Author: Castle Labs

Translation: Deep Tide TechFlow

Deep Tide Guide: In the first half of this year, the total revenue of crypto protocols reached $7.42 billion, but most tokens have failed to outperform the fundamentals of their protocols. Investors have begun to shift from speculation to a genuine examination of the income distribution and token value capture mechanisms of products, rather than blindly chasing price increases. This article dissects the revenue sources, distribution methods, and token release pressures of six major protocols, revealing why high income does not equal rising tokens—this is a question every holder should understand.

Since the beginning of this year, crypto protocols have generated a cumulative revenue of $7.42 billion.

Chart: Net token value flow of six major protocols in the first half of 2026 (holder revenue minus token releases), Hyperliquid net inflow of $98.67 million, Sky net outflow of $25.03 million. Source: Castle Labs.

Even though the numbers are staggering, most tokens in the crypto sector still fail to reflect the success of their protocols.

Not all revenue is the same.

This is a question that has been embedded in the industry from the start, but the situation is changing, and the questions investors pose when evaluating tokens are evolving. They are beginning to focus on the revenue generation, expenditures, and value capture for token holders, marking a shift from speculative gambling to true investment.

Most of the time, token holders want to find answers to the following questions:

How does the protocol generate income, and is it sustainable?

How do they distribute income? Can holders gain value from it?

How many token values are earmarked for release, including inflation, unlocks, and incentives?

Is there an equity distribution that grants greater rights than existing holders?

Answering these four questions determines a project's weight in investors' eyes, but most projects cannot provide clear answers. Each token has different value capture mechanisms, with some having none at all. Even where direct value sharing exists, token performance may fall short of expectations.

Take PumpFun as an example: since the token launch, the protocol has generated about $450 million in revenue (in a one-year time frame), but the token has been caught in an endless decline due to factors including token unlocking speed and unmet airdrop expectations.

Chart: Daily revenue (orange) and token price (cyan) trends for PumpFun since the launch of the PUMP token, with revenue and price continually diverging. Source: Castle Labs.

This article focuses on the differences in how leading protocols generate and distribute revenue, considering release and incentive factors, and showcasing the details that investors should pay attention to when evaluating protocols or tokens.

Sources and Distribution of Crypto Income

Before discussing value capture for holders, the fundamental question is to quantify the revenue generated by major products and how it is distributed. This analysis examines six protocols (Aave, Aerodrome, Hyperliquid, Pump, Sky, Uniswap) that collectively generated $726 million in revenue in the first half of 2026.

While higher revenue may be a sign of a sustainable business, looking at this number alone is insufficient. First, to account for short-term fluctuations, it is better to measure revenue across different time frames to assess sustainability. Therefore, we also compared revenues from the first and second quarters of 2026 and measured the changes between them. For most protocols, the changes were negative, reflecting a weaker second quarter due to overall market conditions.

Chart: Comparison of revenue for six major protocols in Q1 and Q2 of 2026, with only Uniswap achieving positive quarter-over-quarter growth (+26.94%), overall revenue decreased from $394 million to $332 million. Source: Castle Labs.

Turning to revenue sources, Hyperliquid's income derives from trading fees on its perpetual contracts exchange (native + HIP-3), spot market, code auctions, priority fees, and HyperEVM gas fees.

Aerodrome is a decentralized exchange (DEX) that generates income through trading fees and external voting incentives (bribes). Similarly, Uniswap charges fees on trades as its revenue source.

Sky generates income from different products: it charges stable fees on collateralized DAI/USDS loans, liquidation penalties, transaction fees from pegged stable modules (PSM), as well as interest from direct deposit modules (D3Ms) and real-world assets (RWAs).

Continuing, Aave generates income from interest rate spreads (borrowers’ payments), flash loans, liquidation penalties, and stable fees from its native GHO stablecoin. Pumpfun generates income through transaction fees and graduation fees charged when newly created tokens reach target market values.

Once these protocols' revenue sources are clarified, we now compare them to token releases to explore whether and how they balance. While the income for protocol holders may be high, if token releases are equally high, the significance of the value capture process is diminished. A protocol might have $100 million in revenue, but if it generates this through minting $200 million in tokens each year, the meaning of that figure is entirely different. Furthermore, token releases are crucial as they show how much value flows toward inflation, team, or investor token unlocks, and most importantly, incentives.

Chart: Comparison of token releases (orange bars) and the proportion of income distributed to holders (cyan line) for six major protocols, Hyperliquid distributes 100% of its income to holders. Source: Castle Labs.

