Network development phases

The objectives of a Web3 network change as it develops. A newly launched network has different funding, adoption and liquidity requirements from a mature network used by a global population.

During the earliest stage, the network needs to attract developers, node operators, applications, users and investment. The number of productive uses for the network coin may be limited, so holding it as an investment can be an important source of demand.

As applications and economic activity grow, coin usage becomes more important. The network needs continuing income for operation and development, while users require greater access to the coin.

At maturity, ownership concentration and long-term availability become more significant concerns. The network is no longer primarily trying to establish itself; it is trying to remain secure, decentralised and useful as shared infrastructure.

These stages can be described as the genesis phase, the growth phase and the dispersion phase. They are not strict technical states with universally applicable boundaries. A network may move between them gradually, and different parts of the ecosystem may mature at different rates.

The framework illustrates how the balance between investment, storage, circulation and demurrage can change over time.

Genesis phase

The genesis phase begins with the launch of the network and its initial allocation of coins.

At this stage, the network may have few users, applications or financial markets. Its technical infrastructure may still require substantial development, and its long-term viability remains uncertain.

The network needs enough funding to operate while its internal economy is being established. It also needs to convince participants that building applications, operating nodes and holding the coin are worthwhile.

A genesis allocation can provide the initial resources required to begin this process.

Genesis allocation

A genesis allocation is the initial distribution of network coins created when the network launches.

Some coins may be allocated to founding organisations, developers, early contributors, investors, node operators, community members and a treasury.

The allocation can fund technical development and applications before the network generates substantial fee or demurrage income.

A treasury holding part of the genesis supply can pay contributors in the network coin. Recipients can retain the coin, use it within the emerging ecosystem or exchange it for other assets needed to cover development expenses.

The effectiveness of this arrangement depends on the coin having enough demand and liquidity. A treasury may hold many coins, but it cannot fund substantial work if no one is willing to accept or purchase them.

Attracting initial investment therefore increases the practical purchasing power of the genesis treasury.

Founding entities

Founding entities are commonly responsible for creating the initial software, coordinating the launch and establishing the early governance and funding processes.

Their immediate objective is to demonstrate that the network can operate reliably and that its resources can be used effectively.

They need to fund continuing protocol development, security work, documentation and the first applications. They may also need to attract node operators and create the markets through which people can obtain the network coin.

Founding entities benefit from a coin with sufficient demand because a higher market value increases the purchasing power of the treasury and other initial allocations.

However, they also need to avoid excessive control. If a small number of founding organisations control most of the supply, node operation, development and governance, the network may be decentralised in name but not in practice.

Contributors

Contributors in the genesis phase may include protocol developers, application developers, security specialists, researchers, designers and people building community infrastructure.

The genesis allocation provides an initial source of compensation for their work.

Contributors benefit when the coin has enough market value to cover real expenses. If the coin is highly illiquid or volatile, accepting it as payment becomes risky.

The network must decide which initiatives are most important when resources are limited. Core infrastructure, security and applications that create genuine reasons to use the network may need to receive priority.

The early funding process also establishes expectations for later treasury governance. If genesis funds are distributed without clear objectives or accountability, participants may be less willing to support a recurring network charge in the future.

Founding entities and contributors therefore need to demonstrate that ecosystem funding can produce useful and observable outcomes.

Community members and investors

Community members may purchase or earn the network coin because they expect the network to grow.

During the genesis phase, investment demand can be greater than demand arising from practical use. Few applications exist, and transaction activity may be limited.

Holding the coin provides capital to existing sellers and can support its market value. This increases the purchasing power of the treasury and the rewards available to contributors.

Early holders accept substantial risk. The network may fail technically, struggle to attract users or be outcompeted by another system.

Potential appreciation compensates participants for taking this risk. A network that immediately imposes a high carrying charge may find it more difficult to attract early capital when productive uses for the coin are still limited.

This creates a case for delaying demurrage or beginning with a low rate during the genesis phase.

Coin storage during the genesis phase

Coin storage is not necessarily harmful during the earliest stage.

The network has limited transaction demand and few financial protocols in which coins can be used productively. Requiring every holder to circulate the coin would not create useful activity if the necessary applications and markets do not yet exist.

Holding can demonstrate confidence in the network and provide investment demand. A rising coin value can extend the life of the genesis treasury by increasing the amount of external goods, services and labour it can purchase.

The network may therefore tolerate or encourage more storage during this phase than it would after achieving broad adoption.

However, early storage creates a risk of persistent ownership concentration. Participants who acquire large genesis positions may retain disproportionate influence after the network matures.

The initial allocation and any staking rewards should be designed with this long-term effect in mind. A later demurrage charge can counteract concentration, but it cannot guarantee that every initial imbalance will disappear.

