Beyond Speculation: The Rise of Revenue-Sharing Tokens

The rise of revenue-sharing tokens is redefining the crypto landscape, bridging the gap between speculative trading and tangible value. By directly linking token holder returns to project growth, these innovative mechanisms are not only attracting investors but also reshaping decentralized finance (DeFi).

As pioneers like Aerodrome, Raydium, and Bananagun showcase the potential of aligning incentives, the stage is set for a new era in crypto investment — one where sustainable growth meets progressive regulatory adaptation. In this evolving ecosystem, the opportunity for fundamental investors has never been more promising.

Over the past few years, given the existential business risk brought upon by Securities and Exchange Commission (SEC) enforcement actions, the vast majority of DeFi applications chose to pause all value accrual discussions indefinitely. This decision, while logical under the circumstances of the time, was massively detrimental to the industry. Many DeFi tokens without any direct tie to the success and growth of the underlying business were deemed to be useless and underperformed the market.

The election of Donald Trump and the expected regulatory easing for the crypto industry has flipped this dynamic on its head. DeFi protocols now expect that popular value accrual mechanisms will carry far less associated risk. Reluctant DeFi projects are also being forced to reckon with the benefits these mechanisms have had for the projects brave enough to implement them.

In this post, I highlight three applications that have taken different approaches to deliver economic value back to their token holders. All three have been very successful, seeing huge gains in both the amount of people using their products and their tokens’ prices. The success of these projects offers examples of possible methods more reluctant DeFi protocols could implement under a more progressive regulatory framework.

Aerodrome

Aerodrome is the dominant decentralized exchange on Coinbase’s Ethereum Layer 2 (L2), Base. In crypto markets, governance has been challenged by participants prioritizing short-term gains over the long-term health of the business. Aerodrome addresses this with a system in which token holders are incentivized to be long-term active participants in the network.

To have maximum impact on governance matters, holders must lock their tokens for a long duration, providing them with greater voting power. With this voting power and continued participation in governance, this group of token holders are entitled to 100% of the revenue the exchange generates from trading fees and bribes. This design solves the problem of creating long-term alignment between token holders and the project. Aerodrome’s design provides the most control to the most committed holders.

To give you an idea of how impactful those revenue distributions can be, in Q4 2024 the application generated $100.7M of revenue, for an annualized run rate of > $400M. This type of design also creates a virtuous cycle for the business, where as volume and revenues increase, token dividend yields spike to access these yields, market participants need to purchase and then lock their tokens, effectively reducing supply in circulation and benefitting all token holders.

This design and the secular growth of DeFi on Base have made Aerodrome one of the biggest winners in DeFi this year, with its native token AERO up ~13x since the token launched in February 2024. Creating long-term buy-in amongst holders and giving them direct exposure to the success of the application no doubt has played a major part in the success of Aerodrome in 2024.

Raydium

Raydium, a decentralized exchange built on Solana, was among the first DeFi applications to achieve success on Solana after its launch in early 2021. Over the last two years, as Solana has recovered from the fallout surrounding the collapse of FTX, Raydium has cemented its position as a top decentralized exchange.

To share economics with its token holders, Raydium implements a buyback program, instead of directly paying out fee revenue. Through this system, 12% of all fees earned by the protocol are used to purchase RAY tokens in the open market. This creates systematic demand for the token that is directly tied to increased usage of the application. In 2024, as meme coin trading on Solana exploded, so did trading volume on Raydium, which in December was up more than 13x YoY. Volume growth begets fee growth, and in December Raydium crossed 45M RAY tokens repurchased through the buyback program. This amount represents more than 10% of all RAY tokens and circulation and has created ~$360M in buy pressure for the token at current prices.

This type of buyback program has the benefit of being more conservative from a regulatory risk perspective, since no fees are being paid out, and creates a direct tie-in between the growth of the application’s fundamentals and demand for the token. This design element differentiates Raydium and its token from its competitors on Solana, many of which are issuing tokens to incentivize usage, resulting in high inflation rates. Raydium is a great example of how a value accrual mechanism can significantly improve the investment case for a token. Raydium’s token delivered a +289% return in 2024.

