Reflecting on Crypto Staking and the Revolutionary Idea of Performance-based Tokenomics
Naman Kabra, a co-founder and CEO of NodeOps recently reflected on the crypto world’s long-serving principle of staking. In Kabra’s view, a period existed when staking became the holy grail among crypto users. People staked tokens, secured their network, and enjoyed rewards that were not only effortless but also trustworthy. However, according to Kabra, things soon went off the rails.
The Detour of Staking
Staking stopped reflecting contribution and started symbolizing capital. The applicability of staking to support long-term infrastructure was overlooked in favor of hunting swift yields. As a result, rewards inflated significantly, and emissions went through the roof. Yet, the critical questions surrounding staking were ignored. Kabra questions what is genuinely being rewarded and at what cost? What is the actual work done, and what happens when the rewards are exhausted?
We’ve observed these dynamics taking place. In the decentralized finance (DeFi) sector, platforms are pledging high annual percentage yields (APYs). Layer 1 platforms are flooding the market with incentives to increase usage. The pattern remains consistent: Capital is rewarded, while contribution is ignored. But once the rewards are gone, capital alone cannot sustain ecosystems, leading to bubble creation. A better model is needed, one that rewards effort, not capital.
Performance-based Tokenomics—An Alternative Approach
Kabra proposes the idea of performance-based tokenomics. In this model, participants who meet uptime requirements, online reliability benchmarks, process transactions consistently, or onboard developers and users would be directly rewarded based on their contribution. However, the distribution of tokens should align with the network’s growth and utility. Engagement becomes more consistent and meaningful when individuals are rewarded for tangible contributions made to the network.
Sustainability and Credibility
This performance-based approach to staking provides a sustainable and credible ecosystem where benefits are deserved, not inflated, and capital is channeled towards productivity rather than speculative activities.
Concerns with the Current Model
Recent research reports revealed the vulnerability of emission-driven ecosystems. These reports revealed that protocols dependent on inflated token rewards experienced significant declines in total value locked once incentives decreased.
The Future of Tokenomics
According to Kabra, the future of token economies is dynamic, taking responsibility and being a part of a group. The solution isn’t about adding more tokens; it’s about better alignment. Incentives are to be aligned with results: infrastructure established, compute executed, applications deployed, and real problems resolved.
In the Web2 phase, performance is analyzed through Key Performance Indicators (KPIs). In Web3, it should be ingrained directly into token flows. Kabra suggests that instead of more staking dashboards, the ecosystem needs scoreboards to ascertain who is genuinely contributing to the network’s growth.
In the next evolution of Web3, tokens shouldn’t remain stagnant in wallets; instead, they should flow in alignment with the creation of value. Contributors like validators who consistently remain online, node operators who achieve their objectives, developers who deliver, and community members who drive adoption should reap the benefits.
Conclusion
The future of token economies led by performance-based tokenomics is just around the corner. Teams designing with this future in mind will be the ones surviving and thriving even when the hype deflates, and the emissions dry up. It’s not only about growing but growing in a way that secures the future stability and sustainability of crypto ecosystems.
This article reflects the views of Naman Kabra alone, and they may not represent the views and opinions of other industry players. The information in this article is intended for general usage and does not constitute investment or legal advice.
