When people start talking about fundamentals again: How crypto will make revenue great again
Reprinted from chaincatcher
03/13/2025·1MOriginal title:Make revenue great again
Author:Joel John , Decentralised.co
Compiled by: Riley, ChainCatcher
The article is compiled from the article "Make revenue great again" by Decentralised.co columnist Joel John. At the moment when the crypto market is shifting from fanatical speculation to rational return, this article focuses on the core contradiction of the token economy - should tokens support value through real returns? Is the team obliged to strengthen the token utility through repurchases? The article conducts in-depth analysis from multiple dimensions such as market cycles, business models, and technological evolution, revealing the challenges and opportunities of the current crypto ecosystem.
ChainCatcher compiled and organized without changing the original intention.
When people start talking about fundamentals again, you know how bad the market is. This article raises a core issue: Should crypto projects obtain operating income through tokens? If the answer is yes, is the team obliged to initiate a token repurchase mechanism? Like many complex questions, there is no standard answer to this - the future direction of the industry, and perhaps it can only be achieved through honest dialogue between all parties.
Life is nothing more than a game of capitalism.
This article is inspired by a series of conversations with Covalent 's Ganesh , which explores the cyclical nature of revenue, the evolution of business models, and whether protocol vaults should use token repurchase as a strategic priority. This is a supplement to Tuesday's article " The Stagnant Death in the Crypto World" .
Private capital markets (such as venture capital) always sway between excess liquidity and scarcity. Market fanaticism drives up prices when asset liquidity increases and external capital influxes. Observing the market performance of newly listed stocks or initially issued tokens can confirm this rule - liquidity inflation directly pushes up asset valuations, and at the same time stimulates investors to increase their risk appetite and spawns a new batch of startups. When underlying assets (such as ETH and SOL) continue to increase in value, profit-seeking capital will migrate to earlier projects, trying to surpass the benchmark rate of return by betting on innovative targets. This capital migration itself constitutes the underlying driving force for industry innovation.
This is a mechanism, not a vulnerability.
Source: https://x.com/credistick/status/1897688251667714300
The liquidity cycle of the crypto market is closely related to the Bitcoin halving. Historically, Bitcoin will rebound within six months after its halving. In 2024, ETF capital inflows and Michael Saylor (MicroStrategy CEO) buying became the "demand black hole" for Bitcoin. Saylor alone spent $22.1 billion to buy Bitcoin last year. But the surge in Bitcoin’s price has not driven the rise of long-tail small-cap tokens.
We are in an era where capital allocators are tight in liquidity and their attention is dispersed by thousands of assets, but the founders who have built the token ecosystem over the years have found it difficult to find the meaning of their efforts. When the benefits of issuing Meme coins are higher, who will still struggle to develop valuable applications? In previous cycles, L2 tokens received a valuation premium due to exchange listing and VC endorsement. But as the market pours in more players, this premium is being slapped.
As a result, the valuation of tokens held by L2 has decreased, limiting their ability to subsidize small products through grants or token revenue. Overvalued valuation forces the founder to ask an eternal economic proposition
- where does income come from?
Transaction first
The above figure clearly shows typical revenue models in the crypto industry. For most products, the ideal state is like Aave and Uniswap. Whether it is benefiting from the "Lindy Effect" (the longer something has been around, the greater the possibility that it will continue to exist in the future) or the first-mover advantage, these two products continue to generate profits over the years. Uniswap can even generate revenue through front-end charges, which reflects the solidification of user habits - now Uniswap has become the "Google" in the field of decentralized exchanges.
By contrast, FriendTech and OpenSea's revenue is only quarterly. The NFT boom cycle lasted about two quarters, while Social-Fi speculation lasted only two months. If the revenue scale is large enough and consistent with the product target, speculative income still makes sense. Many Meme currency trading platforms have entered the "US$100 million + fee club", which is the best result founders can expect through tokens or mergers, but for most people, this success is often out of reach.
Instead of developing consumer applications, they focus on infrastructure—the revenue logic here is completely different.
