The rise of revenue-sharing tokens is redefining the cryptocurrency landscape, bridging the gap between speculative trading and tangible value. By directly tying token holders' returns to project growth, these innovative mechanisms not only attract investors but also help reshape decentralized finance (DeFi).
With pioneers like Aerodrome, Raydium, and Bananagun showing the potential for aligning incentives, the stage is set for a new era in crypto investing: where sustainable growth meets gradual regulatory adaptation. There has never been a more promising opportunity for fundamental investors in this evolving ecosystem.
Over the past few years, given the existential risks posed by Securities and Exchange Commission (SEC) enforcement actions, the majority of DeFi applications have opted to suspend all value generation discussions indefinitely. did. Although this decision was logical under the circumstances at the time, it was extremely detrimental to the industry. Many DeFi tokens that are not directly related to the success and growth of the underlying business were considered useless and underperforming the market.
The election of Donald Trump and the anticipated deregulation of the crypto industry has upended this dynamic. DeFi protocols currently hold the promise of far less risk than common value generation mechanisms. Even reluctant DeFi projects are being forced to consider how these mechanisms have benefited those who were brave enough to adopt them.
In this post, we present three applications that take different approaches to returning economic value to token holders. All three companies have been very successful and have seen significant growth in both the number of people using their products and the price of their tokens. The success of these projects provides an example of how more passive DeFi protocols could potentially be implemented under a more progressive regulatory framework.
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Aerodrome is the dominant decentralized exchange on Coinbase's Ethereum Layer 2 (L2), Base. Governance in the cryptocurrency market is challenged by participants prioritizing short-term profits over the long-term health of their businesses. Aerodrome addresses this issue with a system that incentivizes token holders to actively participate in the network over the long term.
To have maximum impact on governance issues, holders should lock up their tokens for a longer period of time, giving them greater voting rights. With this voting power and continued participation in governance, this group of token holders is entitled to 100% of the revenue the exchange generates from trading fees and bribes. This design solves the problem of creating long-term coordination between token holders and projects. Aerodrome's design offers maximum control to the most dedicated owner.
To give you an idea of how impactful these revenue shares are, in Q4 2024, the application generated $107 million in revenue with an annualized run rate of over $400 million. This type of design also creates a virtuous cycle for your business. As volume and revenue increase, dividend yields on tokens will skyrocket to access these yields, effectively reducing the circulating supply as market participants must purchase and lock up tokens. All token holders will benefit. .
This design and the long-term growth of DeFi on Base have made Aerodrome one of DeFi’s biggest winners this year, with its native token AERO rising nearly 13x since the token’s launch in February 2024. Creating long-term buy-in among holders and making donations. There is no doubt that their first-hand experience with successful applications played a major role in the 2024 airfield's success.
Radium
Raydium, a decentralized exchange built on Solana, was one of the first DeFi applications to find success on Solana after its launch in early 2021. Over the past two years, Raydium has strengthened its foundation as Solana recovers from the fallout surrounding the FTX collapse. Position as a top decentralized exchange.
In order to share economics with token holders, Raydium implements a buyback program rather than paying fee income directly. Through this system, 12% of all fees earned by the protocol will be used to purchase RAY tokens on the open market. This creates a systematic demand for tokens that is directly tied to increased application usage. As meme coin trading on Solana exploded in 2024, Raydium's trading volume also skyrocketed, increasing more than 13x year-on-year in December. The increase in volume has led to an increase in fees, and in December, Raydium saw the number of RAY tokens bought back through its buyback program exceed 45 million. This amount represents over 10% of all RAY tokens and circulation, creating up to $360 million in buying pressure for the tokens at current prices.
This type of buyback program has the advantage of being more conservative from a regulatory risk perspective as no fees are paid, creating a direct link between the growth of the fundamentals of the application and the demand for the tokens. . This design element distinguishes Raydium and its token from its competitors on Solana. Many of our competitors issue tokens to incentivize usage, resulting in high inflation rates. Raydium is a great example of how value generation mechanisms can significantly improve the investment case for a token. Raydium's token returned +289% in 2024.
