Lesson 4 - When Yield Is Paid Now - and Collected Later

When dilution becomes visible, participation slows.
When it becomes invisible, participation accelerates.

This is why systems rarely present dilution directly. Instead, they build sinks - mechanisms that absorb tokens, lock them, burn them, convert them, or delay their re-entry into circulation. These actions feel constructive. They suggest discipline, scarcity, alignment.

They are not inherently deceptive.
But they are often misunderstood.

A token sink does not eliminate cost.
It rearranges timing.

Burns reduce supply now but do not erase the fact that value was already distributed earlier. Locks restrict circulation temporarily but do not change ownership. Vesting stretches dilution across months or years, smoothing its impact on price while preserving its effect on supply.

These mechanisms are not neutral.
They are accounting choices.

Their purpose is to manage perception while maintaining incentive pressure. By slowing the appearance of dilution, systems can continue issuing rewards without triggering immediate resistance. The cost still exists - it is simply paid later, by holders who were not present when the incentives were distributed.

This is how dilution becomes disguised.

Participants are shown sinks and told a story about discipline: emissions are “offset,” supply is “controlled,” incentives are “earned back.” What is rarely shown is the full balance sheet - issuance minus sinks over time, adjusted for participation decay and exit behavior.

Without that view, the system feels stable even as it leans on the future.

Token sinks are most effective when combined with yield.

Rewards are paid in a token.
That token is encouraged to be locked, burned, or staked.
The act of receiving yield creates demand for the very mechanism that hides its cost.

This reflexive loop feels elegant.
It is also fragile.

If participation slows, sinks lose effectiveness. If confidence drops, locks are viewed as constraints rather than commitments. If alternatives appear, delayed dilution becomes concentrated dilution as exits align.

None of this requires bad design.
It requires only changing conditions.

The critical mistake is to treat sinks as value creation rather than value timing. They do not make emissions harmless. They make them tolerable - until they are not.

This is why systems that rely heavily on sinks must continually maintain belief. Not in the token itself, but in the narrative that tomorrow will absorb today’s cost. As long as that belief holds, the system functions. When it weakens, the arithmetic surfaces quickly.

Understanding sinks does not tell you what will happen next.
It tells you what has already happened - and who paid for it.

In the final section, we strip away abstraction entirely. We look at real systems, real histories, and real outcomes - not to assign blame, but to make the patterns unmistakable.

Takeaway: Token sinks don’t remove dilution - they postpone who feels it, and when.