The impact of utility tokens on project growth

Utility tokens are crypto tokens designed for use within a specific project or ecosystem rather than merely for holding and speculation. Unlike security tokens (which resemble traditional securities), utility tokens do not grant ownership stakes or dividends but instead provide holders with various benefits and functionalities — such as access to services, discounts, voting rights, and more. When implemented effectively, they can significantly boost a project’s growth

Below, we’ll explore the role of utility tokens, their use in DAOs, why institutional investors are increasingly interested in the DAO industry, successful case studies, and the reasons behind some tokens’ failures

The role of utility tokens in the ecosystem

A utility token serves as an internal “currency” or a key to accessing a project’s services. It adds value to an ecosystem by being directly tied to its product. A well-designed token aligns with the project’s goals, provides tangible benefits to users, and incentivizes active participation. For instance, tokens can grant access to a platform, premium features, discounts, or governance rights. This, in turn, encourages users to support the project’s growth, as its development increases the token’s utility — and potentially, its value

The demand for utility tokens is directly linked to their usefulness. If a token is essential for paying fees, participating in governance, or earning rewards, its demand will naturally grow as the user base expands, helping sustain its price. When a token has strong utility and a limited supply, its value typically increases over time. Conversely, if a token offers little real functionality and lacks a unique role within the platform, its value suffers — investors see no reason to hold it, leading to price declines. Thus, real-world application creates fundamental demand for a token, reducing its reliance on pure speculation

DAOs as digital legal entities

DAO is the new generation of digital organizations operating on the blockchain. Simply put, a DAO is a community that manages shared assets and decisions without central leadership. The rules and operations of a DAO are encoded in smart contracts, which automatically execute decisions that would typically be made by management in a traditional company. DAO participants hold DAO tokens, which function as a type of share or vote — allowing community members to vote on proposals and manage the organization’s resources. Essentially, a DAO utility token transforms a group of people into a digital legal entity, where instead of a board of directors, governance is executed through programmatic code and token-holder voting

DAO tokens are used to create and manage digital organizations. When a DAO is launched, participants receive tokens that grant them voting rights in decision-making. For example, contributors to the ConstitutionDAO project received $PEOPLE tokens, each representing a share of participation in the DAO and voting rights regarding the future of the acquired asset (a copy of the U.S. Constitution). Thus, tokens serve a dual function: they confirm ownership (or contribution) and simultaneously act as a voting mechanism. All financial operations (contributions, expenditures) occur through the DAO’s shared wallet, governed by a smart contract, with fund distribution decided collectively. This system resembles a joint-stock company but without bureaucracy: each token is a “vote” in a digital organization, and transparency is ensured by the blockchain

Why does the market need DAOs as a new form of “legal entity”? First and foremost, DAOs enable the rapid and global coordination of people and capital. A DAO can be created almost instantly, and participants from around the world can join simply by acquiring tokens. Thanks to social media and viral momentum, DAOs can quickly mobilize resources. A notable example is the previously mentioned ConstitutionDAO, which managed to raise around $47 million in just a few days to participate in an auction. Traditional companies struggle to achieve such speed and openness in fundraising. Additionally, the autonomy and transparency of DAOs enhance trust: all transactions are visible on the blockchain, rules cannot be changed without community consent, and decisions are made through direct voting

Interestingly, DAOs are gradually obtaining official legal status. Regulators are beginning to recognize them as a unique form of organizational structure. In 2021, the state of Wyoming in the U.S. passed a law allowing DAOs to register as LLCs (Limited Liability Companies). This means that legally registered DAOs provide members with limited liability — similar to corporate shareholders — and the organization itself can legally own assets and enter into contracts. Such steps mitigate key risks (for instance, concerns that DAO participants might bear personal liability for the community’s actions) and bring DAOs closer to traditional legal entities. Essentially, the market has signaled the necessity of this model: in the age of internet communities, there needs to be a tool for borderless collective investment and governance, and DAOs are proving to be the perfect solution

The future of the DAO industry and institutional interest

Despite the volatility of the crypto market, the DAO industry continues to show impressive growth, attracting the attention of major investors. Even during the “crypto winter,” interest in DAOs remained on the rise—thousands of new communities were created, and more projects adopted decentralized governance models. This sustained momentum reinforces the idea that DAOs are a promising direction for the future of the crypto industry

The growth of the DAO industry has not gone unnoticed by institutional investors and top-tier funds. Venture capital firms are actively funding projects related to DAOs and decentralized governance. The reason for this interest lies in the flexibility of DAOs—they can quickly adapt to different objectives while offering high profit potential. In other words, Tier-1 funds view DAOs as a new class of organizations that could eventually stand alongside traditional companies, and they prefer to enter this space at an early stage

Examples of successful utility tokens

Real-world cases confirm: if a token has practical utility, it contributes to its long-term growth. Let’s examine several projects where utility tokens played a key role in success:

