Utility-Based Valuation
function-driven token pricing
Utility-based valuation is a method of determining a tokenÔÇÖs value by measuring the demand created by its real-world or on-chain functions. Rather than pricing a token based on speculation, hype, or scarcity alone, this model assesses how essential the token is to the operation of a networkÔÇösuch as being required for gas fees, staking, governance, collateralization, or accessing services. The more frequently and broadly a token is used, the stronger its utility-based valuation.
Use Case: $ETH derives value from being the default gas token for Ethereum transactions, smart contracts, and DeFi interactions. Its price reflects not just investor sentiment, but widespread, essential network usageÔÇöan example of utility-based valuation.
Key Concepts:
- Functional Demand ÔÇö Value is tied to usage frequency and necessity.
- Network Embeddedness ÔÇö Token is central to system operations.
- Use-to-Value Ratio ÔÇö Higher usage equals stronger price support.
- Anti-Speculative Anchor ÔÇö Shifts focus from hype to function.
Summary: Utility-based valuation highlights the economic power of tokens that do thingsÔÇönot just represent things. It provides a durable pricing model for assets embedded deeply in protocol functionality and user behavior.
| Valuation Model | Core Driver | Example Token | Sustainability |
|---|---|---|---|
| Utility-Based | Usage & Function | $ETH, $XDC, $FLR | High |
| Speculation-Based | Narrative & Hype | $DOGE, $SHIB | Low |
| Scarcity-Based | Limited Supply | $BTC, $XRP | MediumÔÇôHigh |