Originally Posted by: Saurabh Deshpande
Original translation: Luffy, Foresight News
I recently used stablecoin supply as a measure of liquidity, combined with the number of tokens in the market, to try to figure out the liquidity of each asset. As expected, liquidity eventually approaches zero, and the chart drawn from the analysis is a work of art.
In March 2021, each cryptocurrency will enjoy approximately $1.8 million worth of stablecoin liquidity, while by March 2025, this figure will be only $5,500.
As a project, you have to compete with 40 million other tokens for the attention of users and investors. Three years ago, there were only 5 million. So how do you retain token holders? You can try to build a community, let members say GM on Discord, and do some airdrop activities.
But then what? Once they get the tokens, they move on to the next Discord group and say “GM”.
Community members wont stay for no reason, you have to give them a reason. In my opinion, a high-quality product with actual cash flow is the reason, or it can make the project data look good.
Russ Hanneman syndrome
In the American TV series Silicon Valley, Russ Hanneman once boasted that he would become a billionaire by moving radio to the Internet. In the field of encryption, everyone wants to be Russ, chasing overnight wealth, but does not worry about business fundamentals, building moats, and obtaining sustainable income, which are boring but practical issues.
Joel’s recent articles, “ Death to Stagnation ” and “ Make Revenue Great Again”, highlight the urgent need for crypto projects to focus on sustainable value creation. Much like the memorable scene in the show where Russ Hanneman dismisses Richard Hendricks’ concerns about building a sustainable revenue model, many crypto projects also rely on speculative narratives and investor enthusiasm. Now it seems clear that this strategy is unsustainable.
But unlike Russ, founders can’t just shout “Tres Comas” (Russ’s phrase for showing off his wealth in the show) to make the project successful. Most projects need sustainable income, and to achieve this, we first need to understand how the current projects with income do it.
https://youtu.be/BzAdXyPYKQo
The Zero-Sum Game of Attention
In traditional markets, regulators maintain liquidity of tradable stocks by setting high thresholds for listed companies. There are 359 million companies in the world, but only about 55,000 are publicly listed, accounting for only about 0.01%. The advantage of this is that most of the available funds are concentrated in a limited range. But it also means that investors have fewer opportunities to bet on companies early and chase high returns.
Dispersion of attention and liquidity is the price to pay for all tokens to be easily and publicly traded. I am not here to judge which model is better, I am simply showing the difference between the two worlds.
The question is, how do you stand out in a seemingly endless sea of tokens? One way is to show that there is demand for the project you are building and to allow token holders to participate in the growth of the project. Don’t get me wrong, not every project has to be equally obsessed with maximizing revenue and profits.
Revenue is not an end, but a means to achieve long-term vitality.
For example, an L1 that hosts enough applications only needs to earn enough fees to offset token inflation. Ethereums validator yield is about 3.5%, which means that its token supply will increase by 3.5% each year. Any holder who stakes ETH to earn returns will have their tokens diluted. But if Ethereum destroys the same amount of tokens through a fee burning mechanism, then the ETH of ordinary holders will not be diluted.
As a project, Ethereum does not need to be profitable because it already has a thriving ecosystem. As long as validators can earn enough to keep the nodes running, Ethereum can do without additional income. But this is not the case for projects with a token circulation rate (the percentage of circulating tokens) of around 20%. These projects are more like traditional companies and it may take time to reach a state where there are enough volunteers to keep the project running.
Founders must face the reality that Russ Hanneman ignored. Generating real, sustained revenue is essential. It should be noted that in this article, whenever I mention revenue, I actually mean free cash flow (FCF), because for most crypto projects, the data behind revenue is difficult to obtain.
Understanding how to allocate FCF, such as when to reinvest it for growth, when to share it with token holders, and the best way to allocate it (such as buybacks or dividends), can easily make the difference between success and failure for founders aiming to create lasting value.
Equity market reference is helpful in making these decisions effectively. Traditional companies often distribute FCF through dividends and buybacks. Factors such as company maturity, industry, profitability, growth potential, market conditions, and shareholder expectations all influence these decisions.
Different crypto projects naturally have different opportunities and limitations in value redistribution based on their life cycle stage. I will describe them in detail below.
Crypto Project Lifecycle
1. Explorer Stage
Early crypto projects are usually in the experimental stage, focusing on attracting users and polishing core products rather than aggressively pursuing profitability. Product-market fit is still unclear, and ideally, these projects prioritize reinvestment to maximize long-term growth rather than profit-sharing plans.
