Original Article Title: When Tokens Burn
Original Article Author: @Decentralisedco
Original Article Translation: zhouzhou, BlockBeats

Editor's Note: This article explores how crypto projects allocate value based on different developmental stages (Explorer, Climber, Titan, Seasonal Project). Explorers should focus on survival, Climbers need to make strategic choices, and Titans should distribute profits. Buybacks and dividends each have their own advantages and disadvantages, with buybacks being more flexible but potentially leading to short-termism. Successful buybacks require strong funding, reasonable valuation, and transparent reporting. Investor relations should be a core infrastructure, helping to build long-term trust and attract institutional capital.

The following is the original content (slightly reorganized for easier reading comprehension):

Zero-Sum Attention Game

In 2021, each cryptocurrency asset had an average of about $1.8 million in stablecoin liquidity. By March 2025, this number had plummeted to just $5,500.

This chart shows the declining average and reveals the zero-sum attention game in the current crypto industry. Despite the number of tokens surging to over 40 million, stablecoin liquidity (roughly representative of funds) remains stagnant. The consequence is brutal—each project receives less capital, communities are thinner, and user engagement rapidly declines.

In this environment, fleeting attention is no longer a growth channel but has become a burden. Without cash flow support, attention is fleeting and unforgiving.

Revenue is the Anchor

Most projects still build communities with a 2021 mindset: create a Discord channel, sprinkle some airdrop incentives, hope users shout "GM" long enough to cultivate loyalty. But the reality is, once users receive the airdrop, they leave—why should they stay?

This is where the value of revenue lies—not just a financial metric, but proof of whether a project has sustainable appeal. A product that can generate revenue means there is demand, and demand determines valuation, which in turn gives the token attractiveness.

Of course, revenue is not the ultimate goal for all projects. But without it, most tokens simply cannot survive to truly establish themselves.

The situation is different for Ethereum, as it has already established a mature and robust ecosystem, therefore not requiring additional revenue support. Ethereum's validator rewards come from around a 2.8% annual inflation, but due to the fee burning mechanism of EIP-1559, this portion of inflation can be offset. As long as the burn and rewards remain balanced, ETH holders will not experience dilution.

However, for new projects, this kind of treatment is a luxury.

When a project only has 20% of the tokens in circulation, the product is still seeking product-market fit, essentially operating as a startup—it must be profitable and prove its ability to sustain profitability in order to survive.

Protocol Lifecycle: From Explorer to Titan

Similar to traditional companies, crypto projects go through different growth stages. At each stage, the project's attitude towards revenue—whether to reinvest or distribute profits—undergoes significant changes.

Explorer: Just Survive

These projects are in the early stages, with governance still highly centralized, the ecosystem fragile, and a focus on experimentation rather than monetization. Even if there is revenue, it tends to be highly volatile and unsustainable, reflecting more market speculation rather than user loyalty. Many projects rely on incentives, grants, or venture capital funding to sustain themselves.

For example, projects like Synthetix and Balancer, which have been around for about 5 years, currently generate weekly revenues ranging from $100,000 to $1 million, with occasional spikes during active market periods. This kind of volatility is not a sign of failure but a characteristic of the early stage. What truly matters is whether these teams can translate their experimental results into stable user demand.

Climber: Growing, yet Unstable

Climbers are in a higher growth stage, with annual revenues ranging from $10 million to $50 million, starting to move away from a growth model driven solely by inflation incentives (such as large token distributions). Their governance structures are becoming more mature, shifting the focus from mere acquisition to long-term retention of users.

Unlike Explorers, Climbers' revenue is no longer just the result of short-term speculation but demonstrates stable demand across multiple market cycles. At the same time, their organizational structures are evolving—from centralized teams gradually transitioning to community governance and starting to explore diversified revenue streams.

The unique aspect of Climbers is that they have more agency. They have already built enough market trust to experiment with income distribution strategies, such as starting buybacks or implementing revenue sharing. However, at the same time, if they over-expand or fail to establish a strong moat, they may lose their growth momentum.

Unlike Survivors' "survival mode," Climbers need to make strategic trade-offs — whether to continue expanding or solidify their existing market? Is it to distribute income or reinvest? Is it to focus on core business or expand outward?

This is the most fragile stage of project development, not because of volatility, but because every decision is a matter of life and death. If income distribution starts too early, it may slow down growth; but if delayed too long, token holders may lose interest.

Giants: Getting Ready for Income Distribution

Projects like Aave, Uniswap, and Hyperliquid have already crossed the crucial threshold — they have stable income, decentralized governance, and benefit from strong network effects. No longer relying on inflationary tokenomics, these projects have established a robust user base and battle-tested business models.

They usually do not attempt to dabble in all areas but focus on their core business:

· Aave dominates decentralized lending

· Uniswap has the spot trading market

· Hyperliquid is building a DeFi stack focused on execution efficiency

Their success stems from defensible market positioning and high execution capabilities.

