“Sometimes we learn more about a system by watching its failures than its successes. Utility tokens were meant to represent access and participation — not a casino chip. Yet the last six years have seen the token economy treated as the world’s most expensive slot machine.” — Ben Fairbank
The earliest waves of utility‑token projects promised to democratise access to digital services, and I remember it well, as I was front and centre. Tokens were supposed to give holders access to bandwidth, cloud storage, computing power or in‑game items. However, speculation quickly became the primary narrative, and the rest, as they say, is history. The ICO‑era tokens surged and collapsed in speculative frenzies, while founders struggled to align token prices with their products and their valuations, and balancing the 2 was and is a nightmare. In 2026, we can look back at the short history of utility tokens and ask, What went wrong, and where should they go from here?
Why Stable Pricing Matters
Utility tokens were meant to represent access to a service, yet their value has often fluctuated wildly. In gaming and other consumer applications, open‑market tokens misalign incentives. We have seen, clearly, that open‑market currencies shift motivation from gameplay to market speculation, causing price spikes and crashes unrelated to user activity. This causes immeasurable frustration to both founders and holders. When prices rise, in‑game items become prohibitively expensive, and when they collapse, players lose interest. During the early play‑to‑earn craze, Axie Infinity’s reward tokens (SLP and AXS) surged and then crashed, as token prices fell, players exited the ecosystem like it was the black plague.
Stablecoins show one path forward, that is logical and works, well, seemingly. A stablecoin is a digital asset designed to maintain a stable value relative to a reference asset such as the U.S. dollar. They achieve stability through full or partial reserves, algorithmic control of supply or hybrid approaches. This stability makes them attractive as a medium of exchange and store of value, and they function as a bridge between volatile crypto‑assets and fiat currencies. In early 2025, the stablecoin market had grown to over $200 billion, with on‑chain transfer volume exceeding the combined volume of Visa and Mastercard. Stablecoins now underpin most crypto trades and DeFi lending protocols.
Yet “stable” does not always mean safe. Early decentralised stablecoins like BitUSD and NuBits lost their dollar pegs due to insufficient collateral, proving that algorithmic designs can fail. Even fiat‑backed giants like Tether have faced scrutiny over reserve transparency and have been subject to the old, show me the money routine more than once. The lesson is simple, or is it? Many say that if your token’s value is essential to user experience, peg it to something stable and be transparent about the reserves. If you expect your users to manage volatility risk just to access your service, you haven’t designed a utility token; you’ve built a speculative instrument.
Derivatives, Wagering and the Regulatory Drag
Another reason speculation seeped into utility tokens is the easy availability of crypto derivatives and gambling‑like mechanisms, sometimes and seemingly without much moderation. A proliferation of leveraged futures, perpetual swaps and synthetic tokens has allowed traders to bet on prices of everything from meme coins to NFTs. Regulators are catching up. The Australian Securities and Investments Commission (ASIC) warns that if a digital‑asset arrangement involves a derivative, a contract whose value is based on another asset, the issuer must hold an Australian Financial Services (AFS) licence. Platforms offering unlicensed derivatives face significant penalties. Likewise, play‑to‑earn games risk being classified as gambling if they reach the public, offer gains based on chance and involve financial sacrifice. Without a gambling licence, those activities are illegal and heavily sanctioned. So the road gets tougher, and most would say, finally.
These rules matter because many token ecosystems have built price speculation into their business model. “Loot boxes,” randomised NFT packs, and tokenised prediction markets all teeter on the edge of regulated gambling. Projects that market their native token as a vehicle for betting on price should expect to be treated like bookmakers, or so the regulators are now saying. In most jurisdictions, that means expensive licences, strict anti‑money‑laundering controls and potentially a ban on offering those services.
So, in 2026, if your platform’s “utility” involves betting on the price of your own token, regulators will treat it as a financial product or a gambling service. Don’t design a token economy that requires a licence you don’t have.
Earning: Staking, Yield Farming and the 2017 Hangover
When the first utility tokens launched, staking and yield farming were hailed as revolutionary. They allowed token holders to earn returns by locking their tokens or providing liquidity. However, not all earning mechanisms are created equal.
- Staking secures proof‑of‑stake blockchains. Participants lock tokens in a smart contract to validate transactions and receive newly minted tokens or transaction fees as rewards. It provides predictable, consensus‑driven yields.
- Yield farming is a liquidity‑provision strategy for decentralised exchanges and lending protocols. Liquidity providers deposit tokens into pools and earn trading fees or protocol emissions. Yield farming rewards are highly variable and depend on trading volume, liquidity pool utilisation and token incentives. It is complex and exposes users to risks like impermanent loss (Google that and let your head hurt) and smart‑contract bugs.
During the 2020–2021 bull market, yields were astronomical. But yields collapse in bear markets. Farming returns that depend on speculative token emissions become worthless when prices fall. Projects that offer no utility beyond staking or farming are stuck in 2017; they can only thrive in bull markets when token prices are rising. True utility tokens must generate value beyond inflationary rewards, staking should support network security, and yield should come from genuine economic activity (like payments or data storage), not circular token emissions.
