Author: Castle Labs
Compiled by: Jiahuan, ChainCatcher
This year, crypto protocols have collectively generated $7.42 billion in revenue. Despite these impressive figures, the prices of most crypto tokens still do not reflect the success of the underlying protocols.
The reason is that not all revenue holds equal value. This disconnect is tied to the project structures and token designs long prevalent in the crypto industry. However, the situation is changing, and so too is how investors evaluate tokens. They are increasingly focused on how the product generates revenue, how that revenue is distributed, and whether token holders can truly share in the value created by protocol growth. This marks a shift in the market from speculation toward investment.
Most of the time, token holders want to understand the following questions:
How does the protocol generate revenue, and is this revenue sustainable?
How does the protocol distribute income, and can token holders derive value from it?
How much of the value created by the protocol is diluted by token minting, unlocking, and incentive expenditures?
Does the project have an equity structure that grants shareholders greater economic rights than token holders?
Answering these four questions can largely reveal a project’s true quality, but most projects cannot provide clear answers. Each token’s value capture mechanism is different, and some don’t have one at all. Even if a protocol does return value to holders, the token’s price performance may not meet expectations.
Take @PumpFun as an example. Since the token's launch, the protocol has generated approximately $450 million in annualized revenue, yet the token price has continued to decline due to factors such as rapid token unlocks and unmet market expectations around airdrops.
This article will outline the different ways leading protocols generate and distribute revenue, incorporating token emissions, unlocks, and incentive expenditures to reveal the nuanced factors investors must consider when evaluating a protocol or token.
Revenue Sources and Distribution of the Cryptographic Protocol
Before discussing how token holders capture value, it’s essential to first answer a fundamental question: how much revenue do the primary products of these protocols generate, and how is that revenue distributed?
This article selects six protocols for analysis: @Aave, @AerodromeFi, @HyperliquidX, Pump, @SkyEcosystem, and @Uniswap. Together, they generated $726 million in revenue in the first half of 2026.
Higher revenue often indicates that the product has achieved a certain scale, but viewing revenue alone is still insufficient to determine whether the business is sustainable. To account for short-term fluctuations, a more reasonable approach is to examine revenue performance across different time periods to assess whether the revenue is stable.
Therefore, the following also compares the revenues of these protocols in the first and second quarters of 2026 and calculates the magnitude of change between them. For most protocols, this change is negative, reflecting a decline in performance during the second quarter amid a weakening overall market environment.
Let’s first examine the revenue sources of these protocols. Hyperliquid’s revenue primarily comes from perpetual contract trading fees on both native and HIP-3 markets, as well as spot market fees, Builder Code auctions, priority fees, and HyperEVM gas fees.
Aerodrome is a decentralized exchange whose revenue primarily comes from trading fees and external voting incentives; Uniswap also generates revenue through trading fees. Sky’s revenue comes from multiple sources, including stability fees from DAI and USDS lending, liquidation penalties, trading fees from the Peg Stability Module (PSM), and interest income from the Direct Deposit Module (D3M) and real-world assets (RWA).
Aave's revenue comes from the portion of loan interest allocated to the protocol, as well as fees from flash loans, liquidation penalties, and interest income from the native stablecoin GHO. PumpFun's revenue primarily comes from trading fees and charges collected when newly created tokens reach a specified market cap and "graduate" from the bonding curve.
After mapping out the revenue sources, you also need to compare holder income with token issuance, unlocking, and incentive expenditures. Although the value returned to holders by the protocol may be high, actual value capture can still be diluted if new supply and incentive spending are higher.
Even if a protocol generates $100 million in revenue annually, its value is significantly diminished if it needs to distribute $200 million worth of tokens each year to sustain operations. Token emissions and unlocks are crucial because they reveal how much new supply is allocated to inflationary releases, team and investor vesting, and most importantly, ecosystem incentives.
Most protocols allocate revenue between token holders and the protocol treasury, with the exact distribution depending on each protocol’s mechanism design and governance arrangements. To measure the dilution of token value from new supply, we subtract the value of token emissions, unlocks, and incentive expenditures from token holder income.
For Aerodrome, Sky, and Uniswap, after accounting for these expenses, the net value flowing to holders turns negative, even though these protocols do distribute a portion of their revenue to holders. This indicates that, to maintain current revenue and liquidity levels, these protocols incur higher token incentive costs, which compress the net value ultimately reaching holders.
Currently, token holders primarily capture value through two methods: buybacks and fee distributions.
Buyback
Buybacks are one of the most direct ways a protocol returns value to token holders. The protocol uses revenue to purchase tokens on the secondary market, creating real demand. Repurchased tokens can either be burned or added to the protocol treasury for future incentives, governance, or staking rewards. For example, Aave allocates buyback tokens to its protocol treasury.