For most protocols, revenue distribution is typically split between holders and the treasury. The specific details depend on the particular protocol mechanisms and the governance handling such distributions.

To demonstrate how releases affect tokens, we subtract releases from holder revenues. For Aerodrome, Sky, and Uniswap, after this adjustment, net token flow becomes negative. Even with income distributed to holders, this indicates that these protocols have released more tokens to maintain current income levels, reducing the net value flowing to holders.

Chart: Net token value flow of six major protocols over the past 180 days, calculated as holder income minus token releases. Source: Castle Labs.

Currently, holders capture value through two main methods: buybacks and fee distribution.

Buybacks are one of the simplest ways for projects to distribute value to holders, albeit indirectly, by using revenue to purchase and burn tokens.

Buybacks typically return tokens to the protocol treasury for future incentives or staking rewards; for example, Aave transfers the repurchased tokens into the treasury.

To be more consistent, most protocols destroy these assets, reducing supply. For instance, Lighter has destroyed about 15.6 million LIT tokens (6.6% of the supply) earned through revenue, valued at $36 million.

Chart: On-chain record of Lighter transferring 15.6387 million LIT (approximately $36.125 million) from the treasury to the burn address. Source: Castle Labs.

Hyperliquid programmatically executes buybacks and burns, having destroyed over 47 million HYPE tokens, about 4.72% of its supply. Uniswap executed a buyback of 100 million UNI tokens in December 2025, with a cumulative destruction of 107 million UNI tokens (about 11% of the total supply), sourced from its enabled fees.

Not all tokens have buybacks, and the execution of destruction can be very subtle. For instance, BNB previously performed quarterly burnings. However, these often do not meet user expectations effectively as they destroy non-circulating tokens, thus having no real impact on market dynamics. Users must check the details of the destruction: from where are the tokens being burned? From circulating supply or non-circulating supply?

Each project executes buybacks differently. Recently, holders of Maple Finance voted in favor of a buyback program expanded with revenue, allocating more to holders as revenue grows. This is an update to its MIP-019, which had previously allocated 25% of revenue for buybacks. According to the average income of $1.15 million in the first half of 2026, the buyback would reduce to 10%, which may not be the best news for holders, but the proposal passed with 99.97% approval.

Chart: Maple Finance MIP-021 proposal to progressively increase the buyback ratio based on monthly revenue, raising the buyback ratio to 30% when monthly revenue exceeds $2 million. Source: Castle Labs.

Furthermore, holders can choose to stake tokens to the protocol and earn staking yields from the treasury. Following recent updates on token economics, Lighter's target staking yield is 6%, estimating an annual distribution of 7.5 million LIT tokens at the current 125 million tokens staked.

Similarly, over 430 million HYPE is staked, earning yields from future release reserves, estimated at 2.1%.

Buybacks and destruction alone cannot save a project from downward token economics or declining revenue, and should be considered within the broader framework of buyers and sellers for each protocol. However, they can be used to drive ecosystem growth and guide liquidity while gradually reducing over time to allow for organic growth. Destruction follows a similar mechanism, leveraging platform activity to counter inflationary token economics.

Fee Distribution

Other protocols, such as Aerodrome and Curve Finance, utilize ve token economics (Ve) models to directly distribute fees. In this model, holders stake tokens and convert them into voting escrow tokens (for example, veAERO or veCRV).

It creates economic value for holders through different mechanisms:

Protocol transaction fees: These protocols distribute 50-100% of fees to ve token holders.

Increased yields: Holding these tokens also boosts the yields for liquidity providers (LPs) in these exchange pools.

Bribery: Protocols pay cash incentives to ve holders in exchange for their governance votes, guiding future rewards to specific liquidity pools.

The intrinsic design of ve protocols drives strong releases, partly explaining their high fee distribution growth achieved through inflation.

Using these methods, these protocols have so far generated over $2.75 billion in holder income, mainly driven by Hyperliquid and Uniswap (due to the 100 million UNI destruction in December 2025).

Chart: The cumulative income distributed to holders by the six major protocols has exceeded $2.75 billion, with Hyperliquid and Uniswap contributing the majority. Source: Castle Labs.

But as we mentioned, capturing value alone is not enough; releases also need to be balanced.

In the next section, we will explore other potential reasons that may hinder token growth, beyond holder income and releases.

The Beautiful Trap of Tokens

Over time, crypto products have grown and generated substantial revenue, but income does not necessarily mean that tokens will perform better.

