Revenue-Sharing Token vs Appreciation-Focused Token

Predictable cash flow: Tokens like GMX (GMX) and dYdX (DYDX) distribute a portion of protocol fees directly to stakers. This matters for investors seeking yield-generating assets that function like a dividend stock, providing regular returns independent of market sentiment.

Pure capital growth: Tokens like Uniswap (UNI) and early-stage governance tokens derive value from protocol utility and speculative demand. This matters for investors with a high-risk tolerance betting on network adoption and tokenomics-driven scarcity (e.g., burns, buybacks).

Lower volatility, capped upside. While fee yields (e.g., 5-15% APY) provide stability, token price may not surge as dramatically during bull markets. The model aligns with established DeFi protocols where fee generation is proven and sustainable.

Higher volatility, speculative risk. Value is tied to growth narratives and market cycles. Without intrinsic yield, holders face "number go up" dependency. This fits early-stage protocols where the primary goal is bootstrapping usage and community.

Direct protocol alignment: Token holders receive a share of protocol fees (e.g., GMX, dYdX). This creates a cash-flow-like yield, attracting long-term investors who value predictable returns over speculation. This matters for protocols with high, stable fee generation.

Regulatory scrutiny: Distributing profits can resemble a security, increasing legal overhead (e.g., the Howey Test). This matters for protocols targeting U.S. users or seeking to avoid complex compliance frameworks like those faced by early versions of Lido (stETH).

Clear utility-driven demand: Value accrues via mechanisms like token burns (e.g., BNB) or escrow for gas/transactions (e.g., ETH post-EIP-1559). This focuses on capital efficiency and network security, appealing to users who prioritize protocol usage and deflationary mechanics.

Weak holder incentives during bear markets: Without yield, tokens can become purely speculative assets, leading to higher volatility and sell pressure when usage declines. This matters for newer protocols that haven't achieved sustainable network effects, unlike established leaders like Ethereum.

Direct value accrual: Token price is the sole focus, driven by protocol growth, speculation, and buy pressure. This matters for investors seeking high-growth assets without dilution from emissions, as seen with early-stage tokens like Aptos (APT) or Sui (SUI) before major unlocks.

No complex distribution mechanics: Avoids the engineering overhead and smart contract risk of revenue splitting. This matters for protocols prioritizing development speed and minimizing governance friction, similar to the initial design of Arbitrum's ARB token.

Direct fee capture: Protocol revenue (e.g., swap fees, gas premiums) is retained for treasury growth or buybacks, funding long-term development. This matters for protocols building a war chest for grants and security, as demonstrated by Uniswap's (UNI) $4B+ treasury.

Yield-driven staking: Distributing a portion of protocol fees (e.g., 10-50%) creates a powerful incentive for long-term holding and governance participation. This matters for protocols needing deep liquidity and voter engagement, a model perfected by GMX (GMX) and dYdX (DYDX).

High price sensitivity: Lacking yield, token value is hyper-exposed to market sentiment and narratives, leading to sharper drawdowns. This matters for risk-averse investors or protocols needing stable treasury valuation, a challenge for tokens like Sandbox (SAND) during bear markets.

Continuous sell pressure: If revenue share is funded via token emissions, it can outpace buy pressure, leading to inflationary decay. This matters for protocols with high APY promises, a pitfall observed in many DeFi 1.0 yield farming tokens.

Direct cash flow to holders: Tokens capture a share of protocol fees (e.g., 30% of trading fees). This creates a yield-bearing asset that is less dependent on pure speculation. Ideal for protocols with high, predictable fee generation like DEXs or lending markets.

Pure equity-like exposure: Value is tied to protocol growth and adoption, not direct cash flows. Offers higher potential upside if the protocol becomes a dominant standard (e.g., Uniswap's market share). Suits early-stage protocols prioritizing growth over profitability.

Revenue-sharing tokens face higher regulatory risk as they resemble securities (Howey Test). Appreciation-focused tokens with pure governance utility have a stronger argument for being a non-security, though not guaranteed. Consider jurisdiction (SEC vs. other regimes).

Revenue-sharing token yields are highly volatile, directly tied to protocol usage (e.g., GMX's yield dropped from 20%+ to single digits). Appreciation tokens decouple from short-term fee cycles but require continuous growth narratives to sustain value.

• Mature protocols with established, high-volume fee engines.
• Investors seeking income in a crypto-native asset.
• Aligning long-term holders with protocol health (fee generation = holder revenue). Example: A perpetual DEX like dYdX.

• Early-stage protocols needing to bootstrap network effects without fee diversion.
• Maximizing governance participation by not diluting with yield seekers.
• Protocols in ambiguous regulatory environments where security-like features are a liability. Example: A base-layer infrastructure or standard-setting protocol.