Introduction
In the previous article, I mistakenly presented personal reflections as investment advice. I clarify here: this article is merely an analysis of current issues and does not constitute any investment recommendations.
The topic of today's discussion arises from reflections prompted by the CreatorBid project and its token $BID . The BID token has been rising consistently, and upon deeper examination, it is driven by a Dynamic Incentive Mechanism (DIM). Details about DIM can be researched independently; I am more concerned about its market effects: while the token circulation is locked, does this exacerbate price volatility?
CreatorBid's token economy: Initially bright, but upon deeper thought, concerns emerge
The CreatorBid project pays AI agent service fees (like content generation) with BID tokens and maintains value through a token burn mechanism. On the surface, this design balances service payments with value enhancement, but upon deeper investigation, issues arise:
Service costs rise with token prices: The current price of BID is $0.09, and 10 BID pay a service fee of $0.9. If BID rises to $1, the service fee will soar to $10. Can users still accept this?
Sustainability of staking dividends: The project distributes BID to stakers weekly through a 'token pool', but the pool will eventually run out. Where will the subsequent funds come from? Relying on new users to purchase tokens?
The practical significance of tokens: If the service fee is priced in USD (e.g., $0.5), what is the difference between BID and stablecoins (like USDT)? What is its necessity?
These issues made me realize that CreatorBid's token economy is like 'walking a tightrope'; a slight misstep could lead to imbalance. Further observations of other Web3 projects revealed that this is not unique to CreatorBid, but a common industry issue.
The 'impossible triangle' of Web3 token economics
Web3 projects often hope tokens can serve as 'currency' (for service payments), 'stocks' (for price increases), and 'membership cards' (to incentivize users) simultaneously, but these three goals conflict, forming the 'impossible triangle':
Fixed token payments lead to skyrocketing service costs
Many projects require a fixed number of tokens to pay for service fees and promote price increases through supply limits and burn mechanisms. However, rising token prices directly lead to high service costs (in USD), causing user attrition, decreased platform activity, and shrinking revenue, ultimately digging their own grave.
The funding source dilemma of staking dividends
To encourage token holding, projects often offer staking rewards, but the funding source for dividends becomes a problem. In the early stages, they rely on reserved token pools, but what happens when the pool runs out? Relying on new users to purchase tokens resembles a Ponzi structure; repurchasing tokens with service fees is limited by user volume and revenue; if they issue more tokens, it violates the deflationary promise, leading to price drops.The contradiction between deflation and service demand
Deflationary design (burning tokens) aims to enhance value, but rising prices make services more expensive, leading to decreased users, making the burn mechanism unsustainable. If priced in USD to stabilize costs, tokens become 'vouchers', losing investment appeal, making it difficult to attract speculators.
Why are Web3 projects trapped in this dilemma?
The 'impossible triangle' is not intentionally created by project teams, but is a structural issue in Web3 token design:
Too many token goals
Tokens attempt to achieve stable payments, price volatility, and user incentives simultaneously, but currency needs stability, stocks need volatility, and membership cards need practicality, making it difficult to reconcile all three. CreatorBid's BID is both for payments (which need stability) and to increase in price through burning (seeking volatility), while also providing staking dividends (focusing on practicality), resulting in a loss in all aspects.The double-edged sword of deflationary design
Many projects emulate Bitcoin, setting supply limits and burn mechanisms, pursuing 'scarcity = value'. However, Bitcoin primarily serves as 'digital gold' storage, while Web3 tokens need to be used for service payments. Price increases lead to excessively high service costs and decreased platform activity, as seen in cases where users shifted from Ethereum during high Gas fees to Solana.The Ponzi risk of staking rewards
Staking dividends rely on reserved tokens or financing, but once funds are exhausted, new users must purchase or service fees must support it. If users reduce their participation due to high costs, revenue will be insufficient, making dividends difficult to sustain.Market volatility amplifies contradictions
Web3 token prices fluctuate wildly, making it difficult for users to predict service costs, leading to unstable platform revenue. Speculators drive up prices, while ordinary users drop out due to high costs, leaving project teams in a dilemma.
How to alleviate the 'impossible triangle'?
There is no perfect solution; here are some common solutions from various projects:
Dynamic pricing stabilizes service costs
Price in USD and adjust the token quantity dynamically. This ensures controllable user costs and stable platform revenue, but tokens may become 'vouchers', reducing their deflationary appeal.Enrich token functions
Make tokens not only a payment tool but also provide governance, level upgrades, or exclusive rights. This increases the motivation to hold them, but the functions must be practical; otherwise, they are meaningless.Decentralized computing reduces costs
If CreatorBid adopts decentralized computing, users can contribute GPUs in exchange for BID, significantly reducing platform costs and minimizing token volatility. However, the technical threshold is high and difficult to achieve in the short term.Dividends rely on real income
Repurchase BID with service fees to distribute staking rewards, avoiding dependence on a reserve pool, thus reducing Ponzi risks. However, it is essential to ensure sufficient user volume and revenue; otherwise, the buyback scale will be limited.Support stablecoin payments
Allow dual-track payments in BID and USDT, with BID enjoying discounts (e.g., 20% off). This balances cost stability with token demand, but USDT may weaken BID's appeal.Community governance enhances flexibility
Adjust rules through community voting (e.g., lowering service fees, optimizing staking rewards) to enhance project adaptability. CreatorBid is currently team-led and needs to move towards true decentralization.
In reality, CreatorBid may temporarily rely on market hype to mask contradictions, but if it does not transition to decentralized computing and sustainable dividends, a 'death spiral' is hard to avoid.
Summary
The token design of Web3 projects is attractive, but the 'impossible triangle' looms: deflation raises service costs, staking dividends are hard to sustain, and stabilizing costs undermines the significance of tokens.
The future of Web3 is promising, but the token economy needs further evolution. What are your thoughts on this 'impossible triangle'? Which Web3 projects have led you to similar reflections? Let's discuss!