Bananagun
Bananagun provides users with sophisticated trading tools and allows them to execute these complex strategies through chats on the popular social media platform Telegram. Bananagun charges fees ranging from 50 to 100 bps depending on the type of trade performed. While the application could have kept all these revenues to pay expenses and salaries, Bananagun developers instead channeled 40% of all fees to token holders through direct dividend payments.
To limit access to this program to long-term investors, Bananagun has decided that users must purchase and stake a minimum of 50 tokens (approximately $3,000 at the time of writing) to be eligible to receive rewards. . Once these tokens are acquired and locked, users receive programmatic payments in the project's native token (BANANA) or ETH at the end of each epoch. These dividends currently offer holders a 19% annual yield, making Bananagun a bona fide income-generating asset.
Similar to Raydium buybacks, these dividends vary depending on the total commission earned by the application. As fees rise, so do dividend yields. Although this strategy involves greater regulatory risk than the other strategies discussed so far, it creates a direct link, making it much easier to evaluate an investment in the BANANA token. Many investors do that analysis and choose to buy Banana, and the token will earn a return of 218% in 2024.
The intersection of value and growth
Value generation mechanisms alone are not enough to save projects with weak fundamentals. All investments in cryptoassets assume that over time, the number of users and economic value on the blockchain will increase by orders of magnitude. Given this growth-oriented core, without growth, no amount of valuable assets can save a crypto project with stagnant or shrinking fundamentals.
There are various examples of applications that were pioneers in terms of adding value generation mechanisms to their tokens, but failed to sustain fundamental growth, resulting in significantly lower performance. Conversely, there are also examples of applications that have shown high and consistent growth, but where the tokens are not tied to that growth and performance remains similarly poor.
Another important factor for the long-term prospects of crypto applications is the growth trajectory of the blockchain on which it is deployed. Over the past few years, cryptocurrency innovators have created different types of blockchain infrastructure, giving application developers countless options when deciding which blockchain to build on top of. Many applications are initially limited to only one blockchain. For this reason, the fate of early-stage applications is often determined by the fate of blockchain. Even with the best technology and user experience, apps that exist only on a shrinking chain are doomed.
The best investment opportunities in cryptocurrencies today are applications such as:
1) Demonstrates strong fundamental growth.
2) It has been introduced into a protocol that is also seeing a rapid increase in users.
3) It has some way of tying the value of the token to improved fundamentals.
Each of the three tokens we highlighted at the beginning of this article ticks all of these boxes, and these characteristics have led to them delivering significant returns to their holders this year. I'm thinking.
If you want to learn more about the transformative impact tokenization has on traditional assets, read this primer. About the use of distributed ledger technology to tokenize real-world and financial assets. “Investment Perspectives on Tokenization Part I,” published this week by CFA Institute’s Center for Research and Policy, highlights the process, benefits, challenges, and policy implications, highlighting operational efficiencies and real-world use cases.
While the tokens pictured above are just a small sampling of all the application tokens investors can choose from today, we believe their YTD return profile is representative of the preferences of today's investors. There are only a few projects that fall into the golden zone that we are describing, and therefore generate huge amounts of revenue. Projects with two of the three major catalysts discussed above, such as Uniswap and Aave, are in the middle of the pack. And companies that meet just one of our three criteria have been left completely behind during this bull market.
A bright future awaits
As with equity, it is understandable that early stage projects may not want to prioritize providing cash flow to stakeholders. However, if this step is delayed or ignored, token holders may increasingly discount the value of their tokens due to the risk that there is no path for value to accrue. While not all tokens currently need to implement a value generation mechanism, having a realistic path to monetization is key to establishing long-term buy-in from token holders.
Under a more progressive regulatory regime, the path to monetization of crypto applications will become clearer. This change will lead to more hesitant applications moving towards sharing cash flow with token holders, creating a gold rush opportunity for fundamental investors in the crypto market.