From 2018 to 2021, VC will invest in developer tools in large quantities, hoping that developers can bring massive users. But by 2024, there will be two major changes in the ecology:
- Smart contracts have unlimited scalability and no human intervention: Uniswap or OpenSea 's team size does not need to expand with the increase in transaction volume.
- Advances in LLM and AI have reduced their dependence on crypto developer tools: this track is facing a revaluation of value .
Web2's API subscription model relies on a huge number of online users, while Web3 is still a niche market, with few applications reaching a million users. The advantage of Web3 is its high user income contribution rate: encrypted users invest more frequently due to blockchain characteristics. In the next 18 months, most projects need to adjust their business models and directly obtain income from user transaction fees.
This idea is not new. Stripe initially charged by API calls, Shopify adopted a subscription system, and later both turned to revenue sharing. For Web3 infrastructure providers, this means seizing the market through low-price strategies—even providing services for free until a certain transaction volume is reached, and then negotiating the share ratio. This is an ideal assumption.
Taking the actual operation of Polymarket as an example: the core function of UMA protocol tokens is dispute arbitration, and the number of disputed events is positively correlated with the token demand. If a transaction sharing mechanism is introduced, 0.10% of each disputed deposit can be used as the agreement fee. Based on the scale of the $1 billion presidential election bet, UMA can earn $1 million in direct revenue. Ideally, UMA can repurchase and destroy tokens with revenue, but there are pros and cons.
MetaMask is another case. Its built-in redemption function handles about $36 billion in transaction volume, and revenue alone exceeds $300 million. Similar logic applies to pledge service providers such as Luganode - fees are linked to the scale of pledged assets.
But if the demand for API calls continues to weaken, why do developers choose an infrastructure provider? If you need to share income, why choose a specific oracle? The answer lies in the network effect. Infrastructure providers with multi-chain compatibility, data parsing accuracy reaches milliseconds, and index response speed leads by three standard deviations will be given priority when new projects are started - these technical parameters directly determine the developer's migration cost.
Burned
Pegging token value to protocol revenue is not a new trend. Recently, multiple teams have announced the repurchase or destroy tokens based on revenue ratios, including Sky , Ronin , Jito , Kaito and Gearbox .
Token repurchase follows the example of stock repurchase in the US stock market, and is essentially a return of value to shareholders (here is token holders) without violating the securities laws. In 2024, the scale of US stock repurchase reached US$ 790 billion , far exceeding US$170 billion in 2000. Before 1982, stock buybacks were considered illegal. Apple alone has spent $ 800 billion to buy back shares in the past decade. Regardless of whether the trend can continue or not, the market has clearly differentiated: tokens with cash flow and willing to invest in their own value and tokens with neither.
For early agreements or dApps, repurchasing tokens with revenue is not necessarily the best use of their funds. One possible solution is to allocate enough funds to offset the dilution caused by the additional issuance of tokens. Kaito founders recently explained its repurchase strategy: the centralized company obtains cash flow through corporate customers and uses part of its funds to repurchase tokens through market makers, with the repurchase volume twice that of new tokens, thus achieving deflation.
Ronin adopts a different strategy: blockchain adjusts fees based on transaction volume per block. During peak periods, some network expenses are transferred to the treasury to control the supply of assets rather than direct repurchase. In both cases, the founders designed a mechanism to bind value to economic activities.
In the future, we will deeply analyze the impact of such operations on token prices and on-chain behavior. But what is visible at the moment is that with the reduction of VC funds in the crypto field, more teams will compete for marginal capital inflows.
Since blockchain is essentially a funding track, most teams will turn to a transaction volume sharing model. If the project has been tokenized, the team can implement a "repurchase-destruction" mechanism. Properly executed projects will win in the liquidity market, but this requires the risk of buying back during the valuation bubble. The truth can only be seen clearly afterwards.
Of course, one day, the discussion on prices, benefits and income is outdated again - people will spend money on Doge again and snap up Boring Ape NFTs. But for the moment, the founders who are worried about survival have begun to talk about income and destruction.
Create value for shareholders, Joel John.
Disclaimer:
- This article does not constitute investment advice
- CXT tokens are held by co-related personnel