Bananagun

Bananagun provides sophisticated trading tools to its users and allows them to execute these complex strategies via chat on the popular social media platform Telegram. Bananagun charges a fee ranging from 50-100 bps based on the type of trade being executed. While the application could have kept all these revenues to pay expenses and salaries, Bananagun developers instead directed 40% of all fees to token holders through direct dividend payments.

To restrict access to this program to long-term investors, Bananagun decided that users should be required to purchase and stake a minimum of 50 tokens (~$3,000 at the time of writing) to be eligible to receive rewards. Once those tokens are acquired and locked, users receive programmatic payments in the project’s native token (BANANA) or ETH at the end of every epoch. Currently, these dividends provide an annual yield of 19% to holders, making a Bananagun a bona fide income-producing asset.

Much like Raydium’s buyback, these dividends fluctuate with the total fees earned by the application. As fees grow, so does the dividend yield. While this strategy incurs greater regulatory risk than the others we have described, it creates a direct tie-in that makes it very easy to evaluate an investment in the BANANA token. Many investors have done that analysis and chose to buy BANANA, with the token returning 218% in 2024.

The Intersection of Value and Growth

Value accrual mechanisms alone will not be enough to save projects with weak fundamentals. All investments in crypto assets assume that over time, users and economic value on blockchains will increase by orders of magnitude. Given this core focus on growth, in the absence of growth, no amount of value properties can save a crypto project whose fundamentals are stagnant or shrinking.

There are various examples of applications that were early movers in terms of adding value accrual mechanisms to their tokens but were unable to sustain underlying growth and therefore have been significant underperformers. Conversely, there are also examples of applications that have exhibited high and consistent growth but whose tokens have no tie to that growth, leaving them underperforming as well.

Another factor that is critical to the long-term prospects of any crypto application is the growth trajectory of the blockchains on which it is deployed. Over the last few years, crypto innovators have created various types of blockchain infrastructure giving application developers countless choices when it comes to deciding what blockchain(s) to build on top of. Many applications start off being limited to only one blockchain, for this reason, in many cases, the fate of an early-stage app can be determined by that of the blockchain. Even with the best technology and user experience, an app that only exists on a shrinking chain is doomed.

The best investment opportunities in crypto today are applications that:

1) Exhibit high fundamental growth.

2) Are deployed on protocols that are also experiencing a surge in users.

3) Have some method to connect the value of their tokens to improving fundamentals.

Each of the three tokens we highlighted to start this piece checks all of those boxes and we think those characteristics are what led to them providing outsized returns to their holders this year.

For a deeper dive into tokenization’s transformative impact on traditional assets, read this primer on the use of distributed ledger technology to tokenize real-world and financial assets. Published this week by CFA Institute’s Research and Policy Center, “An Investment Perspective on Tokenization Part I” highlights process, benefits, challenges, and policy implications, emphasizing operational efficiencies and practical use cases.

While the tokens in the graphic above represent only a fraction of all application tokens investors can choose from today, we think that their YTD return profile is emblematic of the preference of investors today. Projects that fall into the golden zone we are describing are few and far between and therefore have generated outsized returns. Projects with two of the three key catalysts described above, such as Uniswap or Aave, have fallen into the middle of the pack. And those that meet only one of our three criteria have been left behind entirely during this bull run.

The Bright Future Ahead

Much like in equities, it makes sense that early-stage projects may not want to prioritize delivering cash flows to stakeholders. But if this step is delayed or ignored, token holders may increasingly discount the token’s value for the risk of having no path to value accrual. While not all tokens need to implement value accrual mechanisms today, 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 for crypto applications will be clear. This shift will prompt more hesitant applications to move toward sharing cash flows with token holders, ushering in a gold rush of opportunity for fundamental investors in crypto markets.