The Future of Carry in a Token-Powered Fund

Tokenization atomizes fund economics. A tokenized fund's value accrual, governance, and fee streams become programmable on-chain assets, enabling real-time, transparent distribution of profits directly to token holders, unlike the black-box, annual NAV calculations of traditional VC.

Carry transforms from a promise into a cashflow. Protocols like Maple Finance and Centrifuge demonstrate that yield from real-world assets can be tokenized and streamed; fund carry is the next logical primitive for this on-chain financialization.

The future is multi-vector carry. Value capture will not be monolithic but will split across contributors: protocol fee-sharing tokens (e.g., GMX, Synthetix), keeper incentives for execution, and governance staking for curation, creating a competitive market for aligned capital.

Carry is a streaming derivative. Its value is not a static equity claim but a dynamic flow of value. This flow is directly indexed to the fund's underlying performance, captured on-chain via protocols like Superfluid or Sablier for continuous settlement.

Tokenization creates the underlying. A fund's native token, like a Melon Protocol vault share or Index Coop product, represents the portfolio. The fees generated by this tokenized asset are the raw yield that the carry derivative claims a portion of.

This separates speculation from cash flow. Investors can hold the base asset for beta, while carry tokens are purchased for pure alpha exposure. This mirrors traditional finance's separation of equity and carried interest, but with real-time settlement.

Evidence: The success of perpetual futures on dYdX and GMX proves demand for pure, leveraged exposure to an asset's price action. Carry derivatives apply this model to an asset's revenue generation, not its spot price.

Traditional carry is extractive by design. The 2-and-20 model (2% management fee, 20% performance fee) creates a principal-agent problem where the fund's success is not perfectly correlated with the portfolio's success. The fund manager's incentive is to maximize assets under management (AUM) and time-based fees, not necessarily long-term protocol health.

Token vesting schedules break the model. A venture fund's 7-10 year lifecycle is misaligned with a protocol's 3-5 year token unlock cliff. This forces premature exits, creating sell pressure that harms the very projects the fund invested in. Funds like a16z Crypto and Paradigm face this structural conflict daily.

The value capture is inverted. In TradFi, the fund captures value via carry on illiquid equity. In Web3, the protocol's token accrues value via fees, staking, and governance. A fund holding liquid tokens on a secondary market captures none of this operational value, creating a passive, speculative position instead of an aligned, active one.

Evidence: The average crypto fund returned -32% in 2022 (PwC). This underperformance versus simply holding Bitcoin exposes the carry model's failure to navigate token volatility, vesting cliffs, and community-driven governance, which are absent in traditional equity markets.

Dynamic carry is a programmable incentive layer that replaces a static 20% fee. The carry percentage adjusts algorithmically based on staking duration, governance participation, and capital lock-up, creating a direct feedback loop between fund performance and stakeholder alignment.

Staking mechanics create a time-value of commitment. A simple model uses a veToken model, inspired by Curve Finance and Frax Finance, where locked LP tokens linearly boost the carry rate over a multi-year vesting cliff. This penalizes mercenary capital and rewards conviction.

Governance participation directly influences fee streams. Active voters on Snapshot or Tally who delegate to fund strategies earn a carry multiplier. This transforms governance from a passive right into a yield-generating service, ensuring engaged LPs shape the fund's direction.

Real-time fee streaming via Sablier or Superfluid replaces quarterly distributions. Continuous value accrual improves capital efficiency for LPs and provides immediate, composable income for managers, who can use streams as collateral in DeFi protocols like Aave.

The counter-intuitive insight is alignment over extraction. Traditional carry extracts value after a hurdle rate. Dynamic carry distributes value as a function of contributed stake duration and governance work, making the fund itself a compoundable asset for its most committed backers.

Evidence: ve(3,3) models demonstrate viability. Protocols like Solidly and Velodrome show that emission boosts tied to lock time successfully concentrate liquidity and governance power, creating more stable and aligned ecosystems than mercenary farming pools.

Carry becomes a programmable asset. Future funds will treat carry as a transferable, composable token stream, not a static legal promise. This enables secondary markets for carry on platforms like Pendle Finance, allowing LPs to hedge or exit positions pre-maturity.

Automated execution replaces manual distribution. Smart contracts will autonomously calculate, collect, and distribute carry based on verifiable on-chain performance. This eliminates opaque GP calculations and administrative overhead, creating a transparent carry waterfall.

Governance tokens dictate fee models. Fund DAOs, using tokens like those from Syndicate or Karpatkey templates, will vote to dynamically adjust carry rates and vesting schedules. This aligns GP and LP incentives in real-time, unlike traditional fixed-term agreements.

Evidence: The rise of DeFi yield vaults (e.g., Yearn, Sommelier) proves the market demand for automated, performance-fee-based products. A fully on-chain fund is this model applied to active management.