**90% of Web3 tokens fail.** This guide reveals the 7 failure patterns, provides a necessity test framework, and explains what separates tokens that survive from those that shouldn't exist. Use this before designing your tokenomics.

The data is clear: 90% of tokens fail. But the failure isn't random. It follows a pattern. I've spent eight years helping Web3 projects design tokenomics. I've sat in pitch meetings where founders explained their "utility token" with genuine conviction. I've reviewed whitepapers that described staking mechanisms, governance rights, burn functions, and access passes. I've watched teams spend months engineering token systems. Then I started tracking what happened next. Of the projects I advised between 2021 and 2024, the ones with the most "utility features" failed fastest. The ones with simpler designs, or no token at all, survived. This shouldn't happen. More utility should mean more value. That's the conventional wisdom. But the data says otherwise. ## The Uncomfortable Numbers Let's start with what we know.

**1.8 million tokens failed in Q1 2025 alone** — CoinGecko reports this represents 49.7% of all project closures between 2021 and 2025.

Let that sink in. Half of all token deaths in a four-year period happened in three months.

**53% mortality rate** — Of the roughly 7 million cryptocurrencies listed since 2021, 3.7 million have died. Among Web3 startups specifically, the failure rate hits 90%.

These aren't memecoins. Many of these were "utility tokens" with staking, governance, and carefully designed tokenomics. So what's going wrong? ## The Utility Paradox Here's what most tokenomics guides miss: **utility doesn't create demand. It creates complexity.** When you add staking, you need to manage emissions. Emissions dilute supply. Dilution creates sell pressure. To counter the sell pressure, you add more utility. More utility means more complexity. More complexity means more surface area for failure. It's a doom loop disguised as product development. But wait. Doesn't Ethereum have utility? Doesn't Chainlink? Yes. And notice what kind of utility: **essential utility**. You cannot use Ethereum without ETH. The token isn't bolted on. It's load-bearing. Remove it and the protocol breaks. For 99% of projects, this isn't the case. The token is decorative. And decorative utility signals something troubling: you're manufacturing reasons to hold because you don't have real ones. ## The Seven Patterns of Tokens That Shouldn't Exist After analyzing hundreds of token designs, both successful and failed, I've identified seven recurring patterns that predict failure. If your project matches any of these, your token probably shouldn't exist. ### 1. The "Problem-Solution Inversion" The project introduces friction that didn't exist before, then positions the token as the solution. *Example:* A file storage platform works fine with standard payments. The team adds a native token. Now users must buy the token to pay for storage. The token "solves" a problem the token created. This is demand engineering, not utility. ### 2. The "Payments Token" (That Accepts Everything Else) If users can pay with stablecoins, ETH, or credit cards just as easily, the token isn't necessary. "Pay with our token" isn't utility. It's forced buy pressure with extra steps. ### 3. The "Discount Coupon" Token Loyalty rewards don't need global liquidity, 24/7 trading, governance, or bridges. If your token functions like airline miles, it should be a database entry. ### 4. The "Governance Theater" Token Governance voting sounds meaningful. But if the votes are non-binding, cosmetic, or easily overridden by the team, it's theater. Vitalik Buterin's critiques of coin-voting are well documented. Plutocracy and vote-buying dynamics are known failure modes, not edge cases. The token engineering community has a term for this: governance without a meaningful control surface. ### 5. The "Mercenary Capital" Token Liquidity mining creates rented liquidity. When emissions drop, capital leaves. The TVL spike looks like traction. It's actually a liability. You've seen this play out. Project launches aggressive farming rewards. TVL spikes. Team celebrates. Rewards decrease. TVL collapses. Token dumps. Team pivots to "community focus." That's not adoption. That's extraction with a delay. ### 6. The "Roadmap Utility" Token The token trades now. The utility is coming "soon." This pattern increases legal risk, reduces product discipline, and trains your holders to sell rather than use. If your utility requires three more roadmap milestones, you're selling a promise, not a product. ### 7. The "Revenue-Less" Token Of the tokens that aren't outright scams, most share a fatal flaw: revenue the protocol generates doesn't accrue to token holders. A token without value accrual is just a reward system. A protocol without value capture is just leaking value. If there's no structural mechanism for the protocol to retain value, and no way for that value to flow to the token, you're building a machine that bleeds economic energy until it dies. ## The Necessity Test: Does Your Token Deserve to Exist? Here's the framework I use