Burn & Lock: The Sleight of Hand
Another tactic used to prop up token prices is burning, permanently removing tokens from circulation by sending them to a burn address. Many projects burn tokens to reduce supply, hoping scarcity will drive up price. Token burns can signal commitment and reduce inflation. But burning is not a guarantee. Even Binance says that token burning may create scarcity and price support if demand remains the same or increases. However, without demand, burns have little effect.
Some projects go further by locking large portions of supply in long‑term vaults and rewarding holders who lock tokens. While vesting and lock‑ups can slow the release of tokens and reduce immediate sell pressure, they are not equivalent to utility. These tactics often serve to give the illusion of scarcity while VC’s and insiders still hold large positions behind time‑release cliffs. Supply‑control mechanisms such as halving and burning aim to create scarcity and support price only when demand remains constant or increases. Without demand or real utility, burn‑and‑lock campaigns resemble something akin to a share buyback of early‑stage crypto, a marketing tool rather than a product feature.
If your tokenomics revolve around artificially reducing supply rather than increasing use cases, you’re playing a short‑term game. Long‑term value comes from real economic activity, users paying for services with your token, not from financial engineering.
Centralised Exchanges: Necessary Exposure or Fatal Anchor?
For many projects, listing on a centralised exchange (CEX) is a rite of passage. A CEX provides liquidity and visibility, but at a price. Crypto exchanges that are mid-tier or better, as of 2025, were still charging between $50,000 (Plus MM and other fees, which can increase this to up to 5x the price) and $1 million to list new tokens. For too long, the CEXs have had the liquidity, the trading volume and therefore the power that goes along with it. The imbalance of power allows top exchanges to extract huge fees and demand market‑making commitments. It has been said many times across the industry that if a project is able to raise 50 to 100 million, the CEXs assume they are worthy of a cut.
Beyond listing fees, CEXs impose opaque market‑maker requirements. Exchanges, listing companies and Market Makers are all different entities and legal companies. Founders themselves need to outsource these roles to others, as otherwise, it can be deemed as manipulation. Therefore, founders often sign market-making contracts that can cost millions in fees, a huge allocation of tokens, exposure to VC dumping, and millions more from what happens behind closed doors.
Once the listing pop fades, market makers slowly sell into liquidity, pushing down prices. The founder loses control of the narrative and becomes dependent on an opaque exchange infrastructure and market narratives and sentiment.
CEXs offer exposure but at the cost of control, ethics and millions in expenses Decentralised exchanges (DEXs) with transparent liquidity pools and on‑chain order books may provide a better long‑term solution. However, DEXs still struggle with thin liquidity for niche tokens and countless user‑experience challenges.
What the Future of Utility Tokens Should Look Like
Having dissected these problems, what should utility tokens look like in 2026 and beyond?
- Peg the Unit of Account. If your token is used to pay for services (cloud storage, bandwidth, game items), price volatility undermines usability. Adopt a stablecoin or design your token as a pseudo‑stable asset with transparent reserves. A simple credits system also works. The stablecoin literature shows that price stability is achieved through collateralisation or algorithmic control. Users don’t want unnecessary currency risk.
2. Separate Speculation from Utility. You cannot, in good faith, encourage speculation on your token’s price while claiming it represents utilitarian access. Not easily anyway, and regulatory guidance is clear when they say derivatives require licences, and gambling‑like games require accreditation. If you want to offer wagering, you now need to obtain the proper licences.
3. Design Real Economic Utility. Staking and yield farming are infrastructure‑level incentives; they do not constitute utility in themselves. Your token should provide access to tangible services (data storage, computing, identity, game upgrades, etc). Rewards should flow from fees paid by users for those services, not from inflation.
4. Avoid Supply Gimmicks. Burning and locking tokens can complement a sustainable economy, but should not be the core of your value proposition. Without utility and demand, burns are marketing.
5. Minimise Dependence on CEXs. Use decentralised or community‑governed marketplaces for liquidity. If you must list on a CEX, negotiate fair terms and avoid tools that enable you to manage your own order book; regulators consider that market manipulation. Consider alternative distribution methods such as decentralised ID‑based airdrops or progressive token unlocks tied to user activity.
6. Build for All Seasons. The next generation of utility tokens must survive both bull and bear markets. That means designing revenue models that do not depend on speculative hype cycles. Create durable ecosystems where tokens are used because they are the easiest way to consume the service, not because holders hope to sell them to someone else for more.
TL:DR
Utility tokens promised to decentralise access, but they have often devolved into speculative assets. Stable‑priced tokens, clear separation between utility and speculation, and transparent, demand‑driven reward mechanisms are the core ingredients of a sustainable token economy. CEXs may bring visibility, but they also impose high costs and expose projects to market manipulation and VC dumping and can quickly destroy promising projects. Burning and locking tokens can adjust supply, but cannot substitute for demand. Regulators worldwide are making it clear that derivative‑like tokens require licences and gambling‑like mechanisms are banned without accreditation.
Utility tokens must be built for all seasons, not just the bull market. The path forward is to design tokens that provide real utility, ensure price stability, avoid gimmicks and comply with evolving regulations. Only then can utility tokens fulfil their promise of democratising digital services rather than becoming another vehicle for speculation.
Welcome to the future of tokens.
The Evolution of Utility Tokens: A Deep Dive was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.