The rise of revenue-sharing tokens is redefining the crypto panorama, bridging the hole between speculative buying and selling and tangible worth. By straight linking token holder returns to challenge development, these progressive mechanisms usually are not 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 development 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 purposes selected to pause all worth accrual discussions indefinitely. This resolution, whereas logical underneath the circumstances of the time, was massively detrimental to the business. Many DeFi tokens with none direct tie to the success and development of the underlying enterprise have been deemed to be ineffective and underperformed the market.
The election of Donald Trump and the anticipated regulatory easing for the crypto business has flipped this dynamic on its head. DeFi protocols now count on that in style 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 submit, I spotlight three purposes which have taken completely different approaches to ship financial worth again to their token holders. All three have been very profitable, seeing enormous positive aspects in each the quantity of individuals utilizing their merchandise and their tokens’ costs. The success of those initiatives gives examples of doable strategies extra reluctant DeFi protocols might 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 members prioritizing short-term positive aspects 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 members within the community.
To have most impression on governance issues, holders should lock their tokens for an extended period, offering them with higher 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 challenge. Aerodrome’s design offers probably the most management to probably the most dedicated holders.
To provide you an thought of how impactful these income distributions may be, in This fall 2024 the applying generated $100.7M of income, for an annualized run charge of > $400M. The sort of 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 members have to buy after which lock their tokens, successfully lowering provide in circulation and benefitting all token holders.
This design and the secular development 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 purposes to attain success on Solana after its launch in early 2021. Over the past two years, as Solana has recovered from the fallout surrounding the collapse of FTX, Raydium has cemented its place as a high decentralized alternate.
To share economics with its token holders, Raydium implements a buyback program, as an alternative of straight paying out payment income. By means of 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 straight 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 development begets payment development, and in December Raydium crossed 45M RAY tokens repurchased by the buyback program. This quantity represents greater than 10% of all RAY tokens and circulation and has created ~$360M in purchase strain for the token at present costs.
The sort of buyback program has the good thing about 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 superb 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 offers refined buying and selling instruments to its customers and permits them to execute these complicated methods through chat on the favored social media platform Telegram. Bananagun prices a payment starting from 50-100 bps based mostly on the kind of commerce being executed. Whereas the applying might have saved all these revenues to pay bills and salaries, Bananagun builders as an alternative directed 40% of all charges to token holders by direct dividend funds.
To limit entry to this program to long-term buyers, Bananagun determined that customers ought to 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 challenge’s native token (BANANA) or ETH on the finish of each epoch. At the moment, these dividends present an annual yield of 19% to holders, making a Bananagun a bona fide income-producing asset.
Very similar to Raydium’s buyback, these dividends fluctuate with the whole charges earned by the applying. As charges develop, so does the dividend yield. Whereas this technique incurs higher regulatory threat than the others we now have described, it creates a direct tie-in that makes it very straightforward to judge 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 Progress
Worth accrual mechanisms alone is not going to be sufficient to save lots of initiatives with weak fundamentals. All investments in crypto property assume that over time, customers and financial worth on blockchains will enhance by orders of magnitude. Given this core concentrate on development, within the absence of development, no quantity of worth properties can save a crypto challenge whose fundamentals are stagnant or shrinking.
There are numerous examples of purposes that have been early movers when it comes to including worth accrual mechanisms to their tokens however have been unable to maintain underlying development and subsequently have been vital underperformers. Conversely, there are additionally examples of purposes which have exhibited excessive and constant development however whose tokens don’t have any tie to that development, leaving them underperforming as effectively.
One other issue that’s essential 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 forms of blockchain infrastructure giving utility builders numerous selections on the subject of deciding what blockchain(s) to construct on high of. Many purposes begin off being restricted to just one blockchain, because of this, in lots of circumstances, the destiny of an early-stage app may be decided by that of the blockchain. Even with the perfect expertise and person expertise, an app that solely exists on a shrinking chain is doomed.
One of the best funding alternatives in crypto right now are purposes that:
1) Exhibit excessive basic development.
2) Are deployed on protocols which are additionally experiencing a surge in customers.
3) Have some technique to attach the worth of their tokens to enhancing fundamentals.
Every of the three tokens we highlighted to start out this piece checks all of these bins and we expect 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 property, learn this primer on using distributed ledger expertise to tokenize real-world and monetary property. Printed this week by CFA Institute’s Analysis and Coverage Middle, “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 right now, we expect that their YTD return profile is emblematic of the desire of buyers right now. Initiatives that fall into the golden zone we’re describing are few and much between and subsequently have generated outsized returns. Initiatives with two of the three key catalysts described above, equivalent to Uniswap or Aave, have fallen into the center of the pack. And those who meet solely one among our three standards have been left behind solely throughout this bull run.
The Brilliant Future Forward
Very similar to in equities, it is sensible that early-stage initiatives might not wish 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 have to implement worth accrual mechanisms right now, having a sensible path to monetization is vital to establishing long-term buy-in from token holders.
Underneath a extra progressive regulatory regime, the trail to monetization for crypto purposes shall be clear. This shift will immediate extra hesitant purposes to maneuver towards sharing money flows with token holders, ushering in a gold rush of alternative for basic buyers in crypto markets.