Coin usage during the genesis phase

Coin usage is likely to be relatively low.

Transactions may consist primarily of initial distributions, investment activity, node rewards and payments to contributors. The coin may also be traded as participants form expectations about the network’s future.

The limited velocity is not necessarily evidence of failure. The network is still constructing the applications and relationships that will create practical demand.

Usage should nevertheless begin expanding beyond speculative trading. The network needs applications through which the coin supports fees, liquidity, collateral and other useful functions.

If practical use does not emerge, the market value may remain dependent on expectations of future appreciation rather than current utility.

Funding during the genesis phase

The genesis treasury must balance immediate development with preservation of enough resources for the network to reach a sustainable stage.

Spending too little can slow development and leave the network without useful applications. Spending too quickly can exhaust the treasury before recurring income exists.

The funding process should also avoid creating unnecessary project tokens merely to attract private investment. Some applications may require their own tokens, while others can operate using the network coin or no additional fungible asset.

Genesis funding can support open-source and public infrastructure that private investors may not otherwise finance.

The network should use this period to test how initiatives are evaluated, monitored and funded. These processes will become more important if demurrage later produces continuing treasury income.

Conditions for leaving the genesis phase

The network begins moving beyond genesis when it has a functioning protocol, a sufficiently reliable set of node operators and an expanding collection of applications and users.

The coin should have enough liquidity for contributors and operators to exchange it without severe price disruption.

The treasury and funding process should also have demonstrated some ability to allocate resources effectively.

Recurring network costs become more visible as the initial allocation is spent. At this point, relying solely on genesis funds becomes less sustainable.

The network can then consider introducing or increasing demurrage to generate continuing income and encourage more productive coin use.

Growth phase

The growth phase begins when the network has functioning infrastructure and an expanding base of users and applications.

Economic activity becomes a more important source of coin demand. Users require the coin for network fees, while financial protocols create opportunities for liquidity, lending and collateral.

The network still needs investment, but its focus begins shifting from proving that the technology works to expanding adoption and building a sustainable economy.

This is the phase in which introducing a network-coin carrying charge becomes more practical.

Introducing demurrage

Demurrage does not need to begin at its eventual mature rate.

A network can introduce a low charge and observe how users, markets and applications respond. The rate can increase gradually as productive uses and liquidity become available.

Introducing the charge too early may discourage investment before the network has demonstrated sufficient utility. Introducing it too late may allow ownership and governance influence to become deeply concentrated.

The appropriate timing depends on the availability of alternatives to idle storage. Holders should have meaningful opportunities to stake, lend, provide exchange liquidity, invest or spend their coins.

The carrying charge can then redirect behaviour towards existing productive uses rather than merely pushing holders out of the asset.

Growth-phase treasury income

A periodic network-coin charge creates recurring income for the treasury.

Unlike the genesis allocation, this income can continue as long as the charge remains in effect and the coin retains value.

The treasury can use the income to compensate node operators, improve the protocol and fund new applications. It can also reduce dependence on transaction fees.

The amount collected should not accumulate indefinitely. Treasury coins need to return to circulation through expenditure on useful work.

A recurring income stream creates pressure to maintain a funding process capable of evaluating and supporting initiatives continuously. If the treasury collects more than it can spend effectively, increasing the rate further is not justified.

The sustainable charge depends partly on the return generated through treasury expenditure.

Founding entities during growth

Founding entities remain important during the growth phase, but their role should begin changing.

They may continue maintaining core software and coordinating security, but more contributors and organisations should become capable of performing these functions.

The founding entities need to demonstrate that the network can use demurrage income effectively. Participants paying the charge will want evidence that funded activity improves operation, security, adoption or other shared objectives.

Founding organisations may initially retain authority to moderate funding and prevent obvious abuse. This can protect the treasury while governance systems remain immature.

However, permanent dependence on the founding entities would create a central point of control. Their stewardship should gradually become accountable to and replaceable by the wider community.

Contributors during growth

The growth phase creates more opportunities for contributors.

Treasury income can support protocol development, applications and public infrastructure without requiring every project to issue a separate token or generate an immediate private return.

Contributors are incentivised to demonstrate impact because successful work increases the likelihood of receiving future funding.

If the network grows, the purchasing power of treasury income may also increase. This can attract highly skilled contributors who might otherwise work for established companies or other ecosystems.

The funding process should allow contributors to move between initiatives rather than locking them permanently into one project. Resources can then follow the areas where work is most needed.

The quality of contributor selection and evaluation becomes a major determinant of network growth.

Community members during growth

Community members continue to benefit from network growth.

