TLDR Tech / Crypto
The Simple Economics of L1 Value Capture
Written ahead of Solana governance votes on SIMD 550 (Double Disinflation Speed) and SIMD 553 (Resource Fees), this piece applies equity valuation theory to L1 token economics, arguing that inflation-funded staking rewards dilute non-stakers without producing protocol revenue, while fee burns and distributions to stakers are the sole mechanisms that generate tokenholder surplus. Gas demand elasticity estimates derived from EIP-1559 pricing data put short-term price sensitivity at 0.6 to 0.8, meaning a 10% fee increase reduces transaction volume by 6 to 8%, and uniform fee schedules fail to capture the willingness-to-pay spread across heterogeneous users. The author proposes value-based fee instruments, charging a percentage of transfer notional rather than flat compute costs, as a more precise revenue approach than compute pricing alone. Solana and Ethereum's accumulated network effects in liquidity, applications, and infrastructure give their fee streams more pricing power than current market valuations reflect.
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