The utility of a token refers to the concrete roles and functions it fulfills within its ecosystem. It is a fundamental element in tokenomics, as utility is what creates real demand around a token by giving it intrinsic value, beyond speculation or artificial scarcity.

Indeed, a token derives its value primarily from what it enables users to do. This direct link between usage and value fosters engagement, supports the economic activity of the platform, and contributes to the long-term viability of the project.

That’s why a strong tokenomics model is first and foremost based on tangible and sustainable utilities.

What are the utilities of a token?

There are many forms of utility a project can assign to its token. These uses depend on its strategic vision, objectives, and the type of user experience it aims to offer.

Below are the main token utilities, grouped into broad categories commonly found at the core of tokenomics models.

Utilities related to the blockchain (Network functioning)

Utilities related to the blockchain are specific to its core operations. They meet the fundamental requirements of any decentralized network: ensuring its operation, validating transactions, executing smart contracts, guaranteeing security without intermediaries, while maintaining long-term sustainability.

Native token

Most blockchains have a native token, also called a coin, integrated by default into the protocol. This token plays a central role in the blockchain’s functioning. It is used to reward network participants, cover usage fees, or ensure the protocol’s security.

For example, ETH is the native token of the Ethereum blockchain.

Transaction fees

To operate, each blockchain uses various resources such as storage, processing capacity, computing power, and validation. These operations come at a cost, usually covered by transaction fees, also called gas fees.

These fees also help protect the network by limiting spam and abuse, as they make each action costly for malicious actors.

Most blockchains require these fees to be paid exclusively in the native token, making it essential for using the blockchain.

For example, on the Ethereum blockchain, all transactions require ETH to pay gas fees.

Miner rewards (PoW)

In blockchains using Proof of Work (PoW), miners are rewarded with native tokens for the computing power they provide to the network. This power allows them to validate transactions, secure the blockchain, and create new blocks.

For instance, Bitcoin miners currently receive 6.25 BTC per block. This reward is halved every four years in a mechanism known as the halving.

Validator rewards (PoS)

Just like miners in PoW blockchains, validators in Proof of Stake (PoS) blockchains receive token rewards for their contribution to network security and operation.

In this model, validators do not provide computing power but must stake a certain amount of tokens to be selected and participate in block validation.

For example, on the Ethereum blockchain, a validator must stake 32 ETH to participate in validation and earn rewards in ETH.

Economic utilities

Tokens can play monetary, financial, or logistical roles within a project.

Medium of exchange

Some tokens are used as a medium of exchange to buy, sell, or transfer goods, services, or digital assets.

A token can be used:

• Exclusively within a project: for example, The Sandbox’s SAND token is used to buy land, virtual items, or services within the metaverse.

• Outside a project: some tokens like USDT are accepted as a payment method in certain physical and online stores.

Cost reduction

Another common use is to provide financial benefits such as fee reductions or cashback. These discounts are usually tied to holding or using the token.

For example, holding BNB gives a 25% discount on trading fees on the Binance platform.

Use in DeFi

Tokens play a key role in decentralized finance (DeFi). They are used to provide liquidity, take out loans, and earn interest through staking or yield farming.

For example, on Uniswap, users deposit tokens into liquidity pools and receive trading fees or governance tokens in return.

Protection against volatility

Stablecoins allow users to hedge against market volatility and stabilize their portfolio while staying within the crypto ecosystem.

For instance, after a trade, an investor may convert gains into USDC to avoid exposure to volatility.

Incentive and participation utilities

These utilities aim to encourage active user participation in the ecosystem.

Incentives and rewards

Projects use their tokens to reward user actions and encourage them to actively participate in the ecosystem.

These rewards may be earned when users stake tokens to secure the network, provide liquidity, engage with the project, or create content.

For example, in the Axie Infinity universe, players can earn AXS tokens by playing games or participating in content initiatives.

Governance

Some tokens provide access to project governance and allow users to participate in major decisions—such as upgrade proposals, budget choices, or tokenomics revisions.

For example, the AAVE token allows users to take part in the Aave protocol DAO. Token holders can vote directly or delegate their voting power. A proposal is only validated if a quorum of 320,000 AAVE is reached.

Access utilities

A token can serve as a key to access exclusive benefits or features.

Exclusive access

Some projects reserve benefits for token holders, such as access to premium features, private content, or events.

For example, holding BNB may provide access to certain airdrop programs on Binance, allowing eligible users to receive new tokens for free.

Access to launchpads

On certain platforms, staking or holding specific tokens grants access to launchpads and, consequently, to fundraising rounds for new projects.

For instance, to invest via Binance Launchpad, users need to hold BNB.

Financial utilities

Finally, some tokens are used as financing tools.

Fundraising

Many projects use tokens to raise funds through ICOs, IDOs, or other mechanisms.

For example, in 2017, Tron (TRX) raised approximately $70 million in its ICO to fund the development of its blockchain.

The importance of utility

Every utility a token has adds another reason to hold, use, and value it. The more real and durable utilities a token accumulates, the more relevant, resilient, and likely it is to increase in value.

Utility is not a bonus, it is the very condition for a token’s success. Without utility, there is no sustainable demand. With strong utility, demand is organic, consistent, and supports long-term project growth.