Protocol Token Utility

Protocol token utility refers to the functional roles a token plays within its ecosystem, such as governance rights, fee sharing, or staking requirements. In the context of market making, these tokens are often used to incentivize liquidity provision, effectively creating a demand sink for the token.

The value accrual of the token is tied to the protocol's success, creating a feedback loop where liquidity attracts users, and users drive demand for the token. A well-designed utility model ensures that the token remains valuable enough to serve as a meaningful incentive for market makers.

This is the foundation of modern tokenomics.