How Should Crypto Protocols Actually Return Value to Token Holders?

 

Crypto has never been great at answering a simple question: what do token holders actually get?

For a long time, the answer was basically “number go up.” You bought a token because you believed the protocol would matter someday, and if that happened, the token would be worth more. Sometimes much more. And you could sell those tokens to someone else who believed that same as you, just a bit later in the timeline. That was enough in a market driven by growth, hype, and reflexivity.

But, now the industry is older, and presumably more mature. DeFi protocols generate real revenue. Some of them generate a lot of it. And once real money starts flowing through systems, people start asking uncomfortable but reasonable questions. Who benefits from this? Where does the value go? And why should I hold the token instead of just trading it to the next guy?

There are answers that show up again and again: burns, buybacks, and dividend-style payouts.

Each one says something different about how a protocol thinks about ownership.

 

The Good Old Token Burn: Familiar, Clean, and a Little Hollow

Burning tokens is crypto’s comfort food. It is simple, emotionally satisfying, and easy to explain on social media. Fewer tokens, more scarcity, higher price. Well, in theory.

And to be fair, burns can work, especially in strong markets. They create a sense of discipline. They tell holders that supply is being managed, that inflation is not running wild.

But burns do not actually give anyone anything. No cash, no yield, no participation in revenue. You are still relying on the market to do the rest of the work.

That can be fine if demand is strong. It is much less convincing when demand is uncertain. Scarcity alone does not create value, it only amplifies it if something else is already there.

Burns feel like an answer from an earlier era of crypto, when optics mattered more than fundamentals.

 

Token Buybacks: More Serious, Still Indirect

Buybacks feel like crypto growing up and borrowing language from public markets.

Instead of destroying tokens automatically, protocols use revenue or treasury funds to buy their own tokens on the open market. The signal is clear: the protocol believes the token is undervalued and is willing to spend real money to prove it.

That matters. Buybacks introduce actual demand. They are less abstract than burns. They also force protocols to think more carefully about treasury management and sustainability.

But at the end of the day, buybacks still work through price. If the market reacts, holders benefit. If it does not, they do not. There is no guarantee, no direct transfer of value, no moment where a holder can say, “I received this because the protocol performed well.”

In traditional finance, buybacks are often paired with dividends. In crypto, they are usually positioned as the whole story. That gap is something worth paying attention to.

 

Dividends and Revenue Sharing: The Awkward but Honest Option

Dividend-style payouts in crypto tend to make people uncomfortable. They feel a bit too close to traditional finance. And the instinctive reaction is usually something like, aren’t we supposed to be reinventing all of this?

In some ways, yes. There are definitely parts of the financial system that deserve to be challenged or rebuilt entirely. But that does not automatically mean everything old is useless. Some mechanisms stuck around because they solved real problems. Dividends are one of those.

At its core, the idea is pretty simple. If a protocol makes money, some of that money goes back to the people holding the token. Maybe you have to stake. Maybe you have to lock tokens for a while. Maybe the payout changes over time. The specifics can vary, but the relationship is clear enough. When the protocol does well, holders benefit.

That alone changes the dynamic. You are no longer just holding a token and hoping it becomes more desirable later. You are actually participating in the economics of the thing you own.

It also forces a kind of honesty. If revenue drops, payouts drop. If the protocol grows, holders feel it directly. There is not much room to hide behind supply tweaks or clever treasury narratives.

The objections are predictable. Regulation. Complexity. Governance risk. And to be fair, those are not imaginary concerns. Once you start sharing revenue, it starts to look a lot like ownership, and ownership comes with responsibilities that crypto has historically tried to sidestep.

But pretending that reality does not exist does not really help. And once protocols manage capital and distribute value, they are already doing financial work, whether they want to admit it or not.

Dividends do not invent that reality. They just stop dancing around it.

 

This Is Really About Maturity

Burns, buybacks, and dividends are not just technical choices. They are statements about what a protocol wants to be.

Burns prioritize simplicity and narrative. Buybacks prioritize signaling and market mechanics. Dividends prioritize alignment and accountability.

None of them are universally right or wrong. Early-stage protocols probably should not be paying out revenue. Infrastructure layers may prefer reinvestment. Some tokens are governance tools first and economic assets second.

But as DeFi matures, it is becoming harder to justify tokens that never touch the value they help create.

At some point, holders stop asking how clever the tokenomics are and start asking a simpler question: what do I get if this works?

Crypto does not need to become traditional finance. But it probably does need to answer that question more directly. Whether that leads to dividends, something like them, or an entirely new model is still open.

 

But what is beginning to feel increasingly outdated is pretending that question does not matter.

 

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