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 revolutionary mechanisms aren’t solely attracting traders but in addition 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 traders has by no means been extra promising.
Over the previous few years, given the existential enterprise danger 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 determination, 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 fashionable worth accrual mechanisms will carry far much less related danger. Reluctant DeFi tasks are additionally being pressured to reckon with the advantages these mechanisms have had for the tasks courageous sufficient to implement them.
On this submit, I spotlight three purposes which have taken totally different approaches to ship financial worth again to their token holders. All three have been very profitable, seeing large beneficial properties in each the quantity of individuals utilizing their merchandise and their tokens’ costs. The success of those tasks presents examples of potential strategies extra reluctant DeFi protocols might implement underneath a extra progressive regulatory framework.
Aerodrome
Aerodrome is the dominant decentralized change on Coinbase’s Ethereum Layer 2 (L2), Base. In crypto markets, governance has been challenged by contributors prioritizing short-term beneficial properties over the long-term well being of the enterprise. Aerodrome addresses this with a system through which token holders are incentivized to be long-term lively contributors within the community.
To have most affect 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 change 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 present you an concept of how impactful these income distributions will be, in This autumn 2024 the appliance generated $100.7M of income, for an annualized run charge of > $400M. One of these 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 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 serious half within the success of Aerodrome in 2024.
Raydium
Raydium, a decentralized change constructed on Solana, was among the many first DeFi purposes 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 prime decentralized change.
To share economics with its token holders, Raydium implements a buyback program, as an alternative of straight paying out charge income. Via 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 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 charge development, and in December Raydium crossed 45M RAY tokens repurchased via 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.
One of these buyback program has the advantage of 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 aspect differentiates Raydium and its token from its rivals on Solana, lots of that are issuing tokens to incentivize utilization, leading to excessive inflation charges. Raydium is a good instance of how a worth 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 advanced methods by way of chat on the favored social media platform Telegram. Bananagun expenses a charge starting from 50-100 bps based mostly on the kind of commerce being executed. Whereas the appliance might have saved all these revenues to pay bills and salaries, Bananagun builders as an alternative directed 40% of all charges to token holders via direct dividend funds.
To limit entry to this program to long-term traders, 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 challenge’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 higher regulatory danger than the others we now have described, it creates a direct tie-in that makes it very simple to judge an funding within the BANANA token. Many traders have accomplished 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 property assume that over time, customers and financial worth on blockchains will enhance by orders of magnitude. Given this core deal with 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 due to this fact have been vital underperformers. Conversely, there are additionally examples of purposes 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 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 varied forms of blockchain infrastructure giving utility builders numerous decisions relating to deciding what blockchain(s) to construct on prime of. Many purposes begin off being restricted to just one blockchain, for that reason, in lots of circumstances, the destiny of an early-stage app will 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 in the present day are purposes that:
1) Exhibit excessive basic development.
2) Are deployed on protocols which might be 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 expect these traits are what led to them offering outsized returns to their holders this 12 months.
For a deeper dive into tokenization’s transformative affect on conventional property, learn this primer on the usage of 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 traders can select from in the present day, we expect that their YTD return profile is emblematic of the choice of traders in the present day. 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, comparable to Uniswap or Aave, have fallen into the center of the pack. And people who meet solely considered one of our three standards have been left behind completely throughout this bull run.
The Brilliant Future Forward
Very like in equities, it is sensible that early-stage tasks 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 danger of getting no path to worth accrual. Whereas not all tokens have to implement worth accrual mechanisms in the present day, having a practical path to monetization is essential to establishing long-term buy-in from token holders.
Underneath a extra progressive regulatory regime, the trail to monetization for crypto purposes can 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 traders in crypto markets.
