Almost every crypto project launches a token. It's practically a formality: build an app, raise money, start a community, mint a ticker. The ticker gets the attention. When it pumps, people learn the project exists. When it dumps, they learn it again.
None of that proves the token needed to exist. That was the whole point of the stream that kicked off the Token Autopsy series: a successful application and a successful token are two separate economic outcomes. This article is how to tell them apart before you buy the second one because you liked the first.
Or, as Warren Buffett put it and the stream repeated: price is what you pay, value is what you get. A market price proves a token can be traded. It doesn't prove the token does anything.
Things most people don't know
- A blockchain app can use smart contracts without issuing its own token.
- A protocol can generate substantial revenue while its token receives none of it.
- A governance token may allow voting but gives no legal ownership, no dividend and no guaranteed share of income.
- A token can be technically necessary for network security and still have weak economics for ordinary holders.
- Utility doesn't automatically produce demand. A function people rarely need, or can bypass, creates very little ongoing value.
- Rewards can make a token look useful when most demand comes from people collecting a handout.
- Burning reduces supply but can't manufacture demand. Burning 500,000 tokens in six months doesn't move much when there are a trillion of them.
The project and the token are different investments
When someone says "I believe in this project," ask what exactly they believe in. The team? The technology? The user count? The revenue? Future demand for the token? Those are related. They are not interchangeable.
The stream's analogy: a restaurant can serve excellent food without its loyalty points becoming a valuable asset. An app can attract millions of users without creating any meaningful demand for a token.
Take a free app that earns money from advertisers. The company gets paid. If there's a token attached, nothing about that ad revenue has to touch it. The company's bank account and the token's market cap are two different places, and plenty of projects make sure the money only visits one of them.
Separate the four layers
- The company or development team: the people behind it
- The product: what customers actually use
- The protocol: the smart contracts running on-chain
- The token: what the market trades
Once these are separated, the uncomfortable combinations become obvious. A strong team can create a weak token. A popular product can produce zero token demand. A decentralized protocol can sit next to a highly concentrated token.
Why legitimate tokens exist
Some tokens do real work:
- Network security. Proof-of-stake chains need validators to commit an asset that can be rewarded or penalized. The token answers who may validate, what makes attacking expensive and what gets taken when a validator cheats. Take SOL away from Solana and there's nothing left to validate. That's structural.
- Payment for scarce resources. Block space, computation, storage, bandwidth, data availability. The question is whether users must acquire the token, or whether the app quietly hides or replaces it.
- Coordination and governance. Upgrades, treasury spending, fee settings, risk parameters, listings. But voting only matters when governance controls something economically or technically important.
- Incentives. Tokens attract liquidity, validators, developers and early users. Incentives can start a network. They cannot permanently replace organic demand.
- Access or membership. Features, communities, data, fee discounts. The question is whether token ownership is the most logical access system or just the most profitable one to issue.
When a token is required to use a product, every new user is someone buying it. If an app requires users to buy $10 of the token for a monthly plan, user growth sends real money into the market cap. That's the link you're looking for.
The token removal test
Mentally delete the token. Then ask:
- Can users still access the product?
- Can they pay with another cryptocurrency or a stablecoin instead?
- Can the protocol still process transactions?
- Can the network still secure itself?
- Can developers keep building?
- Could voting be handled another way?
- Does anything besides the market price change?
If almost nothing changes, the token is replaceable, or in the stream's word, decorative.
Necessary doesn't mean valuable
Passing the removal test is step one, not the finish line. A token can be necessary and still have poor economics:
- Users may only need tiny amounts of it. Needing five tokens at a penny each doesn't do much for anyone.
- The same tokens may circulate repeatedly, building volume without new money.
- Rewards may create supply faster than demand grows. That's inflationary.
- Apps may buy tokens and immediately sell them.
- Validators may consistently sell rewards to cover their costs.
Necessity explains why a token exists. It doesn't tell you whether demand will keep up with supply.
Utility is not demand
Projects love listing utilities: voting, staking, discounts, rewards, access, payments, burning. Don't count them. Weigh them:
- How many people use this function, and how often?
- How many tokens does it require, and is that meaningful relative to the market cap?
- Must tokens be held, or only bought briefly and sold?
- Can the function be accessed without the token?