To further strengthen the link between protocol growth and token value, some protocols directly burn tokens repurchased from revenue, thereby reducing supply. For example, @Lighter_xyz has burned approximately 15.6 million LIT tokens acquired through buybacks, representing 6.6% of the total token supply and valued at around $36 million.
Hyperliquid executes buybacks and burns programmatically, having burned over 47 million HYPE to date, approximately 4.72% of its supply. Uniswap burned 100 million UNI in a single transaction in December 2025. Since then, the protocol has continued reducing supply through buybacks and burns fueled by its fee mechanism, bringing the total burned amount to approximately 107 million UNI, or about 11% of the total supply.
Not all protocols burn the tokens acquired through repurchases, and the specific methods of burning vary significantly. For example, BNB previously conducted quarterly burns, but some of these burns targeted tokens that had not yet entered circulation, resulting in relatively limited direct impact on short-term supply and demand in the secondary market.
Users need to understand the specific details of the burn mechanism: where do the burned tokens originate? Are they truly taken from the circulating supply?
Each project’s buyback mechanism also differs. Token holders of @maplefinance recently approved a buyback scheme tied to revenue levels. Under the new mechanism, the higher the protocol revenue, the greater the percentage allocated to token holders.
This is an update to the original MIP-019 proposal, which previously fixed 25% of revenue for token buybacks. Based on an estimated average revenue of approximately $1.15 million in the first half of 2026, the applicable buyback ratio will be reduced to 10%. This means the percentage of revenue allocated for buybacks is lower than in the original proposal, yet the proposal still passed with 99.97% support.
In addition to buybacks, token holders can stake their tokens with the protocol and earn staking rewards from the treasury or future emission reserves. Following the most recent token economics update, Lighter’s target staking yield is 6%. With the current staking volume of approximately 125 million LIT, the protocol will distribute around 7.5 million LIT annually.
Similarly, over 430 million HYPE are currently staked, with stakers earning approximately 2.1% in rewards from the future emission reserve.
However, buybacks and burns alone cannot rescue a continuously declining token model or make up for falling protocol revenues. Buybacks and burns must be viewed within the broader framework of the protocol’s overall buying and selling pressure.
Token incentives can be used early on to kickstart liquidity and drive ecosystem growth, then gradually decrease as the product develops organic demand. In contrast, buybacks and burns can leverage platform revenue to create buying pressure and reduce supply, offsetting the dilution caused by inflationary tokenomics.
Fee distribution
Other protocols, such as Aerodrome and @CurveFinance, use the ve tokenomics model to directly distribute fees to holders. Under this model, holders must lock their tokens and convert them into vote-locked tokens, such as veAERO or veCRV.
The VE model creates value for holders primarily through three methods.
First, protocol transaction fees. These protocols allocate 50% to 100% of transaction fees to ve token holders.
Second, yield boost. Holding ve tokens increases the mining rewards earned by liquidity providers in related pools.
Third, voting incentives, commonly known as "bribes." Projects pay rewards to ve token holders in exchange for their governance votes, directing subsequent token emissions toward designated liquidity pools.
However, the design of ve-type protocols inherently drives high token emissions. This means that the seemingly attractive income for holders under the ve model is often partly built on substantial token incentives.
According to the statistical methodology used in this article, the above protocols have collectively returned over $2.75 billion in value to holders, primarily from Hyperliquid and Uniswap’s large-scale UNI burn in December 2025.
But as mentioned earlier, value capture alone is not enough—token emissions and unlocks that cause dilution must also be balanced. The next section explores additional factors that can suppress token price appreciation, beyond holder income and token release.
Token purity
Over the years, crypto products have grown and generated substantial revenue. However, a protocol generating revenue does not necessarily mean its token will perform better.
Tokens from high-yield protocols often struggle due to a combination of several factors.
Income is not flowing to the token.
Even if the protocol generates real revenue, this value often remains in the protocol’s treasury and does not reach token holders. How buyback funds are used is crucial.
Funds in the protocol treasury are considered discretionary assets, with their specific use determined by the protocol itself. Since projects typically do not have contractual obligations requiring continuous buybacks, the protocol can at any time suspend, reduce, or even cancel buybacks. While these decisions require governance procedures, the majority of voting power often remains with the project team, investors, or a small number of large holders.
The dual structure of equity and tokens may reduce token holders to "second-class stakeholders."
An increasing number of projects are adopting a dual structure that combines corporate equity and crypto tokens, but the two types of assets confer different economic rights. XRP is a prime example.