The governance of these projects is usually centralized, with the founding team in charge of upgrades and strategic decisions. The ecosystem is still nascent, network effects are weak, and user retention is a challenge. Many of these projects rely on token incentives, venture capital, or grants to maintain initial user onboarding, rather than organic demand.
While some projects may achieve early success in a niche market, they still need to prove whether their model is sustainable. Most crypto startups fall into this category, and only a small number of them can break through and move forward.
These projects are still searching for product-market fit, and their revenue models highlight their struggle to maintain sustained growth. Projects like Synthetix and Balancer have seen sharp spikes in revenue followed by significant declines, suggesting a period of speculative activity rather than steady market adoption.
2. Climber Stage
Projects that have passed the early stages but have not yet become dominant fall into the growth category. These protocols generate significant revenue, between $10 million and $50 million per year. However, they are still in the growth stage, governance structures are evolving, and reinvestment remains a priority. While some projects are considering revenue sharing mechanisms, a balance must be found between benefit distribution and continued expansion.
The above chart records the weekly revenue of crypto projects in the Climbers stage. These protocols have gained some traction but are still in the process of consolidating their long-term position. Unlike the early Explorers stage, these projects have clear revenue, but their growth trajectory is still unstable.
Projects like Curve and Arbitrum One have more consistent revenue streams with clear peaks and valleys, indicating volatility driven by market cycles and incentives. OP Mainnet is showing a similar trend, with spikes indicating periods of high demand followed by slowdowns. Meanwhile, Usual’s revenue is growing exponentially, indicating rapid adoption but lacking historical data to confirm whether this growth is sustainable. Pendle and Layer 3 have seen large spikes in activity, indicating a time of high user engagement, but also revealing the challenges of maintaining momentum over the long term.
Many L2 scaling solutions (such as Optimism, Arbitrum), decentralized financial platforms (such as GMX, Lido), and emerging L1 (such as Avalanche, Sui) belong to this category. According to Token Terminal, there are currently only 29 projects with annual revenue exceeding US$10 million, but the actual number may be slightly higher. These projects are at a turning point, and those that consolidate network effects and user retention will enter the next stage, while other projects may stagnate or decline.
For climbers, the path forward lies in reducing reliance on incentives, strengthening network effects, and proving that revenue growth can be sustained without a sudden reversal.
(III) Giant Stage
Mature protocols like Uniswap, Aave, and Hyperliquid are in the growth and maturity stage. They have achieved product-market fit and can generate a lot of cash flow. These projects are in a position to implement structured buybacks or dividends to enhance the trust of token holders and ensure long-term sustainability. Their governance is relatively decentralized, and the community actively participates in upgrades and treasury decisions.
Network effects create a competitive moat that makes it difficult to displace. Currently, only a few dozen projects have achieved this level of revenue, which means that very few protocols have truly reached maturity. Unlike early or growth stage projects, these protocols do not rely on inflationary token incentives, but instead earn sustainable income through transaction fees, lending interest, or staking commissions. Their ability to withstand market cycles further distinguishes them from speculative projects.
Unlike early-stage or growth-stage projects, these protocols demonstrate strong network effects, a solid user base, and deeper market roots.
Ethereum leads in decentralized revenue generation, showing cyclical peaks that coincide with periods of high network activity. The two largest stablecoins, Tether and Circle, have a different revenue profile, with more stable and structured revenue streams rather than wild swings. While Solana and Ethena have significant revenue, they still have clear cycles of growth and decline, reflecting their changing adoption.
Meanwhile, Skys revenues were more volatile, suggesting that demand was more volatile rather than consistently dominant.
While the giants stand out in terms of scale, they are not immune to volatility. What sets them apart is their ability to handle downturns and maintain revenue over the long term.
(IV) Seasonal projects
Some projects experience rapid but unsustainable growth due to hype, incentives, or social trends. Projects like FriendTech and memecoin may generate huge revenues during peak cycles but have difficulty retaining users over the long term. Premature revenue sharing plans can exacerbate volatility as speculative capital quickly withdraws once incentives dry up. They often have weak or centralized governance, thin ecosystems, limited decentralized application adoption, or insufficient long-term utility.
While these projects may temporarily achieve extremely high valuations, they are prone to collapse once market sentiment changes, leaving investors disappointed. Many speculative platforms rely on unsustainable token issuance, fake transactions, or inflated yields to create artificial demand. While some projects are able to escape this stage, most are unable to establish a lasting business model and are inherently high-risk investments.
Profit sharing model of listed companies
We can learn even more by observing how public companies handle their surplus profits.