The poor performance of tokens from most income-generating products can be attributed to several reasons:

Revenue does not flow to tokens: Even when a protocol generates meaningful revenue, this value often remains in the treasury rather than flowing to holders. How buybacks are utilized is critical. Treasury reserves are discretionary, dependent on the protocol. As there are no contractual obligations, protocols can halt, adjust, or cancel buybacks at any time. While there is governance behind these decisions, the majority of voting power is controlled by the project team.

Separation of equity and tokens makes holders second-class citizens: An increasing number of companies now adopt a dual structure of equity and tokens. A typical example of such a token is XRP. Ripple Labs' stock has performed well since 2025, rising 105%, while the XRP token has dropped 45% over the same period. They issue both tokens and equity, but since holders have no specific rights to company revenues, there is no value capture. In contrast, equity holders receive that value and perform well.

Higher unlocking speeds increase expected sell pressure: Even with revenue sharing, a faster rate of supply unlock schedules can suppress tokens, as explained when discussing token releases above. Another aspect is the low circulating volume and high FDV nature of the tokens, as a large supply still needs to be unlocked and absorbed by the market. This can effectively lower the protocol's P/S ratio, making it appear "cheap," but the actual circulating supply shock is expected to become part of future releases.

Chart: The proportion of circulating supply of six major tokens relative to fully diluted valuation (FDV), HYPE is only 23.28%, while Sky reaches as high as 99.63%. Source: Castle Labs.

Combining these factors reflects the true nature of tokens and explains price movements in most cases, although there may be other factors impacting their performance.

The PUMP token has dropped 60% since its launch, despite the project having completed over $315 million in buybacks. On the other hand, HYPE has risen 1400% since its launch and returned $1.2 billion to shareholders through buybacks. Both continue to engage in buybacks, but the PUMP price remains disappointing due to poor communication from the team, no airdrops, rapid unlocking, and token market sell-offs.

The AAVE token has struggled since the beginning of this year, having completed $45 million in buybacks since launching its buyback plan in April 2025 (currently paused due to the Kelp DAO incident). This has been caused by multiple factors, including departures of DAO service providers like BGD Labs and ACI, the impact of the Kelp DAO incident on Aave, and increased institutional competition from Morpho.

Chart: Relative price performance of HYPE, UNI, AERO, Aave, Pump, and Sky, with HYPE significantly outperforming, while most others are close to or below their issue levels. Source: Castle Labs.

Regarding Aave, due to falling asset prices, they also incurred losses of over $23 million when performing these buybacks. They purchased AAVE at an average price of $182, while the current trading price is approximately $90, indicating that buybacks might not be the best path.

However, buybacks remain one of the most consistent solutions for accumulating token value, as they can be traced on-chain, and protocols must buy assets from the market, creating buy pressure supported by revenue. Therefore, it establishes a direct positive link between successful protocol growth (more income) and improved, more deflationary token economics (lower inflation). For cryptocurrency holders, this could be the most optimized way to ensure consistency between the protocol and the token. But as evidenced by Aave's situation, their purchases lost 50%, eroding the value created by the project's success.

On the surface, dividends appear to be a better option, as users can earn stablecoins tied to the tokens they hold and freely dispose of them. However, unlike buybacks, this does not have a direct impact on token prices, making the choice between them somewhat difficult and highly contingent on the specifics of the situation. If a protocol allocates fees, then its token may become useless (unless it has other value or utility). The counterargument is that the existence of dividends would encourage more people to want to invest in a token.

As of today, most projects are conducting buybacks, indicating they believe buybacks are more valuable.

Conclusion

Multiple protocols are generating substantial income, but not all protocols accumulate value for tokens in the same way. Even if they do, it does not necessarily lead to rising asset prices, as there is often sufficient sell pressure stemming from insider-held unlocked tokens, negative news, incentives, the overall sentiment of the project, and competitive dynamics.

Viewing these various nuances in isolation tells merely a small story. Instead, investors should conduct a broader analysis, including how protocols generate income, how income is distributed, and how to strike a balance between final releases and incentives.

The first step for any protocol should be to become a successful business and generate income. Then, it should ensure that value is accumulated for token holders in some manner, whether through buybacks, dividends, or automated fee distributions.

For Hyperliquid, we have witnessed how protocols with strong tokens and value accumulation processes perform excellently when consistency is embedded from inception. It allocates most of its income to holders, and other projects like Aerodrome and Uniswap are following suit.

Protocols are increasingly aware that good tokens require good distribution, so we anticipate greater consistency between protocols and users, with token holders reaping more benefits.

The rupture between protocol income and token performance ultimately leads to a simple conclusion: good protocols do not equal good tokens; only by seriously examining income, distribution, and releases can holders genuinely share in the growth dividends.