What Is the Concept of a “Protocol Sink” for Governance Tokens?
A protocol sink is a mechanism that encourages or requires users to lock up or use the governance token for a specific function, effectively removing it from the liquid circulating supply. Examples include staking for security, locking for boosted governance power, or using the token as collateral.
The sink creates sustained demand and reduces velocity, thereby increasing scarcity and supporting a higher intrinsic value for the token.
Glossar
Revenue Sharing
Distribution ⎊ Revenue sharing, within cryptocurrency, options trading, and financial derivatives, represents a contractual allocation of generated income amongst participants, typically proportional to their contribution or risk exposure.
Token Burn
Process ⎊ A Token Burn is the intentional, cryptographic destruction of a quantity of digital assets, executed by sending them to a publicly verifiable, non-recoverable address on the blockchain.
Intrinsic Value
Valuation ⎊ This represents the in-the-money amount of an option, calculated as the difference between the spot price and the strike price, if positive, otherwise zero.
Sustained Demand
Trend ⎊ Sustained demand refers to a consistent and long-term buying pressure for an asset, indicating fundamental strength rather than short-term speculation.
Protocol Sink
Architecture ⎊ The Protocol Sink, within the context of cryptocurrency derivatives and options trading, represents a designated endpoint or receptacle designed to absorb and process settlement flows originating from decentralized protocols.