• Ethereum (ETH) – one of the most well-known utility tokens, acting as the “fuel” of the Ethereum network. ETH is required to pay for gas (transaction fees) for any blockchain operations, including smart contract deployment, transaction execution, and decentralized applications (dApps) functionality. Since Ethereum has built a massive ecosystem of DeFi and NFTs, the demand for ETH remains consistently high — every user of Ethereum-based services needs this token. As Ethereum’s popularity grew, so did the value of ETH. Since its launch, the network has processed millions of transactions, and ETH has secured its place among the largest crypto assets, demonstrating significant long-term price growth

• Binance Coin (BNB) – the token of Binance, the world’s largest crypto exchange, initially created to provide trading fee discounts. Over time, BNB evolved into a multifunctional asset: it is used for payments on Binance, participation in new token launches (Launchpad), transactions within Binance’s own blockchain (BNB Chain), and more. A key factor in BNB’s success was Binance’s direct integration of the token into its ecosystem, ensuring constant demand from traders and users. Additionally, Binance burns 20% of its quarterly profits by repurchasing and permanently removing BNB from circulation, reducing supply. This mechanism of increasing scarcity alongside growing usage created conditions for the exponential rise in BNB’s value. Starting in 2017 at less than $1, this utility token later surged to hundreds of dollars, entering the top five cryptocurrencies by market capitalization — driven by real utility for millions of users

• Chainlink (LINK) – the token of the decentralized oracle network Chainlink. Blockchain ecosystems require external data (exchange rates, event outcomes, etc.) for smart contracts, and Chainlink provided a solution. Oracle nodes that supply data to the blockchain are paid in LINK tokens. Thus, LINK has a clear utility: payment for Chainlink network services. The more projects that use oracles — such as DeFi protocols and NFT games — the higher the demand for LINK to compensate node operators. This practical necessity supported LINK’s long-term growth: as DeFi scaled in 2020–2021, Chainlink integrated widely, and its potential expanded alongside the growing demand for oracle services. LINK, initially a relatively niche token, entered the top 20 cryptocurrencies by 2021, reaching a multi-billion dollar market capitalization — largely due to its essential role in the smart contract infrastructure

(Other notable examples include Uniswap (UNI), which grants governance rights over one of the largest decentralized trading protocols in DeFi, and Maker (MKR), the governance token of MakerDAO, responsible for maintaining the stability of the DAI stablecoin. In both cases, the existence of real functions — governing critical DeFi protocols — ensures demand for these tokens and relative price stability)

Why projects without real utility fail

Not all crypto projects stand the test of time. Many tokens without real utility have experienced price surges driven by hype, only to lose their value just as rapidly. The main reason for such failures is the lack of fundamental value and practical application. When a crypto asset is issued solely to raise funds but fails to find real use, the market eventually catches on. Experts note that, in some cases, a token serves purely as a fundraising tool and holds no actual value after being sold. Essentially, investors are buying a promise — but if the product is never developed or the token has no role within the ecosystem, interest fades quickly

There are several common factors that cause projects without utility to lose market support:

• Lack of demand. If token holders have no reason to use the token (no services, functions, incentives for spending or staking), they sell it after the initial distribution. Without new buyers, liquidity dries up. As a result, the price may plummet by tens of percent and never recover — such tokens are often valued at nearly zero. A study of ICO projects found that less than half survive beyond the first four months after their token sale — the rest either fail to raise enough funds or shut down quickly due to a lack of value. This confirms that without demand, a project won’t last long

• Poor tokenomics. Many unsuccessful projects suffer from flaws in their token economy — such as excessive token issuance that dilutes investor shares or unfair distribution (where the team or insiders hold too large a share), leading to a lack of trust. If a token’s supply is too high while demand is low, its price inevitably falls. Moreover, if large holders control most of the supply and start selling, the market collapses. A well-designed tokenomics model should maintain scarcity and provide incentives to hold the token, but failing projects often lack these elements. Ultimately, an imbalanced model and lack of utility lead to a project’s downfall

• Speculative hype without a product. In 2017–2018, thousands of ICOs raised money on trendy promises (from “the next Ethereum” to “metaverse projects”) but never delivered a working product. While the market was hot, their tokens traded actively, but as the hype died down, investors abandoned the projects. Without development and real-world utility, these tokens quickly lost 90–100% of their value. The community stops supporting a project when it realizes that there is nothing behind the flashy idea. One key lesson from that era is that the market no longer falls for empty tokens — today’s investors scrutinize real utility and usage metrics before backing a project

Overall, the market values usefulness. Projects that fail to integrate their token into a product’s economy inevitably lose their audience. On the other hand, successful cases show that real utility builds strong communities and sustained demand, making a token’s growth justified. As analysts point out, a well-designed tokenomics model can incentivize user behavior and ensure a project’s long-term viability, while a flawed model leads to imbalances and, ultimately, the project’s failure. Thus, real value is the key factor distinguishing promising utility tokens from short-lived speculative bubbles

Final thoughts

Overall, the market values utility. Projects that fail to integrate their token into the product’s economy are destined to lose their audience. On the other hand, successful cases demonstrate that real utility fosters community engagement and sustained demand, making token growth justified. As analysts rightly point out, a well-designed token economy can incentivize user behavior and ensure the long-term viability of a project, whereas a flawed model leads to imbalances and, ultimately, the failure of a crypto project. Thus, having real value is the key factor that separates promising utility tokens from short-lived speculation