How are Web3 Infrastructure Protocols Trying to Capture Value?

Key Insights

• The Burn-and-Mint Equilibrium (BME) model and the Stake-for-Access (SFA) model are the two most common token models used by Web3 infrastructure protocols. They address the velocity problem and create a relationship between network usage and token price.
• With the BME model, end users are required to burn a protocol's native token to access services, essentially translating protocol usage into token buying pressure.
• The SFA model requires service providers to stake a protocol’s native token to perform work on the network, which converts network participation into token buying pressure.
• While the SFA model is best suited for protocols that provide undifferentiated commodity services, the BME model works best for protocols that operate similarly to businesses, in that they can set their own prices and compete on business development and partnerships.

Value creation and value accrual are not the same thing. While crypto has succeeded at value creation, the industry is still figuring out the value accrual side of the equation. The gap between value creation and value accrual can be clearly seen in Uniswap. Although it is the most popular decentralized exchange (DEX) with the largest volumes, Uniswap’s token has struggled to accrue value since its only utility is protocol governance.

In the last few years, there’s been an explosion of infrastructure protocols servicing the middleware layer of the Web3 stack. They all face the challenge of aligning the usage of the network with the token price. This report evaluates the two most popular utility token models that Web3 infrastructure protocols use to capture value: the Burn-and-Mint Equilibrium (BME) model and the Stake-for-Access (SFA) model.