The rise of revenue-sharing tokens is redefining the crypto panorama, bridging the hole between speculative buying and selling and tangible worth. By instantly linking token holder returns to mission progress, these progressive mechanisms aren’t solely attracting buyers but additionally reshaping decentralized finance (DeFi).
As pioneers like Aerodrome, Raydium, and Bananagun showcase the potential of aligning incentives, the stage is ready for a brand new period in crypto funding — one the place sustainable progress meets progressive regulatory adaptation. On this evolving ecosystem, the chance for basic buyers has by no means been extra promising.
Over the previous few years, given the existential enterprise threat introduced upon by Securities and Trade Fee (SEC) enforcement actions, the overwhelming majority of DeFi functions selected to pause all worth accrual discussions indefinitely. This determination, whereas logical underneath the circumstances of the time, was massively detrimental to the trade. Many DeFi tokens with none direct tie to the success and progress of the underlying enterprise had been deemed to be ineffective and underperformed the market.
The election of Donald Trump and the anticipated regulatory easing for the crypto trade has flipped this dynamic on its head. DeFi protocols now anticipate that standard worth accrual mechanisms will carry far much less related threat. Reluctant DeFi initiatives are additionally being compelled to reckon with the advantages these mechanisms have had for the initiatives courageous sufficient to implement them.
On this publish, I spotlight three functions which have taken totally different approaches to ship financial worth again to their token holders. All three have been very profitable, seeing big features in each the quantity of individuals utilizing their merchandise and their tokens’ costs. The success of those initiatives gives examples of potential strategies extra reluctant DeFi protocols may implement underneath a extra progressive regulatory framework.
Aerodrome
Aerodrome is the dominant decentralized alternate on Coinbase’s Ethereum Layer 2 (L2), Base. In crypto markets, governance has been challenged by contributors prioritizing short-term features over the long-term well being of the enterprise. Aerodrome addresses this with a system wherein token holders are incentivized to be long-term lively contributors within the community.
To have most impression on governance issues, holders should lock their tokens for an extended period, offering them with better voting energy. With this voting energy and continued participation in governance, this group of token holders are entitled to 100% of the income the alternate generates from buying and selling charges and bribes. This design solves the issue of making long-term alignment between token holders and the mission. Aerodrome’s design supplies probably the most management to probably the most dedicated holders.
To provide you an concept of how impactful these income distributions may be, in This autumn 2024 the applying generated $100.7M of income, for an annualized run price of > $400M. Such a design additionally creates a virtuous cycle for the enterprise, the place as quantity and revenues enhance, token dividend yields spike to entry these yields, market contributors must buy after which lock their tokens, successfully lowering provide in circulation and benefitting all token holders.
This design and the secular progress of DeFi on Base have made Aerodrome one of many greatest winners in DeFi this yr, with its native token AERO up ~13x because the token launched in February 2024. Creating long-term buy-in amongst holders and giving them direct publicity to the success of the applying little doubt has performed a significant half within the success of Aerodrome in 2024.
Raydium
Raydium, a decentralized alternate constructed on Solana, was among the many first DeFi functions to realize success on Solana after its launch in early 2021. During the last two years, as Solana has recovered from the fallout surrounding the collapse of FTX, Raydium has cemented its place as a prime decentralized alternate.
To share economics with its token holders, Raydium implements a buyback program, as an alternative of instantly paying out price income. By this method, 12% of all charges earned by the protocol are used to buy RAY tokens within the open market. This creates systematic demand for the token that’s instantly tied to elevated utilization of the applying. In 2024, as meme coin buying and selling on Solana exploded, so did buying and selling quantity on Raydium, which in December was up greater than 13x YoY. Quantity progress begets price progress, and in December Raydium crossed 45M RAY tokens repurchased by way of the buyback program. This quantity represents greater than 10% of all RAY tokens and circulation and has created ~$360M in purchase stress for the token at present costs.
Such a buyback program has the advantage of being extra conservative from a regulatory threat perspective, since no charges are being paid out, and creates a direct tie-in between the expansion of the applying’s fundamentals and demand for the token. This design aspect differentiates Raydium and its token from its opponents on Solana, a lot of that are issuing tokens to incentivize utilization, leading to excessive inflation charges. Raydium is a good instance of how a price accrual mechanism can considerably enhance the funding case for a token. Raydium’s token delivered a +289% return in 2024.
