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 undertaking progress, these modern mechanisms will not be 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 elementary buyers has by no means been extra promising.
Over the previous few years, given the existential enterprise danger introduced upon by Securities and Change Fee (SEC) enforcement actions, the overwhelming majority of DeFi purposes selected to pause all worth accrual discussions indefinitely. This choice, whereas logical below 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 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 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 big beneficial properties 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 may implement below 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 wherein 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 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 change generates from buying and selling charges and bribes. This design solves the issue of making long-term alignment between token holders and the undertaking. Aerodrome’s design gives essentially the most management to essentially the most dedicated holders.
To provide you an thought of how impactful these income distributions could be, in This fall 2024 the applying generated $100.7M of income, for an annualized run price of > $400M. One of these design additionally creates a virtuous cycle for the enterprise, the place as quantity and revenues improve, 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 progress of DeFi on Base have made Aerodrome one of many largest 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 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. Over the past 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 a substitute of straight paying out payment income. Via this technique, 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 progress begets payment 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 strain for the token at present costs.
One of these 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 applying’s fundamentals and demand for the token. This design component 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 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 gives subtle 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 payment starting from 50-100 bps based mostly on the kind of commerce being executed. Whereas the applying may have stored all these revenues to pay bills and salaries, Bananagun builders as a substitute 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 undertaking’s native token (BANANA) or ETH on the finish of each epoch. At present, 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 larger regulatory danger 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 executed 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 save lots of tasks with weak fundamentals. All investments in crypto belongings assume that over time, customers and financial worth on blockchains will improve 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 undertaking whose fundamentals are stagnant or shrinking.
There are numerous examples of purposes that had been early movers by way of including worth accrual mechanisms to their tokens however had been unable to maintain underlying progress and subsequently have been vital underperformers. Conversely, there are additionally examples of purposes which have exhibited excessive and constant progress however whose tokens haven’t any tie to that progress, leaving them underperforming as effectively.
One other issue that’s important to the long-term prospects of any crypto software is the expansion trajectory of the blockchains on which it’s deployed. Over the previous couple of years, crypto innovators have created varied kinds of blockchain infrastructure giving software builders numerous decisions with regards 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 instances, the destiny of an early-stage app could be decided by that of the blockchain. Even with the most effective expertise and consumer expertise, an app that solely exists on a shrinking chain is doomed.
The most effective funding alternatives in crypto at the moment are purposes that:
1) Exhibit excessive elementary progress.
2) Are deployed on protocols which are additionally experiencing a surge in customers.
3) Have some methodology 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 packing containers 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 affect on conventional belongings, learn this primer on using 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 instances.
Whereas the tokens within the graphic above symbolize solely a fraction of all software tokens buyers can select from at the moment, we expect that their YTD return profile is emblematic of the desire of buyers at the moment. 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, similar to 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 totally throughout this bull run.
The Vivid Future Forward
Very like in equities, it is smart that early-stage tasks 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 have to implement worth accrual mechanisms at the moment, having a sensible 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 purposes will likely 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 elementary buyers in crypto markets.