Most giants have become leaders in their respective races. Their goal is no longer to capture market share but to expand the entire industry's pie, enabling overall ecosystem growth.

These projects have enough confidence to engage in buybacks while sustaining years of development. Although giants are still affected by market fluctuations, they have enough risk resilience to calmly navigate through cyclical changes.

Seasonal Players: Explosive Hype but Unstable Foundation

These projects often have the highest trading volume but are also the most fragile. Their short-term income may rival or even surpass the giants at times, but this growth typically depends on market hype, speculative sentiment, or temporary social trends.

For example, projects like FriendTech and PumpFun have the ability to ignite the market in a short period, bringing significant user engagement and transaction volume. However, they often struggle to maintain long-term retention.

Of course, these types of projects are not entirely without prospects. Some projects may successfully transition and find a sustainable development path. But the vast majority of seasonal players are more like "short-term speculative products" in the market, with their value more driven by emotions rather than stability as long-term infrastructure.

Insights from the Public Offering Market

A similar reference is provided by the development path of companies in the traditional stock market:

· Young companies typically reinvest free cash flow to scale up;

· Mature companies tend to distribute profits to shareholders through dividends or stock buybacks.

The diagram below shows how companies allocate profits: as companies grow and mature, the amount of dividends and buybacks increases.

Established projects should distribute earnings, while early-stage projects should retain and continue to grow. However, not all projects can clearly identify their stage of development.

The industry nature is also important, and projects like utilities (e.g., stablecoins) are more like consumer essentials, suitable for a stable dividend model. These projects have often been around for years, with a relatively predictable demand pattern, and their performance does not significantly deviate from market expectations, allowing them to consistently distribute profits to holders.

High-growth DeFi projects are more like tech stocks, where buybacks may be a more optimal value distribution method. The market demand for tech companies has a certain seasonality, and the growth pattern is not as stable as in traditional industries. Therefore, it is more reasonable to flexibly feedback value through buybacks.

When DeFi projects have had outstanding quarterly or yearly performance, they can deliver value through token buybacks rather than direct dividends.

Dividends vs. Buybacks

Dividends have rigidity—once dividends are committed, the market expects continuous stable dividends, and companies find it challenging to adjust. Buybacks are more flexible—teams can adjust the timing of buybacks based on market cycles or undervaluation of tokens, strategically allocating value.

Since the 1990s, the share of buybacks in profit distribution has increased from about 20% to 60% in 2024. In terms of total U.S. dollar amount, buybacks have surpassed dividends since 1999, becoming the preferred profit feedback method for companies.

Buybacks also have downsides. Without proper communication or pricing, they may shift value from long-term holders to short-term traders. Governance needs to be airtight. As management often has key performance indicators (KPIs) such as increasing earnings per share (EPS), when you utilize buybacks to retire shares in circulation, you reduce the denominator, artificially boosting the EPS figure.

Both dividends and buybacks have their roles to play. However, if governance is inadequate, buybacks may quietly benefit insiders at the expense of the community.

A good buyback requires three prerequisites:

· Strong capital reserves

· Well-thought-out valuation logic

· Transparent reporting

If a project lacks these, it may still be in reinvestment mode.

How Leading Projects Handle Profits

@JupiterExchange explicitly stated during token issuance: no direct income distribution. After experiencing a 10x user growth and having enough financial reserves to support multiple years, they introduced the Litterbox Trust—an ungoverned buyback mechanism currently holding about $9.7 million worth of JUP.

@aave has over $95 million in capital reserves, allocating $1 million weekly for buybacks, executed after several months of community dialogue through a structured plan called "Buy & Burn."

@HyperliquidX goes even further. Fifty-four percent of the revenue is used for buybacks, and 46% is allocated to incentivize liquidity providers. To date, over 250 million HYPE has been bought back, all funded by VCs.

What do these projects have in common? None of them started buybacks recklessly before ensuring a solid financial foundation.

The Missing Layer: Investor Relations

The crypto industry loves talking about transparency, but most projects only release data when it suits them. Investor relations (IR) should be a core infrastructure. Projects need to share not only revenue but also expenses, financial condition, fund strategies, and buyback executions. This is the only way to build long-term trust.

The goal is not to advocate for a particular "correct" value distribution. Instead, it is to recognize that distribution should align with maturity, which is still lacking in the crypto industry.

Most projects are still finding their positioning. But those getting it right—having revenue, strategy, trust—have a significant opportunity to become the large-scale infrastructure this industry truly needs.

Strong IR is a moat. It builds trust, reduces panic during market downturns, and maintains institutional capital participation.

What it might look like:

· Quarterly financial reports: Transparent disclosure of income and expenses

· Real-time treasury dashboard

· Public log of buyback execution

· Clear explanation of token distribution and unlocking

· On-chain validation of funding, salaries, and operations

If we want tokens to be seen as true assets, they need to start communicating like real businesses.

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