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Eric 🔺
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Lead Economist @AvalancheFDN @avax. NFA. Views are my own.
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Proud of the work we’re building here. Each piece adds to a clearer picture of how value is created and captured across Avalanche.
The next piece in the series is coming soon. Looking forward to sharing what we’ve found 🔺
The next piece in the series is coming soon. Looking forward to sharing what we’ve found 🔺
The Economics of Blockchain is the Avalanche Foundation’s public research series and the ongoing home for our economic research agenda.
The agenda is organised around a sequence: measure the value the @avax ecosystem creates, capture that value at the protocol level, and determine how it is distributed across the network.
Each piece published in the series connects explicitly to that agenda: advancing the central hypothesis, answering one of the research questions, or documenting what the evidence shows and where it points next.
Updates, findings and new research will be shared through the series as the work develops 🔺View quoted post on X
Recently, @frostledger and I joined the Layer One podcast to discuss the Foundation's research agenda.
One interesting topic that came up: Validator pay is a genuinely hard problem, and most chains haven't actually solved it.
The real question is a two-sided market problem: what are network users actually willing to pay for validation, and what's the minimum validators need to be willing to provide it? We need some kind of equilibrium mechanism to find that price.
There's a second layer to this too. Validation is a public good, validators don't fully capture the benefit of the security they provide, everyone on the network does. Basic economic theory says that means it'll be undersupplied without some kind of subsidy.
Still working through the answer, but this is exactly the kind of question our research agenda is built to take on.
Not just for Avalanche, probably every proof-of-stake chain out there.
One interesting topic that came up: Validator pay is a genuinely hard problem, and most chains haven't actually solved it.
The real question is a two-sided market problem: what are network users actually willing to pay for validation, and what's the minimum validators need to be willing to provide it? We need some kind of equilibrium mechanism to find that price.
There's a second layer to this too. Validation is a public good, validators don't fully capture the benefit of the security they provide, everyone on the network does. Basic economic theory says that means it'll be undersupplied without some kind of subsidy.
Still working through the answer, but this is exactly the kind of question our research agenda is built to take on.
Not just for Avalanche, probably every proof-of-stake chain out there.
3:17
Here are a few of my takeaways from Token2049 & the Digital Asset Summit Asia.
- Fundamentals is an important return driver now
In a panel discussion with @santiagoroel, @HadickM and @sethginns, they pointed to a "flight to quality": tokens with stronger revenue developments are seeing those developments accrue to the token itself.
This means certain tokens start to look more like equities. Therefore, institutional analysts can now do fundamental analysis on these, which gives investors more clarity if they choose to put the tokens in their portfolio.
- Tokens with better fundamentals are outperforming
The same panel noted that, unlike the previous cycle where top performers tended to be newly issued tokens, legacy tokens with real revenue fundamentals are outperforming the rest this time.
Research presented in a separate keynote backed this more rigorously: looking across a large panel of tokens, it found that those with higher distribution yield (mostly through buyback-and-burn) outperform Bitcoin this cycle.
- What this could mean for cycles going forward
Together, these observations suggest the old "four-year cycle" heuristic may be breaking down. Coming out of this cycle, we may see less synchronised movement across tokens generally, with the strength of underlying fundamentals mattering more than it has before.
- App-Layer vs. L1: Not the same problem
Some of the clearest examples of mature capture-and-distribution models - Aave, Hyperliquid - have been running theirs for a long time by crypto standards, and are arguably the closest comparison to equity-style valuation in this space today.
General-purpose L1s like Avalanche aren't necessarily behind here, though, the capture and distribution question for us is more nuanced than it is for a single application, and how the market responds to that complexity is still something worth watching closely.
- The gap nobody's solved yet
The same question came up in a separate panel with @zeroxkyle, @Tradermayne, @dennis_qian and @andyyy. Their view: revenue remains the key driver this cycle, with Hyperliquid as the reference point - but only for app-layer tokens (Hyperliquid, Aave, Uniswap, Rollbit), not general-purpose L1s.
They didn't explain how L1 tokens should be valued instead, beyond assuming higher app revenue should naturally demand higher L1 security, and therefore higher L1 value.