This chart shows how profit-sharing behavior evolves as traditional companies mature. Young companies face high financial losses (66%) and therefore tend to retain profits for reinvestment rather than distributing dividends (18%) or making share buybacks (28%). As companies mature, profitability typically stabilizes, and dividend payments and buybacks increase accordingly. Mature companies frequently distribute profits, with dividends (78%) and buybacks (82%) becoming common.
These trends echo the life cycle of crypto projects. Like young traditional companies, early crypto “explorers” often focus on reinvesting to find product-market fit. In contrast, mature crypto “giants” are like established, stable traditional companies that have the ability to distribute revenue through token buybacks or dividends, enhancing investor confidence and the long-term viability of projects.
The relationship between company age and profit-sharing strategies naturally extends to industry-specific practices. While young companies often prioritize reinvestment, mature companies adjust their strategies based on the characteristics of their industry. Industries with stable and abundant cash flows tend to favor predictable dividends, while industries characterized by innovation and volatility prefer the flexibility afforded by stock repurchases. Understanding these nuances can help crypto project founders effectively adjust their income distribution strategies to match the projects life cycle stage and industry characteristics with investor expectations.
The chart below highlights the unique profit allocation strategies of different industries. Traditional, stable industries like Utilities (80% of companies pay dividends, 21% do buybacks) and Consumer Staples (72% of companies pay dividends, 22% do buybacks) strongly favor dividends due to predictable income streams. In contrast, technology-focused industries such as Information Technology (27% do buybacks and have the highest percentage of cash returned through buybacks at 58%) favor buybacks to provide flexibility when income fluctuates.
These have direct implications for crypto projects. Protocols with stable, predictable revenue, such as stablecoin providers or mature DeFi platforms, may be best suited to adopt a dividend-like continuous payment approach. In contrast, high-growth, innovation-focused crypto projects, especially those in the DeFi and infrastructure layers, can adopt a flexible token repurchase approach, emulating the strategies of the traditional technology industry to adapt to volatile and rapidly changing market conditions.
Dividends and buybacks
Both approaches have their pros and cons, but buybacks have become more popular than dividends lately. Buybacks are more flexible, whereas dividends are sticky. Once you declare a dividend of X%, investors expect you to do it every quarter. So buybacks give companies room to be strategic: not only in how much profit they return, but also when they return it, allowing them to adapt to market cycles without being constrained by a rigid dividend payment schedule. Buybacks dont set fixed expectations like dividends do, and are seen as a one-time experiment.
But buybacks are a form of wealth transfer and a zero-sum game. Dividends create value for every shareholder, so there is room for both.
Recent trends suggest that buybacks are becoming increasingly popular for the reasons stated above.
In the early 1990s, only about 20% of profits were distributed through buybacks. By 2024, about 60% of profits were distributed through buybacks. In dollar terms, buybacks surpassed dividends in 1999 and have led ever since.
From a governance perspective, buybacks require careful valuation assessments to avoid inadvertently transferring wealth from long-term shareholders to those who sell when valuations are high. When a company buys back its shares, it (ideally) believes that the stock is undervalued. Investors who choose to sell their shares believe that the stock price is overvalued. Both views cannot be correct at the same time. Companies are often believed to know their own plans better than shareholders, so those who sell their shares during a buyback may miss out on higher profits.
According to a Harvard Law School paper, current disclosure practices often lack timeliness, making it difficult for shareholders to assess buyback progress and maintain their holdings. In addition, buybacks can affect executive compensation when compensation is tied to metrics such as earnings per share, which can encourage executives to prioritize short-term stock performance over the companys long-term growth.
Despite these governance challenges, buybacks remain attractive to many companies, particularly U.S. technology companies, due to their operational flexibility, investment decision-making autonomy, and lower future expectations compared to dividends.
Income Generation and Distribution of Cryptocurrencies
According to Token Terminal, there are 27 projects in the crypto space that generate $1 million in revenue per month. This is not comprehensive because it leaves out the likes of PumpFun, BullX, etc. But I think its not far off. I studied 10 of these projects and observed how they handled revenue. The point is that most crypto projects shouldnt even consider distributing revenue or profits to token holders. In this regard, I admire Jupiter. When they announced the token, they made it clear that they had no intention of sharing direct benefits (such as dividends) at that stage. Only after the number of users grew more than tenfold did Jupiter initiate a buyback-like mechanism to distribute value to token holders.
Revenue Sharing in Crypto Projects
Crypto projects must rethink how to share value with token holders, drawing inspiration from traditional corporate practices while adopting unique approaches to circumvent regulatory scrutiny. Unlike stocks, tokens offer innovative opportunities that are directly integrated into the product ecosystem. Rather than simply distributing earnings to token holders, projects actively incentivize key ecosystem activities.
