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 venture development, these modern mechanisms should not solely attracting buyers but in addition reshaping decentralized finance (DeFi).
As pioneers like Aerodrome, Raydium, and Bananagun showcase the potential of aligning incentives, the stage is about for a brand new period in crypto funding — one the place sustainable development meets progressive regulatory adaptation. On this evolving ecosystem, the chance for elementary buyers has by no means been extra promising.
Over the previous few years, given the existential enterprise danger introduced upon by Securities and Alternate Fee (SEC) enforcement actions, the overwhelming majority of DeFi functions selected to pause all worth accrual discussions indefinitely. This choice, 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 anticipate that well-liked worth accrual mechanisms will carry far much less related danger. Reluctant DeFi tasks are additionally being compelled to reckon with the advantages these mechanisms have had for the tasks courageous sufficient to implement them.
On this publish, I spotlight three functions which have taken completely different approaches to ship financial worth again to their token holders. All three have been very profitable, seeing large positive factors in each the quantity of individuals utilizing their merchandise and their tokens’ costs. The success of those tasks provides examples of potential 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 individuals prioritizing short-term positive factors over the long-term well being of the enterprise. Aerodrome addresses this with a system during which token holders are incentivized to be long-term energetic individuals within the community.
To have most impression on governance issues, holders should lock their tokens for a protracted period, offering them with larger 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 venture. Aerodrome’s design offers essentially the most management to essentially the most dedicated holders.
To offer you an concept of how impactful these income distributions might be, in This fall 2024 the appliance generated $100.7M of income, for an annualized run price of > $400M. Any such 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 individuals 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 12 months, 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 appliance 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 attain 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 high 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 appliance. 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 price development, 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 strain for the token at present costs.
Any such buyback program has the good thing about being extra conservative from a regulatory danger perspective, since no charges are being paid out, and creates a direct tie-in between the expansion of the appliance’s fundamentals and demand for the token. This design factor differentiates Raydium and its token from its opponents on Solana, lots 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 expenses a price starting from 50-100 bps based mostly on the kind of commerce being executed. Whereas the appliance might have stored 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 needs 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 venture’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 overall charges earned by the appliance. As charges develop, so does the dividend yield. Whereas this technique incurs larger regulatory danger than the others now we have described, it creates a direct tie-in that makes it very simple to judge an funding within the BANANA token. Many buyers have achieved that evaluation and selected to purchase BANANA, with the token returning 218% in 2024.
The Intersection of Worth and Progress
Worth accrual mechanisms alone won’t be sufficient to avoid wasting tasks 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 concentrate on development, within the absence of development, no quantity of worth properties can save a crypto venture whose fundamentals are stagnant or shrinking.
There are numerous examples of functions that have been early movers by way of including worth accrual mechanisms to their tokens however have been unable to maintain underlying development and due to this fact have been important underperformers. Conversely, there are additionally examples of functions which have exhibited excessive and constant development however whose tokens haven’t any tie to that development, leaving them underperforming as nicely.
One other issue that’s important 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 varied sorts of blockchain infrastructure giving utility builders numerous decisions in terms of deciding what blockchain(s) to construct on high of. Many functions begin off being restricted to just one blockchain, because of this, in lots of circumstances, the destiny of an early-stage app might be decided by that of the blockchain. Even with one of the best know-how and consumer expertise, an app that solely exists on a shrinking chain is doomed.
One of the best funding alternatives in crypto right this moment are functions that:
1) Exhibit excessive elementary 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 bettering fundamentals.
Every of the three tokens we highlighted to begin this piece checks all of these containers and we predict these traits are what led to them offering outsized returns to their holders this 12 months.
For a deeper dive into tokenization’s transformative impression on conventional belongings, learn this primer on the usage of distributed ledger know-how to tokenize real-world and monetary belongings. 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 characterize solely a fraction of all utility tokens buyers can select from right this moment, we predict that their YTD return profile is emblematic of the choice of buyers right this moment. 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 those who meet solely one in every of our three standards have been left behind completely throughout this bull run.
The Vibrant Future Forward
Very like in equities, it is smart that early-stage tasks could not need to prioritize delivering money flows to stakeholders. But when this step is delayed or ignored, token holders could 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 this moment, having a sensible path to monetization is essential to establishing long-term buy-in from token holders.
Beneath a extra progressive regulatory regime, the trail to monetization for crypto functions might 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 elementary buyers in crypto markets.