Bananagun
Bananagun supplies subtle buying and selling instruments to its customers and permits them to execute these advanced methods by way of chat on the favored social media platform Telegram. Bananagun costs a price starting from 50-100 bps based mostly on the kind of commerce being executed. Whereas the applying may have saved all these revenues to pay bills and salaries, Bananagun builders as an alternative directed 40% of all charges to token holders by way of direct dividend funds.
To limit entry to this program to long-term buyers, Bananagun determined that customers must be required to buy and stake a minimal of fifty tokens (~$3,000 on the time of writing) to be eligible to obtain rewards. As soon as these tokens are acquired and locked, customers obtain programmatic funds within the mission’s native token (BANANA) or ETH on the finish of each epoch. Presently, these dividends present an annual yield of 19% to holders, making a Bananagun a bona fide income-producing asset.
Very like Raydium’s buyback, these dividends fluctuate with the full charges earned by the applying. As charges develop, so does the dividend yield. Whereas this technique incurs better regulatory threat than the others we now have described, it creates a direct tie-in that makes it very straightforward to guage an funding within the BANANA token. Many buyers have finished that evaluation and selected to purchase BANANA, with the token returning 218% in 2024.
The Intersection of Worth and Development
Worth accrual mechanisms alone is not going to be sufficient to avoid wasting initiatives with weak fundamentals. All investments in crypto belongings assume that over time, customers and financial worth on blockchains will enhance by orders of magnitude. Given this core give attention to progress, within the absence of progress, no quantity of worth properties can save a crypto mission whose fundamentals are stagnant or shrinking.
There are numerous examples of functions that had been early movers by way of including worth accrual mechanisms to their tokens however had been unable to maintain underlying progress and due to this fact have been vital underperformers. Conversely, there are additionally examples of functions which have exhibited excessive and constant progress however whose tokens don’t have any tie to that progress, leaving them underperforming as properly.
One other issue that’s crucial to the long-term prospects of any crypto utility is the expansion trajectory of the blockchains on which it’s deployed. Over the previous few years, crypto innovators have created numerous varieties of blockchain infrastructure giving utility builders numerous selections in the case of deciding what blockchain(s) to construct on prime of. Many functions begin off being restricted to just one blockchain, for that reason, in lots of circumstances, the destiny of an early-stage app may be decided by that of the blockchain. Even with one of the best expertise and person expertise, an app that solely exists on a shrinking chain is doomed.
The very best funding alternatives in crypto as we speak are functions that:
1) Exhibit excessive basic progress.
2) Are deployed on protocols which might be additionally experiencing a surge in customers.
3) Have some methodology to attach the worth of their tokens to enhancing fundamentals.
Every of the three tokens we highlighted to begin this piece checks all of these bins and we predict these traits are what led to them offering outsized returns to their holders this yr.
For a deeper dive into tokenization’s transformative impression on conventional belongings, learn this primer on the usage of distributed ledger expertise to tokenize real-world and monetary belongings. Revealed this week by CFA Institute’s Analysis and Coverage Heart, “An Funding Perspective on Tokenization Half I” highlights course of, advantages, challenges, and coverage implications, emphasizing operational efficiencies and sensible use circumstances.
Whereas the tokens within the graphic above symbolize solely a fraction of all utility tokens buyers can select from as we speak, we predict that their YTD return profile is emblematic of the choice of buyers as we speak. Tasks that fall into the golden zone we’re describing are few and much between and due to this fact have generated outsized returns. Tasks with two of the three key catalysts described above, reminiscent of Uniswap or Aave, have fallen into the center of the pack. And people who meet solely one among our three standards have been left behind solely throughout this bull run.
The Brilliant Future Forward
Very like in equities, it is smart that early-stage initiatives might not need to prioritize delivering money flows to stakeholders. But when this step is delayed or ignored, token holders might more and more low cost the token’s worth for the chance of getting no path to worth accrual. Whereas not all tokens must implement worth accrual mechanisms as we speak, having a practical path to monetization is essential to establishing long-term buy-in from token holders.
Below a extra progressive regulatory regime, the trail to monetization for crypto functions will probably be clear. This shift will immediate extra hesitant functions to maneuver towards sharing money flows with token holders, ushering in a gold rush of alternative for basic buyers in crypto markets.
