Token Utility in Web3 Protocols: When and Why Native Tokens Are Essential for Value Accrual

The evolution of Web3 protocols has underscored a critical question for investors: under what conditions do native tokens serve as effective mechanisms for value accrual? While the promise of decentralized systems lies in their ability to distribute power and economic benefits, the reality is far more nuanced. Native tokens, when designed with strategic utility and governance functions, can align stakeholder incentives and drive long-term value. However, their success hinges on avoiding pitfalls like centralized intermediation and unsustainable tokenomic models.

The Dual Role of Native Tokens: Utility and Governance

At the heart of effective token utility is the dual function of native tokens as both operational tools and governance instruments. For instance, the PromptChain Token (PCT) exemplifies this duality by enabling platform operations while granting contributors governance rights over protocol decisions. This design ensures that token holders are not only users but also decision-makers, fostering a feedback loop where token value is tied to the protocol's growth. Such mechanisms are critical for sustaining decentralized ecosystems, as they incentivize active participation and long-term commitment.

However, the success of this model depends on the token's utility being deeply integrated into the protocol's core functions. If a token's use case is superficial-such as merely granting access to a service without meaningful governance-its value accrual potential diminishes. As highlighted in a strategic framework for Web3 tokenomics, utility must be paired with supply architecture and incentive alignment to avoid "ponzinomics," where token value relies on continuous new capital inflows rather than organic growth.

Strategic Tokenomics: Designing for Sustainability

The design of tokenomics is a linchpin for value accrual. Academic research emphasizes the importance of dynamic supply models and balanced vesting schedules to prevent negative price pressures. For example, platforms like Aries Markets and Kima, designed with input from tokenomics service providers such as Coinstruct and Syndika, demonstrate how structured token distribution and vesting can stabilize ecosystems during market volatility. These models prioritize stakeholder alignment, ensuring that early contributors and long-term users benefit proportionally as the protocol scales.

Moreover, governance protocols must be transparent and resilient. A 2025 study on blockchain's affordances notes that decentralized governance frameworks require mechanisms to prevent centralization of power, such as quadratic voting or delegated proof-of-stake models. Without such safeguards, protocols risk replicating the hierarchical structures they aim to disrupt, undermining trust and token value.

Challenges: Centralization and Value Extraction

Despite the theoretical appeal of decentralized systems, practical challenges persist. A 2023 analysis by Sarkar reveals that even in Web3 economies, centralized intermediaries-such as cloud service providers-often dominate infrastructure, leading to concentrated value extraction. This paradox highlights a critical risk: protocols may claim decentralization while relying on centralized components, diluting the economic benefits for token holders. Investors must scrutinize whether a protocol's token utility extends to its entire value chain or remains confined to superficial layers.

Additionally, the tokenization of real-world assets (RWA) and AI-driven smart contracts introduces new complexities. While RWA tokenization enhances liquidity and fractional ownership, it also raises regulatory and operational risks. Similarly, AI-powered DeFi applications, though innovative, may introduce opaque decision-making processes that conflict with the transparency ideals of Web3 as noted in a recent analysis. These trends underscore the need for robust governance and regulatory compliance to ensure tokens retain their utility and value.

Emerging Trends and Future Outlook

The Web3 landscape in 2025 is shaped by trends that amplify token utility. Decentralized identity solutions, such as Ethereum Name Service (ENS), are enhancing user experience by simplifying interactions with blockchain networks. Meanwhile, DePINs are creating $30 billion markets by incentivizing individuals to contribute physical resources like GPU power, earning tokens in return. These innovations demonstrate how native tokens can bridge digital and physical ecosystems, expanding their utility beyond traditional financial applications.

Investors should also monitor the rise of sustainable blockchain solutions, as energy-efficient consensus mechanisms become regulatory and consumer priorities. Protocols that integrate environmental considerations into their tokenomics-such as Ethereum's transition to proof-of-stake-are likely to attract capital from ESG-focused investors.

Conclusion

Native tokens are essential for value accrual in Web3 protocols when they serve as both functional tools and governance instruments, supported by strategic tokenomics and transparent governance. However, their success depends on addressing centralization risks and aligning with emerging trends like RWA and DePINs. As the Web3 ecosystem matures, investors must prioritize protocols that demonstrate robust utility, sustainable design, and adaptability to regulatory and technological shifts.