with every project I advise. ### Step 1: The Trust Model Test A token is more justified when the system must operate permissionlessly, with untrusted participants, and no single operator can be relied on. If you can run it as a normal company, use standard accounts and payments, contract vendors for services, and ship updates centrally, the token must clear an extremely high bar to justify its existence. ### Step 2: The Counter-Factual Test Ask: "Would removing the token break the product?" - If the answer is "it would work the same" → Token not needed - If the answer is "key features would break" → Token may be justified - If the answer is "we couldn't raise money" → Token is a fundraising vehicle, not utility Be honest. Most founders fail this test when they're honest. ### Step 3: The Enforceability Test Utility must be enforced, not described. **On-chain enforceability** means smart contract logic requires the token for the critical action. No workaround. No alternatives. **Legal enforceability** means if your token represents a claim like revenue share or asset backing, those rights must survive disputes. "Utility token" language doesn't override how regulators evaluate economic reality. ### Step 4: The Incentive Integrity Test Does the token create incentives that remain valid after subsidies end? If your token only works during the emissions phase, it doesn't work. Sustainable tokens function when external rewards go to zero. ## The Checklist If you're designing a token, answer these questions before you ship: - **What scarce resource does the token allocate?** (Blockspace, bandwidth, storage. Real scarcity, not manufactured scarcity.) - **What security property does it provide?** (Collateral, slashing, Sybil resistance) - **Which independent actor group is incentivized, and why can't you just pay them normally?** (Validators, relayers, keepers) - **What critical action is impossible without the token?** (Enforced on-chain, not optional) - **What happens when incentives go to zero?** (Does the system still work?) - **Who benefits most from price appreciation, and is that aligned with users?** - **Is the token replacing a normal business model because the normal model wouldn't work?** (Red flag) If you can't answer these clearly, your token probably shouldn't exist. ## The Uncomfortable Truth Here's what I wish someone had told me eight years ago: Adding utility is often a substitute for building something people actually want. It's a way to manufacture holding behavior without earning it. And sophisticated players, the ones with capital, see through it immediately. The projects that succeed aren't the ones with the most clever tokenomics. They're the ones building something so valuable that the token is almost an afterthought. The 1.8 million tokens that died in Q1 2025 didn't fail because they lacked utility features. They failed because they never should have been tokens in the first place. ## What to Do Instead If you're building a token now: **First,** honestly assess whether your project needs a token at all. Most don't. If your answer to "why a token?" is "to raise money," that's not a product reason. That's a financing reason. Recognize the difference. **Second,** if you do need a token, make the utility essential, not decorative. Can users access your core value without the token? If yes, your utility is decorative. **Third,** design for sustainability, not launch. What happens when emissions end? What happens when the hype fades? If your token only works during the excitement phase, it doesn't work. The hardest part is honesty. Most founders don't want to hear that their token shouldn't exist. But the alternative, building something that joins the 90% failure rate, is worse.

**Before launching a token, verify these three things:** 1. **Essential utility test** — Would removing the token break your product? If not, you don't need one. 2. **Sustainability test** — Does your token work when emissions and hype reach zero? 3. **Value accrual test** — Does protocol revenue flow back to token holders through a structural mechanism? If you can't pass all three, your token probably shouldn't exist.

## Your Token Doesn't Have to Fail We've helped dozens of Web3 projects answer the hard questions about token design, including whether they need a token at all. At SKRY Labs, we specialize in token utility architecture for projects that want to build something that lasts. We've worked with enterprise clients and early-stage teams alike, and we start every engagement the same way: with the necessity test. If you're designing tokenomics and want clarity before you ship, let's talk. On the call, we'll: - Run your project through the necessity framework - Identify the specific risks in your current design - Map out what a sustainable model would look like for your use case No pitch, no pressure. If we're a fit to work together, we'll tell you. If not, you'll still leave with actionable clarity on whether your token deserves to exist. Book Your Token Strategy Call → Not everyone needs this. But if you're about to launch something, an outside perspective might save you from joining the 90%.