs, and other services.

CRO (Crypto.com). CRO holders receive higher cashback (up to 5%) on Crypto.com cards and access to exclusive features through the Level Up program (since September 2025), which combines CRO lockup with subscription tiers.

When It Works

The discount model is effective when the protocol has a stable transaction flow with a clear fee structure. For projects without an established volume, this model creates insufficient demand.

2. Payment — In-Ecosystem Currency

In short: the token is the sole or preferred payment method within the protocol.

Unlike the discount model, the token does not give a discount — it is the medium of payment. The protocol only accepts its own token, creating mandatory demand.

Mechanics

1. A user wants to use a service (data storage, compute, subscription)
2. The service only accepts payment in the protocol’s token
3. The user buys the token on the market
4. Payment goes to the treasury, validators, or is burned

Token Velocity

The critical metric for the payment model is velocity: how many times the token changes hands per period. High velocity means the token moves quickly through the “buy → pay → sell” chain without staying with any holder.

If annual transaction volume is $50M and velocity is 20 (each token turns over 20 times a year):

The problem: the more efficient the payment model, the higher the velocity, the lower the justified price. The velocity paradox is the main weakness of pure payment tokens.

Solution: Velocity Sinks

To slow token turnover and raise the price, projects add velocity sinks — mechanisms that reduce circulation speed:

Examples

Filecoin (FIL). Storage providers post collateral in FIL to participate in the network. Storage deals have a minimum duration of 180 days and a maximum of 1,278 days (since FIP-0052); collateral is locked for the duration of the sector commitment. Clients pay for storage in FIL. Two-sided demand — from providers (collateral) and clients (payment).

Ethereum (ETH). Gas for every transaction is paid in ETH. EIP-1559 burns the base fee, creating deflationary pressure during high network activity.

When It Works

The payment model is effective for infrastructure projects with mandatory resource usage: storage, compute, bandwidth. For discretionary services (social networks, games), forcing payment in the token creates friction and repels users.

3. Ownership — Claim on Assets

In short: the token grants a property right over a digital or real-world asset.

This model spans a wide spectrum: from NFTs and in-game items to tokenized real estate and fund shares.

Three Subcategories

NFTs and digital objects. The token represents a unique digital asset: art, an in-game item, a domain name, virtual land. Demand is driven by the subjective value of the asset, collectibility, and speculative interest.

Commodity tokens. The token represents a right to a physical commodity: gold (PAXG), carbon credits (KlimaDAO), energy. Demand is tied to the price of the underlying asset.

Real-world assets (RWA). The token represents a share in a real asset: real estate, Treasury bills, corporate bonds, fund shares. Demand is driven by the yield and liquidity of the underlying asset.

Valuation Formula

Examples

PAXG (Paxos Gold). Each token is backed by 1 troy ounce of gold held in Brinks vaults. Token price tracks the gold price. Demand — an alternative way to own gold with fractional ownership and instant transfers.

Ondo Finance (USDY). Tokenized US Treasury bills yielding ~4–5% annually (varies with US Treasury rates). Demand — yield and liquidity unavailable in traditional finance with minimums starting at $100,000.

When It Works

The ownership model works when the underlying asset has intrinsic value. If the asset’s value depends solely on speculative demand (most NFT collections), the model is unstable. For RWA, the legal structure ensuring the right of claim is critical.

4. Securities — Tokens as Revenue Instruments

In short: the token grants a right to income from the protocol’s operations.

This is the model closest to traditional finance. The token holder receives a share of profits, dividends, or value appreciation tied to the project’s financial performance.

Three Types of Yield

Revenue share (dividends). The protocol distributes part of its revenue to stakers.

Buy-back & burn. The protocol buys tokens on the market and burns them, increasing the value of remaining tokens. An indirect form of income.

Collateral. The token is used as collateral for borrowing. Staking in a Safety Module (AAVE) is a hybrid of collateral and insurance.

Discounted Cash Flow Formula

When designing a securities model, you need to estimate future cash flows and discount them. The high uncertainty of crypto markets means a high discount rate — the value of future income is significantly reduced.

Regulatory Context

Examples

GMX. GMX V2 allocates a share of trading fees to buyback-and-distribute: initially 27% (October 2024), with an active proposal to increase to 90%. Since March 2026, distribution is weighted by Staking Power — a loyalty metric that resets if the staker reduces their position below 80% of peak. Real yield is tied to trading volume — more volume, higher yield.

Sky (formerly MakerDAO). Surplus income from loan interest funds SKY buyback and burn (previously — MKR burn; MKR migrated to SKY at 1:24,000 in August 2024). The P/E ratio of SKY can be calculated as a standard financial multiple.

When It Works

The securities model requires the protocol to have established revenue. For early-stage projects, promising future dividends is a red flag: no revenue means no real yield, only emission-based rewards.

5. Value Transfer — Transferring Value Within Systems

In short: the token serves as a vehicle for transferring value within or between systems.

This model differs from payment: the token is not bought to pay for a specific service but is used as a channel for value transfer between participants.

Subcategories

Staking for consensus participation. Validators lock tokens to earn the right to confirm transactions. Demand is proportional to the number of validators and the minimum stake.

Governance. The token grants a vote in protocol governance. The more tokens locked for voting, the fewer in circulation.

Cross-system bridge. The token is used to move value between blockchains (native bridge tokens) or between crypto and fiat.

Examples

ETH (Ethereum PoS). 32 ETH is the minimum validator stake (since the Pectra upgrade in May 2025, consolidation up to 2,048 ETH is possible). With over 1 million active validators, approximately 36M ETH (~30% of total supply) is locked. This is a massive velocity sink.

LINK (Chainlink). Chainlink nodes stake LINK as collateral for providing data feeds. Inaccurate data leads to partial collateral slashing. Demand is proportional to the number of active nodes and the volume of data served.

When It Works

The value transfer model is effective for infrastructure networks where participation requires collateral. The key factor is a genuine need for staking, not an artificial constraint. If staking carries no economic risk (no slashing, no lock period), it becomes a marketing tool with minimal impact on demand.

Case Study: Lessons from TON

TON (The Open Network) tokenomics is a clear example of a supply-demand imbalance.

What Happened

TON inflation is ~0.6% annually (~88,000 TON/day with a total supply of ~5.1B, circulating ~2.5B), and staking APY is 3–5%. Yet the primary demand driver is validator staking alone — the DeFi ecosystem and payment use cases are insufficiently developed to balance even modest emission.

Demand Model Analysis

Combining Demand Models

No single demand model sustains tokenomics on its own. Successful projects combine several:

The Combination Principle

An optimal combination typically includes:

• Mandatory demand (payment or value transfer) — a baseline independent of speculation
• Incentive demand (discount or securities) — additional motivation to buy
• Locking demand (staking, governance lock) — reducing circulating supply

Demand Model Selection Algorithm

Determining Factors

Decision Tree