DeFi projects are increasingly planning to share revenue with token holders, making these tokens similar to traditional dividend-paying shares. This trend suggests that DeFi may begin to resemble traditional finance systems while maintaining its decentralized nature.
The crypto world revolves around tokens. Projects issue tokens to attract investors and initial users. Token holders get excited when their project announces a major collaboration or a new technical breakthrough without any distribution of the operational earnings.
Similarly, venture capitalists hold their investments in the form of tokens, in most cases without any legal connection between their performance and VC's claim.
Nevertheless, all demand projects to issue tokens. In the current reality, if you are a crypto startup that does not plan to issue a token, you might struggle to attract funding because your offer lacks tokenomics that leverages the project's performance.
This leads to a situation where projects issue tokens that have little utility in the product. Often, those are declared as “governance tokens.”
These governance tokens often have limited voting power while the project’s development is still fully controlled by the team that launched it.
And it makes sense—it would be kind of strange for a team that has fully built a product and has a vision for its future to transfer full control of the product to a DAO.
Teams usually promise a full transfer to a DAO governance structure as the space and the project become more decentralized. However, no one really knows when this “bright and decentralized” future will happen, if ever. Some investors even doubt that DAO is a good instrument for ruling the project.
If you want to win just convince your competitors to become DAOs
— Jason Choi (@mrjasonchoi) October 14, 2024
A reasonable question from someone in TradFi would be: Why do investors hold those tokens, and what do they resemble—money, stock, or something else?
Since the early days of cryptocurrency, crypto tokens were envisioned as money and potential replacements for fiat currency. The Bitcoin whitepaper even refers to Bitcoin as "digital electronic cash." Although much has changed since then, some tokens can still be considered money within their respective ecosystems.
As such, instead of valuing the token using corporate finance methods, macroeconomic indicators such as the equivalent in gross domestic product, money in circulation, and velocity are used. Accordingly, the tokens are evaluated by their exchange rate in comparison with other currencies.
A prime example is Ethereum, whose price is strongly correlated with the overall activity within its ecosystem or "microeconomy." As more projects utilize its blockchain, the greater the demand for Ethereum becomes. Ethereum functions as real money within its ecosystem. It's similar to traveling to Germany, where you would struggle to pay with anything other than Euros. Likewise, on the Ethereum network, you need ETH to effectively participate in and navigate the ecosystem.
In response to tightening regulations, crypto projects have been diligently ensuring that their tokens do not resemble securities. If the SEC were to classify a token as a security, it could spell disaster for the project.
However, the reality is more nuanced. In traditional finance, regular stock appreciation is typically linked to expected cash flows, even if dividends are not paid. While crypto projects aren't able to distribute dividends, the value of their tokens is also often closely linked to the project's cash flow.
This happens for several reasons: there is the expectation that, sooner or later, “dividends” will be distributed, or the project may already be providing rewards through buybacks and burns or staking rewards.
An example would be Uniswap, a decentralized exchange project. The UNI governance token was launched in September 2020, more than four years ago. The UNI token is only used for the governance of the protocol. However, the company behind the project, Uniswap Labs, still leads the project and builds new versions of it, where governance has little to no control over the future of product development.
Notably, Uniswap Labs has also imposed a fee of 0.15% on transactions made from the main Uniswap UI; the fee collected goes directly to the company and not to the holders of the protocol tokens.
All the other fees collected on trades and liquidity provision go into the protocol treasury. Last year, Uniswap governance started to discuss a “fee switch” mechanism, where this treasury would be shared with the token holders. Notably, Uniswap currently generates $1.3 billion in annualized fees, which is a substantial amount of money that could be shared with the community.
Besides promising to distribute revenue, Uniswap has also promised to launch its own L2, which will enable UNI staking and provide rewards for token holders
Another example is the Aave lending protocol. It issued a token in 2017, even earlier than Uniswap. Initially, it was the $LEND token, while now it is the $AAVE token. The project still claims on its website that the main utility of the protocol token is governance. However, in 2025, Aave also plans to implement a “fee switch” to share its treasury with token holders. For the record, Aave generates over $900 million in annualized fees.
The same situation applies to the liquid staking protocol Lido. The token was launched in 2021, and now the project is discussing a fee switch to share its fees with the token holders. The protocol generates over $1 billion in annualized fees.
Notably, newly launched tokens like Ethena, seeing the trend, are promising to share the fees right from the start. The Ethena stablecoin, which was only launched last year, is already discussing fee switch mechanisms with its community. The protocol currently generates over $400 million in annualized fees.
Interestingly, all of the above graphs show a strong correlation between protocol fees and token prices. This mirrors traditional stock valuation principles, where the token’s price is closely tied to potential cash flow.
Another potential use case for tokens is as discount vouchers. This strategy has been widely adopted by various crypto exchanges that have issued their own tokens and offer discounts on trading fees to users. For example, users of the Binance exchange have the option to pay fees with BNB tokens, which provides them with a 10-25% discount on trading fees. This discount is particularly substantial for high-volume traders.
Despite all this obfuscation, there has been clearly a shift in token holders' expectations. The holders of these governance tokens have started to demand more than just loose “governance control” of the protocol. Now, they demand a share of the protocol’s revenue. This has been particularly seen with multiple DeFi protocols.
On the other hand, there is still significant uncertainty in regulations regarding how to treat these “governance tokens.” A good example is the Lido DAO, which may potentially face charges for the actions of the entire organization.
All of this could lead to the development of long-anticipated regulations for digital assets that would provide the same playground as in the stock markets. Combined with increasing tokenization trends later, we would probably see the merging of the two into one.