According to pricing data from the private equity trading platform Forge, Ripple Labs' equity has seen an indicative price increase of approximately 105% since 2025, while the XRP token has declined by approximately 45% during the same period.
Ripple holds both equity in the company and XRP tokens, but XRP holders do not automatically have a claim on Ripple Labs' corporate income or residual assets. Therefore, value created by the company's business growth may be reflected more in the company's equity than in the XRP token itself.
Faster unlocking speeds will lead to greater expected selling pressure.
Even with protocol revenue sharing, a faster token unlocking schedule can still depress token prices. Another compounding factor is the low circulating supply and high FDV token structure, as a large amount of supply remains locked and awaits release and market absorption.
If market cap is calculated solely based on current circulating supply, these tokens often appear unusually "cheap." However, when including the unvested supply in the fully diluted valuation, their true valuation may not be low at all, and future unlocks could continue to exert selling pressure.
Only by considering all these factors together can you truly understand a token’s underlying value and explain its price movements in most cases. Of course, other factors such as market conditions, investor sentiment, and competitive dynamics also influence a token’s performance.
The PUMP token has dropped 60% since its launch, despite the project completing over $315 million in buybacks. On the other hand, HYPE has risen 1,400% since its launch and has returned approximately $1.2 billion in value to holders through buybacks.
Both are continuously repurchasing, but PUMP's price performance has still been lackluster. The market typically attributes this to poor team communication, unmet airdrop expectations, too rapid unlocking schedules, and sales of team-related tokens.
The AAVE token has also struggled since the beginning of the year. Since the launch of its buyback program in April 2025, approximately $45 million worth of tokens have been repurchased, but the program is currently paused due to the Kelp DAO incident.
AAVE has faced multiple pressures, including the exit of DAO service providers such as BGD Labs and ACI, the impact of the Kelp DAO incident, and increasing competition from Morpho in the institutional market.
Meanwhile, as the price of AAVE has declined, the protocol has recorded paper losses exceeding $23 million on these buybacks. Its average buyback price was approximately $182, while the current price is around $90.
This indicates that while buybacks can generate real buying pressure, they do not guarantee efficient use of funds. If the timing of purchases is poor, they may similarly erode the value accumulated by the protocol.
However, buybacks remain one of the most verifiable and direct methods of returning value by linking protocol revenue to token demand. Buyback activities can be tracked on-chain, and the protocol must genuinely purchase tokens from the market, creating direct demand through its revenue.
Thus, it establishes a positive feedback loop between protocol success, revenue growth, and token supply contraction. However, buybacks are not inherently superior to other allocation methods.
On the surface, direct dividends may seem more attractive: users receive a stablecoin cash flow proportional to their token holdings and can decide how to use it. In contrast, buybacks create direct demand in the market, but their ultimate impact still depends on the buyback price, how the repurchased tokens are handled, and overall market selling pressure.
There is no universal standard for superiority between the two; what matters is the stage of development of the protocol and the additional functions the token serves.
There is another layer of controversy surrounding direct fee distribution. If a token lacks governance, staking, or product usage scenarios beyond receiving cash flows, its valuation may gradually approach that of a pure income instrument. Supporters argue that it is precisely because the token can generate continuous dividends that more people are willing to hold it long-term.
Currently, most projects still opt for buybacks, indicating that they generally find the market demand and supply contraction driven by buybacks more attractive.
Conclusion
Many crypto protocols have generated substantial revenue, but protocol profitability does not guarantee that tokens will capture this value.
Whether income flows to holders is only one part of the evaluation framework. Unlocking by the team and investors, liquidity incentives, negative events, competitive dynamics, and market sentiment may all create greater selling pressure that offsets buying pressure from buybacks, burns, or fee distributions.
Therefore, investors cannot simply look at how much profit the protocol has made; they must also ask: Where does the income come from, and is it sustainable? How is the income distributed? How much dilution is caused by token emissions and unlocks? Do equity holders have economic rights superior to those of token holders?
Becoming a business that generates consistent revenue is the first step for the protocol. The next step is to establish a clear, credible, and verifiable mechanism for returning value, ensuring that protocol growth truly translates into benefits for token holders.
Hyperliquid demonstrates the potential impact of aligning incentives from the outset through token design, returning the majority of its revenue to holders. Protocols such as Aerodrome and Uniswap are also exploring more direct mechanisms for value distribution.
Protocol parties are increasingly recognizing that a good token must have a sound value distribution mechanism. As investors pay closer attention to real income and value capture, the long-standing disconnect between protocols and tokens may gradually narrow.
But in the end, the winning protocols won't just be the ones that make the most money—they'll be the ones that can generate profits while effectively preserving value for token holders.