For example, Aave rewards token stakers for providing critical liquidity before launching buybacks. Similarly, Hyperliquid strategically shares 46% of its revenue with liquidity providers, similar to traditional consumer loyalty models in established businesses.
In addition to these token integration strategies, some projects are taking a more direct revenue sharing approach, reminiscent of traditional public equity practices. However, even direct revenue sharing models must be carefully operated to avoid classification as securities, maintaining a balance between rewarding token holders and complying with regulatory requirements. Projects based outside of the United States, like Hyperliquid, often have more room to maneuver when adopting revenue sharing practices.
Jupiter is an example of a more creative way to share value. Instead of doing a traditional buyback, they utilize a third-party entity, Litterbox Trust, which is coded to receive JUP tokens in an amount equal to half of Jupiters protocol revenue. As of March 26, it has accumulated about 18 million JUP, worth about $9.7 million. This mechanism allows token holders to be directly tied to the success of the project while circumventing the regulatory issues associated with traditional buybacks.
It’s important to remember that Jupiter is only embarking on the path of returning value to token holders after it has a strong stablecoin treasury that is sufficient to support the project’s operations for many years.
The rationale for allocating 50% of revenue to this accumulation program is simple. Jupiter follows a guiding principle that balances ownership between the team and the community, promoting clear alignment and shared incentives. This approach also encourages token holders to actively promote the protocol, directly tying their financial interests to the growth and success of the product.
Aave also recently launched a token buyback after a structured governance process. The protocol, which has a healthy treasury of over $95 million (excluding its own token holdings), launched the buyback program after a detailed governance proposal in early 2025. The program, called Buy Distribute, allocates $1 million per week for buybacks and follows extensive community discussions around token economics, treasury management, and token price stability. Aaves treasury growth and financial strength allow it to launch this initiative without affecting its operational capabilities.
Hyperliquid uses 54% of revenue to buy back HYPE tokens, and the remaining 46% is used to incentivize liquidity on the exchange. The buybacks are conducted through the Hyperliquid Assistance Fund. Since the launch of the program, the Assistance Fund has purchased more than 18 million HYPE. As of March 26, the value is over $250 million.
Hyperliquid stands out as a special case, with a team that eschewed venture capital, likely self-funded development, and now uses 100% of revenue to reward liquidity providers or buy back tokens. It may not be easy for other teams to replicate this. But both Jupiter and Aave exemplify one key aspect: they are financially sound enough to conduct token buybacks without affecting core operations, reflecting rigorous financial management and strategic vision. This is something every project can emulate. Have sufficient funds in reserve before launching a buyback or dividend.
Tokens as a product
Kyle brings up a great point that crypto projects need to have investor relations (IR) positions. It’s ironic that for an industry built on transparency, crypto projects are poor at operational transparency. Most external communication is done through sporadic Discord announcements or Twitter posts, financial metrics are selectively shared, and expense expenditures are mostly opaque.
When token prices continue to fall, users will quickly lose interest in the underlying product unless it has built a strong moat. This creates a vicious cycle: falling prices lead to waning interest, which in turn drives prices down further. Projects need to give token holders good reasons to stick around and non-holders reasons to buy.
Clear, ongoing communication about development progress and funding can in itself be a competitive advantage in today’s marketplace.
In traditional markets, investor relations (IR) departments build a bridge of communication between companies and investors through regular financial reports, analyst conference calls, and performance guidance. The crypto industry can learn from this model while leveraging its unique technological advantages. Regular quarterly reporting of revenue, operating costs, and development milestones, combined with on-chain verification of treasury fund flows and buybacks, will greatly enhance stakeholder confidence.
The biggest transparency gap is in spending. Publicizing team salaries, expense breakdowns, and grant allocations can preempt questions that only arise when a project collapses: “Where did all the ICO money go?” and “How much do the founders pay themselves?”
Strong IR practices provide strategic benefits beyond transparency. They reduce volatility by reducing information asymmetry, expand the investor base by making institutional capital more accessible, foster long-term holders who fully understand operations and can hold on through market cycles, and build community trust that can help projects weather difficult times.
Forward-thinking projects like Kaito, Uniswap Labs, and Sky (formerly MakerDAO) are already moving in this direction, publishing transparent reports on a regular basis. As Joel points out in his article, the crypto industry must move away from speculative cycles. By adopting professional IR practices, projects can shed the stigma of being a “casino” and become what Kyle envisions as a “compounder,” an asset that can continue to create value over the long term.
In a market where capital is becoming increasingly discerning, transparent communication will become a prerequisite for survival.