They pay some demurrage but may also experience coin appreciation as more applications and users create demand. The value of the remaining coins can increase even while the nominal balance declines.

Holding may therefore remain profitable during this phase. If appreciation and low-risk financial yields exceed the carrying charge, large balances can continue growing in purchasing power and possibly in nominal units.

This is not necessarily undesirable while the network is still attracting capital and expanding. Investment demand helps fund development and supports the coin’s market value.

However, the network should monitor whether ownership concentration is becoming more severe. The carrying charge may need to rise gradually as growth stabilises and the coin becomes more widely required.

Coin storage during growth

Coin storage remains economically significant during the growth phase, but its role begins to change.

A holder may retain coins because they expect appreciation, while also committing them to staking, liquidity or collateral positions.

The distinction between idle and productive storage becomes more important. Coins held in a liquidity protocol support exchange, while coins in an inactive wallet provide little direct utility.

Differentiated demurrage rates can encourage productive commitment. Idle balances can face a higher rate, while recognised positions receive a reduction.

The network must ensure that reduced rates do not allow holders to avoid demurrage through nominal or artificial activity. A position should provide genuine availability, security or financial utility.

Coin usage during growth

Coin velocity should increase as the number of applications and users grows.

More transactions create demand for fees, while token markets require liquidity. Lending and collateral agreements provide additional uses.

Demurrage reinforces this trend by making inactivity more costly. Participants have more reason to move coins into available protocols or exchange them for goods, services and investments.

The carrying charge is most effective when the ecosystem already offers productive alternatives. It cannot create useful applications by itself.

Growth-phase treasury expenditure and demurrage therefore support one another. Treasury funding creates new uses, and the carrying charge encourages holders to participate in those uses.

Balancing growth and dispersion

The network still wants investment during the growth phase, but it also needs to begin dispersing ownership.

A demurrage rate set far above expected appreciation and financial yields may push early investors out before the network has achieved stable adoption.

A rate set far below low-risk yields may generate treasury income without reducing concentration. Large holders can earn enough through staking or lending to offset the charge.

The balance may change over time. During rapid growth, some net return for holders can be accepted as compensation for investment risk. As the network matures and risk declines, the rate can place greater emphasis on dispersion and availability.

The network should not assume that the same rate is appropriate throughout its lifecycle.

Network effects during growth

Network effects become increasingly important as the network expands.

More users attract applications, while more applications attract users. More tokens create demand for exchange markets, and deeper liquidity makes the network more useful for additional tokens.

The network coin can connect these effects by acting as a common liquidity asset.

Strong network effects increase the value participants receive from the ecosystem. This may allow the network to sustain a meaningful demurrage rate without losing users to cheaper competitors.

However, the network should not rely on deliberate lock-in. Open-source applications, portable data and interoperable assets allow participants to move.

The strongest long-term effect comes from genuine efficiency and utility, particularly deep financial liquidity that cannot be reproduced immediately by a new network.

Conditions for leaving the growth phase

The network begins moving towards maturity when adoption is broad, core infrastructure is stable and the rate of growth becomes more predictable.

The genesis allocation is no longer the principal funding source. Recurring income is sufficient to support node operation and continuing maintenance.

Governance should also be distributed more broadly. Founding entities should no longer be the only organisations capable of maintaining the protocol or administering funding.

At this point, the network’s priorities shift further from attracting initial capital towards maintaining availability, decentralisation and long-term reliability.

The relationship between demurrage and low-risk yield becomes especially important.

Dispersion phase

The dispersion phase is the mature stage in which the network prioritises broad access and prevents persistent concentration of coin ownership.

The term does not mean that every participant holds the same number of coins. It means that the economic system no longer provides a low-risk mechanism through which large existing balances can grow indefinitely.

A key condition is that the effective demurrage rate exceeds the aggregate return available from low-risk holding, staking and lending.

When this occurs, a participant cannot maintain a large balance through low-risk financial activity alone. They must earn additional coins, accept greater risk or purchase replacements.

The result is a gradual tendency for inactive and low-risk balances to decline.

Nominal balances and purchasing power

A holder can lose nominal units while preserving or increasing purchasing power.

Suppose the coin appreciates because the mature network continues growing modestly. A holder paying demurrage may possess fewer coins at the end of the year, but each remaining coin may be worth more.

Dispersion therefore does not require every holder to experience a financial loss in real terms.

The distinction matters because the network can reduce ownership concentration while the coin remains attractive as an asset.

If appreciation consistently exceeds the carrying charge, however, the incentive to store remains strong. The network may need a higher rate or a supply policy that reduces appreciation.

The objective is to prevent passive ownership from producing both increasing purchasing power and an increasing share of the total coin supply without corresponding contribution.