Most L1 tokens aren't valued by revenue today because they don't capture much of it, and "should" doesn't happen automatically, it needs an explicit mechanism connecting app revenue to L1 value. That's exactly what our research agenda is working to build: a clear link analysts can actually examine, the same way they already do for app-layer tokens.
- What this means for Avalanche
This is exactly the gap our research agenda exists to bridge, strengthening Avalanche's fundamentals and improving the value accrual process.
It matters because, as the panels this week suggested, markets may increasingly reward with a real, explicit link between the value their ecosystem creates and the value that flows back to the token.
Measure, capture, distribute isn't just a framework we talk about, it's the kind of mechanism-building we believe this problem requires.
That said, this is quickly becoming consensus across the industry, not just us: competition is intensifying, and we need to stay strategic about where we focus, balancing impact, effort, and timing.
The work at the Foundation is well underway, and we look forward to sharing more as the work progresses 🔺
- Fundamentals is an important return driver now
In a panel discussion with @santiagoroel, @HadickM and @sethginns, they pointed to a "flight to quality": tokens with stronger revenue developments are seeing those developments accrue to the token itself.
This means certain tokens start to look more like equities. Therefore, institutional analysts can now do fundamental analysis on these, which gives investors more clarity if they choose to put the tokens in their portfolio.
- Tokens with better fundamentals are outperforming
The same panel noted that, unlike the previous cycle where top performers tended to be newly issued tokens, legacy tokens with real revenue fundamentals are outperforming the rest this time.
Research presented in a separate keynote backed this more rigorously: looking across a large panel of tokens, it found that those with higher distribution yield (mostly through buyback-and-burn) outperform Bitcoin this cycle.
- What this could mean for cycles going forward
Together, these observations suggest the old "four-year cycle" heuristic may be breaking down. Coming out of this cycle, we may see less synchronised movement across tokens generally, with the strength of underlying fundamentals mattering more than it has before.
- App-Layer vs. L1: Not the same problem
Some of the clearest examples of mature capture-and-distribution models - Aave, Hyperliquid - have been running theirs for a long time by crypto standards, and are arguably the closest comparison to equity-style valuation in this space today.
General-purpose L1s like Avalanche aren't necessarily behind here, though, the capture and distribution question for us is more nuanced than it is for a single application, and how the market responds to that complexity is still something worth watching closely.
- The gap nobody's solved yet
The same question came up in a separate panel with @zeroxkyle, @Tradermayne, @dennis_qian and @andyyy. Their view: revenue remains the key driver this cycle, with Hyperliquid as the reference point - but only for app-layer tokens (Hyperliquid, Aave, Uniswap, Rollbit), not general-purpose L1s.
They didn't explain how L1 tokens should be valued instead, beyond assuming higher app revenue should naturally demand higher L1 security, and therefore higher L1 value.
Most L1 tokens aren't valued by revenue today because they don't capture much of it, and "should" doesn't happen automatically, it needs an explicit mechanism connecting app revenue to L1 value. That's exactly what our research agenda is working to build: a clear link analysts can actually examine, the same way they already do for app-layer tokens.
- What this means for Avalanche
This is exactly the gap our research agenda exists to bridge, strengthening Avalanche's fundamentals and improving the value accrual process.
It matters because, as the panels this week suggested, markets may increasingly reward with a real, explicit link between the value their ecosystem creates and the value that flows back to the token.
Measure, capture, distribute isn't just a framework we talk about, it's the kind of mechanism-building we believe this problem requires.
That said, this is quickly becoming consensus across the industry, not just us: competition is intensifying, and we need to stay strategic about where we focus, balancing impact, effort, and timing.
The work at the Foundation is well underway, and we look forward to sharing more as the work progresses 🔺
Making sure every change is verifiable really matters.
It's the standard we hold ourselves to for improving tokenomics, not just proposing a change, but knowing how we'll actually check whether it worked.
That's what measure, capture, distribute actually means in practice 🔺
It's the standard we hold ourselves to for improving tokenomics, not just proposing a change, but knowing how we'll actually check whether it worked.
That's what measure, capture, distribute actually means in practice 🔺
One idea guides much of the Avalanche Foundation's approach to tokenomics. As @eric_lu_sc puts it: "Every change should have a verifiable outcome."
That's the standard the Foundation's research aims toward, whether the question is about value capture or distribution. It's how we work toward a long-term, sustainable Avalanche 🔺View quoted post on X