Crypto Clash: Should Token Holders Claim 100% of Protocol Revenue?

Decentralization's dirty secret: Everyone wants a piece of the pie—but who gets the whole slice?

The Great Revenue Grab

Token holders are flexing their governance muscles, demanding treasury payouts that'd make Wall Street dividend hunters blush. Protocols now face existential questions: Reward early believers or reinvest for growth?

Voting Rights vs. Value Rights

DAO governance tokens morph into de facto equity—without the pesky SEC oversight. 'Community ownership' sounds noble until someone calculates the APY they're missing.

Protocols Push Back

Smart contract architects warn: Empty treasuries kill innovation. But try explaining R&D budgets to degens staring at a 6% revenue share offer.

The irony? Crypto's most ardent capitalists are reinventing corporate socialism—just with more memes and less paperwork.

Spicy buybacks

In the debate over what percentage of revenue, if any, crypto projects should pay out to token holders, Tom Towbridge, co-founder of Fluence, takes an extreme view: 100%.

Towbridge reasons that the portion of revenue used for buybacks is a measure of a team’s trust and alignment with token holders, so a team that pays out 100% of revenue is perfectly aligned and presumably trustworthy. 

80% of revenue is still pretty good: “Not a lot of misalignment, but there might be some.” 

But when a team pays only, say, 20% of revenue to token holders, “now trust and alignment is very different because management is taking 80% of revenue to do something else with it.”

By that logic, there should be a lot of distrust and misalignment between the owners of pump.fun and the owners of its new token, PUMP. 

Unlike in equities, these two groups are not the same because PUMP holders have no legal claim on pump.fun’s earnings or assets.

Still, investors value the token at $4 billion, presumably because pump.fun’s owners have promised to use 25% of the platform’s revenue to buy PUMP.

It’s possible, of course, that the 75% of revenue retained by pump.fun’s owners will be invested in a manner that ultimately benefits token holders. 

But it might also be invested in a new business line that the owners decide is unrelated to the PUMP token. Or in houses and yachts for the management team. 

There’s no telling. 

It’s therefore probably best to value the PUMP as a multiple of its current cash return — much like the VOC’s pioneering investors did.

From the VOC in 1602 until about US Steel in 1901, investors tended to value stocks only by the dividends they received, assigning no value to a company’s retained earnings.

Ignoring retained earnings made sense because before US Steel set a new standard of disclosure by releasing full financial statements; investors had no idea what companies were doing with them.

Today, token investors are not much better informed, so it similarly makes sense to value many tokens by the rate of their current buybacks and nothing else.

That’s not exactly what people are doing. 

Based on revenue for the month of June, PUMP is trading at 40x its annualized buyback.

That equates to a 2.5% yield at the current token price — not crazy by crypto standards, but also seemingly pricing in something more than the current rate of cash return.

By contrast, VOC’s early shareholders effectively demanded all of the company’s cash flow, because they were rightly suspicious of what management was using them for (self-dealing and empire-building, as it turned out). 

Even in those early, money-losing years, the company paid as much as it could possibly manage (albeit in mace, nutmeg and cloves), because it had to prove that VOC shares had value.

It’s since been established that shareholders have a claim on earnings, so valuation is easy: Every stock is worth the discounted value of its future cash flows.

Until that’s established in crypto as well, token holders should probably demand bigger buybacks.

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