- Does it create demand, or merely discourage selling?
Ten weak utilities can be worth less than one unavoidable function that requires buying a meaningful amount.
Governance: real, limited or decorative
- Real governance controls consequential things: treasury assets, protocol upgrades, fee distribution, risk limits, admin permissions.
- Limited governance picks marketing campaigns, community grants, cosmetic features and nonbinding proposals.
- Decorative governance exists mainly so the token can be called a governance token. A board moves the treasury while holders vote on the new profile picture.
Always ask what holders can actually vote on, and who can override them.
Incentives can disguise missing demand
The stream's version: a doughnut shop gives away free doughnuts for two months. Crowds show up. Then the free doughnuts stop. If the doughnuts are only mediocre, the crowd goes back to the shop with good doughnuts. They came for free food, not for you.
Crypto rewards work the same way. Grand-opening giveaways are an old business practice with a new ticker. When a protocol pays users to deposit liquidity, ask:
- Would users stay without the reward?
- Are the fees earned bigger than the incentives paid?
- Are recipients holding rewards or selling them?
- Is the protocol creating customers, or renting temporary liquidity?
If a protocol pays $10M in tokens to generate $2M in fees, it's $8M in the hole. Activity alone doesn't prove a sustainable economy.
Revenue doesn't guarantee token value
Money a protocol generates can go to liquidity providers, validators, developers, a company, a DAO, insurance reserves, buybacks, burns, or nobody at all. Some protocols charge no fee by design.
The stream's example of a deliberate link: a Uniswap governance proposal that explicitly connects protocol fees and Unichain sequencer fees to a programmatic UNI burn. That's what intentionally connecting usage to token supply looks like. Whether it's big enough to matter is a separate question, which is what the Follow the Value write-ups and Token Autopsy livestreams are for.
Red flags
Get more specific with your questions as the explanation gets more abstract. Watch for:
- "Additional utilities will be announced later." (That's trust, not utility.)
- "The token powers the economy," with no explanation of how
- "Community governance" while the team keeps control
- Rewards with no identified permanent demand
- "Deflationary" without showing why anyone needs the token
- "Access" to something you could get elsewhere
- Staking that only pays out more of the same token
- "Revenue" that token holders never see
Five questions before you look at a chart
- What essential job does the token perform?
- Who is required to acquire it?
- Why must they keep acquiring it?
- Where do new tokens come from, and when do they enter circulation?
- What connects the project's success to token demand?
If those answers are unclear, price analysis is starting too late.
The four token categories
| Category | What it means |
|---|---|
| Essential | Remove the token and security, settlement or a core function breaks |
| Useful but replaceable | The token improves the system, but another asset or structure could do the job |
| Incentive-driven | The token mainly attracts users, liquidity or contributors through rewards. When rewards dry up, so do holders |
| Decorative | The product works without it. The token mostly supplies speculation, fundraising or branding |
Tokens can move between categories as projects develop. Plenty of projects sit in the last row, where the token functions mostly as free marketing.
Related video
This framework comes from the first night of the Token Autopsy series: Does Every Crypto Project Need a Token? | Daily Crypto IQ on YouTube. Subscribe to Underground Crypto to catch the livestreams that apply it to one token at a time, and join the Discord to argue about which category your bags belong in.
FAQ
Why do crypto projects launch tokens if they don't need them?
Tokens raise money, create liquidity and act as free marketing: every pump puts the project in front of new people. None of that requires the token to perform an essential function in the product.
What is the token removal test?
Imagine the project without its token. If users can still access the product, pay in other assets, process transactions, secure the network and govern without it, and nothing changes except the price, the token is replaceable or decorative.
Does a project making revenue mean the token goes up?
No. Revenue can go to liquidity providers, validators, the company, a DAO or reserves, and none of it has to reach token holders. Look for a specific mechanism, such as required usage, buybacks or burns, that connects revenue to the token.
Is a governance token valuable?
Only if governance controls something consequential, such as treasury assets, upgrades, fees or risk settings, and holders can't simply be overridden. Voting on marketing campaigns is decorative governance.
Are token burns always good?
Burns reduce supply, but they can't create demand on their own. A burn also has to be compared with the size of the supply and the rate of new tokens being released.
Educational content from Underground Crypto's Daily Crypto IQ livestream. Not financial advice.