For those who were around since the early days of crypto, staking is far from a foreign concept - for early Layer 1 blockchains, it was a way for validators to align their interests with the network and at the same time get rewarded in the process. Staking has been utilized in other decentralized network and DAO-like governance functions, such as voting (and subsequently voting power). Currently, for many protocols and crypto projects, it is simply the most effective way to decrease circulating supply of a token in the market, and in return, awarding "HODLers" of a particular project's token or coin.
For all staking mechanisms currently available, there's one thing in common - there must be a pool or source of staking rewards. Different networks and protocols have different staking token economy design; some may have token supply allocation set aside for staking from inception, others source the rewards from an inflation mechanism, and some other Layer 1's may distribute rewards from utilized network fees, or gas. In most of these cases, it's providing an asset as a reward, in which it may be sold on exchanges or other liquidity sources (ie. Cashed out).
Now we understand that any blockchain-based network or protocol supposedly has a core value proposition, in other words a source of utility (hence value ultimately delivered to participants and users). Now assume that the use case of the protocol and value provided is both substantial as well as differentiated, meaning that a) the value is quantifiable and significant and b) there's few other sources where this value can be obtained, or at least through a Web 3-based manner. In such case, we can only assume that there is no lack of demand for such a protocol.
When demand is high for a protocol, in principle network resources may become scarce - in this case, it may make sense for a new staking model in which various staking "tiers" receive preferential treatment on the network in the form of features, user priority, rights, or even exclusivity. This we can understand as a form of utility-based staking instead of rewards-based staking; after all, why would one need staking rewards when the differentiated value delivered from the protocol is the "reward"?
This may be an interesting token economics model, especially for the stakeholders of the protocol and the token, as with growth of the userbase and ecosystem rapid appreciation of the token may ensue. To see how this is the case, remember that non-Web 3 tech (aka Web 2) still delivers much more economic output and value than the entire cryptosphere combined, with any major internet or software company delivering billions of dollars in revenue annually. Their revenues and profits derive from delivering higher value to their users than the cost of the product. In traditional tech, revenue and business models stem from the typical forms of product sales, SaaS subscriptions, PaaS (platform as a service), and IaaS (infrastructure as a service), and so on.
Now of course Web 3 business models are quite different - the notion of "revenue" is quite uncommon as a protocol may be developed by a decentralized organization (DAO) and may become an autonomous network over time. In the long run, a network may be "run" and "governed" by the majority of its users and other types of stakeholders (token holders). In this case, a network may require staking thresholds for any one participant in order to utilize the network for value at a particular benchmark or feature-set. As the number of users and the entire utility of the network scales, the token value may experience geometric growth due to depletion of circulating supply. Instead of receiving revenue and profits as in return for utility produced, the stakeholders as well as users (who are also stakers) may reap a higher economic output at a faster rate than a traditional revenue-based model.
Of course, this is all hypothetical may require a few assumptions to be true before the model works:
A. The network/protocol provides enough differentiated value with few similar alternatives on the market. Hence in the case of DeFi, this may not work as various platforms may provide "marginal" differentiation. Networks that deal with physical infrastructure, such as top-tier limited-supply GPUs, or exceptional sources of investment return, are examples which may have enough differentiation.
B. The network/protocol must have standalone utility independent from the number of users existing on the network - in other words there must not be a chicken and egg problem. In fact, the economics of the platform would be better suited if even if the opposite is the true, in that too many users erode the value of the platform, hence a non-linear rise in token price and making the barrier or usage higher for newcomers is a self-serving mechanism.
C. The network/protocol has a method of tapering off the staking tiers in case of rapid token appreciation. Staking tiers rising too fast in dollar value may set the barriers of entry too fast, too high for newcomers for the network to grow to an ideal scale.
D. The network/protocol is able to sustain or even increase its value delivered over time to prevent atrophy of userbase and fundamentals.
To this date I have rarely encountered a project, platform, or protocol with this utility-staking approach - except for one example that may serve as an interesting case. And this particular case we are referring to is a relatively unknown project called Phoenix. Apparently Phoenix is a platform that positions itself as a decentralized AI computing platform with various dApps built on its decentralized AI network. One of its main applications is as an AI engine for the crypto trading markets called AlphaNet. AlphaNet touts to deliver a previously unattainable trading edge for retail traders via AI models that underwent arduous experimentation and R&D.
Interestingly, the main model for AlphaNet is a "self-preserving" utility-staking mechanism, in which once utilized at a particular scale, is to spark a token appreciation process, making it harder for newcomers to access the potential profits from the platform and eroding the edge of the AI models (what they refer to as "alpha"), creating a "self-preservation" mechanism.
It appears that the project is in the process of launching this token economic model, which they refer to as "Hybrid Staking". If somehow things go well for them, they'll probably be the first one to pull this new token economy model.
