The crypto ecosystem often operates like a player-versus-player (PvP) environment, where participants compete to maximize returns through staking, mining (and Minter Extractable Value; MEV), and trading. In this context, understanding the mechanics of value extraction is crucial to assessing the sustainability and long-term impact of protocols on token holders and the broader ecosystem. This article explores the interplay between inflation, staking yields, mining costs, and the rapid emergence of new protocols. Finally, we introduce Nexlabs, a protocol that offers a net positive by providing real-world financial services and income-generating index products based on Real World Assets (RWAs).
Inflation and Staking: The Reality of Locked Capital
When evaluating the returns from staking in the crypto world, it’s essential to compare them with more traditional, risk-free alternatives. Many crypto protocols experience an average inflation rate between 5-15% annually, driven by the creation of new tokens. Staking yields are typically 8-12%, but when adjusted for inflation, the real return on staked assets are often negative.
In contrast, traditional financial markets offer "risk-free" interest rates (such as U.S. Treasury bonds), which have averaged around 4-5% in 2024. These investments not only provide stable returns but also maintain liquidity, meaning investors can access their cash without locking it up.
Staked assets, on the other hand, represent idle capital, often tied up and not actively invested in productive assets that generate real-world cash flows or dividends. While staking secures the network, it doesn’t offer meaningful real-world returns when compared to traditional investments. This highlights a key drawback of staking: participants might secure the network but fail to capture tangible, long-term economic value.
New Protocols and Inflation: A Growing Challenge
The crypto landscape is characterised by the continuous creation of new protocols, each offering its own tokenomics model. On average, 5-10% of the protocols active in the crypto space today are newly created each year. These new protocols often introduce significant inflation by issuing tokens to bootstrap liquidity and attract users. However, the rush to incentivize participation with unsustainable yields or rewards exacerbates inflationary pressures, diluting the value of existing tokens.
Proof of Work and Mining Costs: Quantifying Value Extraction
For Proof of Work (PoW) blockchains, like Bitcoin, the mining process is central to value extraction but comes with high costs. Mining relies on vast amounts of energy consumption, and miners are constantly competing to solve complex cryptographic puzzles to earn rewards. The cost of mining is significant.
On average, it costs around $0.35 to $0.50 in electricity to mine $1 worth of Bitcoin.* Gold costs an average of $0.68 to mine a $1 of which 20-25% is made up by electricity and fuel, thus only $0.15 goes to waste.**
The PvP Environment and the Next Narrative
Crypto traders are often driven by the hunt for the next narrative, constantly seeking new opportunities that promise high returns. This is a natural consequence of the PvP nature of the ecosystem—participants must stay ahead of the competition to extract value. However, this approach can lead to a narrow focus on short-term gains, where participants chase trends like DeFi, NFTs, or meme tokens, while overlooking the long-term utility or service that a protocol could provide. As a result, many projects fail to contribute meaningful value to the broader ecosystem, instead creating cycles of speculation and inflation that harm long-term growth.
Nexlabs: A Net Positive Protocol for the Crypto Ecosystem
Amid the competitive PvP environment in crypto, Nexlabs stands out as a protocol that focuses on providing real, lasting value. Nexlabs does not simply tokenize Real World Assets (RWAs) but creates index products based on them. These index products bring real economic value into the crypto ecosystem by diversifying investors’ exposure to tangible, income-generating assets, such as real estate and commodities.
Key Features of Nexlabs:
- Index Products Based on RWAs: Nexlabs uses RWAs to create index products that provide exposure to stable, income-generating assets. This approach reduces the reliance on speculative crypto mechanics and instead connects the digital world to the real economy, offering consistent returns.
- Traditional Financial Services in a Crypto Context: Nexlabs offers services traditionally associated with banks, such as asset management, custody, transferring assets, and conversion. These services create real utility for participants, providing a bridge between crypto and traditional finance, and bringing in value from outside the ecosystem rather than relying on speculative tokenomics.
- Yield and Dividends: Unlike typical staking or liquidity farming rewards, which can fluctuate wildly depending on market conditions, Nexlabs generates yield and dividends from the real-world assets it represents. For example, a real estate-based index product could offer 5-7% annual yield, comparable to traditional financial instruments like REITs (Real Estate Investment Trusts), thus providing a more stable and sustainable income stream for investors.
- Net Positive for the Ecosystem: By offering services that go beyond speculative token trading, Nexlabs introduces long-term, stable growth into the ecosystem. It brings new money into the crypto space by linking it with the real economy, offering sustainable value that strengthens both the crypto market and traditional finance. This focus on tangible, productive assets helps to stabilise token values and reduce inflationary pressures.
Conclusion
The PvP nature of the crypto ecosystem drives competition for value extraction through staking, mining, and trading. However, this focus on short-term gains, combined with inflationary pressures and the constant creation of new protocols, often leads to devaluation and unsustainable growth.
Nexlabs offers a solution by integrating traditional financial services and real-world asset-backed index products into the crypto ecosystem. Its focus on generating real-world yield and dividends, rather than speculative token rewards, makes it a net positive for the space. By bridging the gap between crypto and traditional finance, Nexlabs helps to foster a more stable, sustainable future for investors and the broader ecosystem.
More about fundamental understanding of crypto?
Read: The Bitcoin Trilemma: Navigating the Future of Cryptocurrency, here
Read: Revolutionizing the Future: Blockchain's New Frontiers in Infrastructure, Social Media, and Science, here
Understanding ERC-4626: Tokenized Vault Standard and Its Key Functions, here
References
U.S. Treasury Yield Data (2024):
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
Bitcoin Energy Consumption Index:
https://ccaf.io/cbeci/indexNew Protocol Growth Data (2024) from Crypto
World Gold Council - Gold Mining Costs: https://www.gold.org/goldhub/research/costs
Market Analytics:
https://www.theblock.co/data/crypto-market
Nexlabs:
https://www.nexlabs.io/