Founding entities at maturity

By the dispersion phase, founding entities should no longer possess indispensable control over the network.

Protocol maintenance, node operation, governance and treasury administration should involve a wider range of independent participants.

Founding organisations may continue contributing knowledge and development work, but the network should be capable of replacing them if they leave or lose the community’s confidence.

The governance structure must be effective enough to manage the demurrage rate, treasury expenditure and other necessary parameters without depending on permanent central stewardship.

This transition is important because a mature network may hold substantial economic and social importance. Its operation cannot remain dependent on the preferences or survival of its original founders.

Contributors at maturity

A mature treasury can support a substantial and continuing contributor community.

The core protocol may require less rapid development than during the growth phase, but maintenance, security review and research remain necessary.

Applications and public infrastructure may also continue evolving.

The funding process should be well established and capable of distinguishing maintenance from speculative development. Contributors should receive compensation based on useful work rather than access to political or governance influence.

As the network’s value grows, even a modest carrying charge may generate significant funding. This increases both the opportunity for valuable work and the risk of treasury capture.

Transparent evaluation and decentralised oversight become increasingly important.

Community members at maturity

Community members face different incentives during the dispersion phase.

Passive storage is no longer the obvious strategy. Low-risk yield may offset part of the carrying charge but should not consistently exceed it.

Holders are encouraged to determine how much liquidity they genuinely require and move excess balances into productive investments or other assets.

They may still hold network coins for fees, consensus, collateral and exposure to the network’s continued growth. The coin does not become undesirable; its quantity becomes costly to maintain without contribution.

The network can use tax reductions to direct coins towards liquidity, lending and security. Community members choose between paying the full cost of inactivity and accepting the opportunities and risks associated with productive use.

Coin storage at maturity

Idle storage should decline during the dispersion phase.

Large inactive balances face continuing charges, and replacing the collected coins becomes expensive if the coin retains substantial value.

A participant can still preserve a balance by earning coins through labour, business activity or risk-bearing investment. Demurrage does not prohibit wealth accumulation.

It changes the conditions under which accumulation occurs. Existing ownership alone is less capable of sustaining an indefinitely increasing position.

This supports circulation and makes more coins available to participants providing goods, services and contributions.

The network should continue allowing working balances. Ordinary users need enough coin for transactions and short-term obligations. A proportional charge ensures that the nominal cost remains small for small balances.

Productive coin use at maturity

Coin usage should be highest during the mature stage because the network contains a developed set of applications and financial protocols.

Users can employ the coin for transaction fees, staking, liquidity, lending and collateral. Businesses may accept it directly, even though tokens remain the more flexible basis for community-specific money.

Demurrage strengthens the incentive to use these available functions.

The network should periodically evaluate whether its incentives still direct coins towards genuine utility. A protocol that was important during the growth phase may become less relevant, while a new form of financial activity may provide greater value.

Changes should remain infrequent and predictable. Mature users and applications depend on stable rules.

Treasury expenditure at maturity

A mature network may generate more demurrage income than is required for node operation and core maintenance.

The community must decide whether to reduce the rate or direct the excess towards broader public goods.

Reducing the rate lowers the cost imposed on holders but may weaken dispersion and increase storage. Continuing the rate can fund research and other shared initiatives, but only if the expenditure produces sufficient value and has legitimate community support.

The treasury should not accumulate an ever-growing balance. Collected coins must return to circulation or the treasury itself becomes a source of monetary retention.

The effectiveness and legitimacy of expenditure place a practical limit on the rate the network can sustain.

The network as a public utility

During the dispersion phase, the network may function as widely used public infrastructure.

Its objective is no longer simply to increase the market value of the coin or outperform competitors. It must provide reliable access to transactions, digital assets and applications.

The network coin supports this utility by funding operation and coordinating participation.

Demurrage becomes more important as dependence on the network grows. A coin required for access should not become permanently concentrated among a small number of passive holders.

Broad availability and decentralised ownership support the network’s public function. The coin remains valuable, but it does not become the final objective of activity within the ecosystem.

Changing priorities over time

During genesis, the principal priorities are initial funding, technical reliability and the creation of useful applications. Investment and coin storage provide important support.

During growth, continuing treasury income, productive use and increasing velocity become more important. Demurrage can be introduced gradually as alternatives to idle storage develop.

During dispersion, broad availability and decentralised ownership become central. The carrying charge should make persistent low-risk concentration difficult while preserving enough demand to support security and operation.

This lifecycle approach avoids treating demurrage as an unchanging requirement applied identically from launch. Its timing and rate should reflect the network’s development, available uses and dependence on the coin.