Author: Ching Tseng

Translation: Shenchao TechFlow

Introduction by Shenchao: Most tokens issued during the last cycle have a pricing issue that no one wants to address: If your token cannot legally share protocol revenue, then what exactly are you holding? Author Ching Tseng explains this matter thoroughly:

The three pillars of token valuation are simultaneously weakening; Buyback & Burn is currently the hedging choice for protocols, and a dual compliance structure may be the direction, but in the interim, most tokens are priced based on something that hasn't been clearly defined.

Most tokens issued during the last cycle have a pricing issue that no one wants to bring up. If your token cannot legally share protocol revenue, then what exactly are you holding? The CLARITY Act did not kill DeFi; it merely forced everyone to acknowledge something they already knew.

Almost every token at launch carries an unspoken promise.

This promise has never been written into any legal documents. It lives in the footnotes of white papers, in Discord chat threads, and in a collectively assumed hypothesis—governance rights will eventually translate into some form of economic return. The reasoning is simple: As the protocol grows, you benefit alongside it.

The CLARITY Act is making this promise difficult to fulfill.

This law does one key thing

The bill categorizes every digital asset into two buckets.

Digital Commodity: governed by the CFTC (Commodity Futures Trading Commission). It must be sufficiently decentralized, with no single entity controlling more than 20% of the voting rights or token supply. Bitcoin and Ethereum fall into this category.

Investment Contract Asset: governed by the SEC (Securities and Exchange Commission). There must be a recognizable issuer, and holders expect to profit from the efforts of others.

The uncomfortable truth is that most tokens issued during the last cycle—UNI, AAVE, MORPHO, PENDLE, OP, ARB, and half the L1 and DeFi tokens you can name—cannot fit neatly into either bucket. There are real protocols, real revenue, yet the legal nature of the tokens themselves has never been defined.

The CLARITY Act says: pick a side, ambiguity is no longer an option.

The part most people miss

Once tokens are traded on secondary markets, under the CLARITY Act framework, they generally lean towards CFTC jurisdiction and are categorized as digital commodities. There’s essentially no turning back. All tokens already traded on @binance or @coinbase will likely become locked into a “digital commodity” designation once the bill takes effect. The CFTC regulates oil, gold, wheat—these are assets that no one expects to merely hold to receive quarterly dividends.

The same logic applies here, but there’s an important nuance. Although digital commodities are governed by the CFTC and treated as traditional goods rather than securities, it does not mean that protocols can risk-free distribute revenues directly to token holders. According to the joint interpretive guidance from the SEC and CFTC in March 2026, if holders have a reasonable expectation of profits, and this expectation arises from the ongoing development, management, or efforts of others, this arrangement could still be classified as an investment contract and fall under SEC scrutiny. Even for tokens already trading, promises made during the initial issuance or in public communications, if not explicitly clarified, may persist, creating retroactive risk exposure.

This is why many protocols have turned to Buyback & Burn, viewing it as a safer, more practical mechanism: directing revenues into the open market to repurchase and burn tokens, thus supporting prices through reduced supply and capital appreciation rather than directly distributing revenues. Another path gaining attention is building a permission layer on top of the foundational protocol. The original permissionless layer continues with Buyback & Burn, while the new compliant access layer opens only to verified users, granting verified holders legal rights to share in protocol revenues. This idea is theoretically sound, but poses its own complex issues: the same token carries different legal rights at different layers, raising concerns regarding contract consistency and fair treatment of holders.

So, what underpins token prices?

Historically, token valuation relied on three things.

Speculative Premium: The market believes a protocol will grow, so people are willing to pay for potential future increases now. For most tokens, this is the dominant factor.

Governance Premium: Holding a token grants you voting rights. In theory, controlling key infrastructure is valuable.

Utility Demand: Some tokens are essential for using the protocol or can earn fee discounts.

Before regulation clarifies, you could mix these three to tell a murky but workable valuation story. After the CLARITY Act, each pillar is weakening. Once the expectation of legal revenue sharing is removed, the speculative premium loses its foundation. The governance premium tends to collapse in bear markets—no one cares about voting rights from a protocol that cannot return value. Utility demand is real but only effective for a small subset of token designs.

For most tokens, the logic of pricing is quietly crumbling.

What protocols are doing now

The most common response is Buyback & Burn.

Protocol revenues flow into DAO treasuries. The treasury uses these funds to buy back tokens on the open market and then burn them. Holders don’t directly receive anything—but supply decreases, which theoretically should support prices.

@Uniswap started in late 2025, directing 17% of swap fees towards UNI buybacks. @aave followed in 2026, directing 100% of protocol revenue to buy back AAVE.

The legal reasoning is: capital appreciation is not revenue distribution. It's much harder for the SEC to attack buybacks than to attack dividends.

But here’s a dose of cold water. GMX and Metaplex both executed sizable buyback programs, destroying 6.5% to 12.9% of total supply. Token prices still dropped over 70%. Buyback & Burn is the safest option available, but it is not a cure-all.

There’s a more interesting path that some are exploring

If buybacks aren’t enough, what comes next?

A more seriously considered idea is building a permission layer on top of the foundational protocol.

The original layer remains permissionless, open to everyone, with no KYC required. Tokens on this layer continue with Buyback & Burn.

The new layer is a compliant access layer. Verified holders can join. Here, holding tokens comes with legal rights to share in protocol revenues. Direct distribution, fully compliant.

This direction makes sense. But there’s also an issue that hasn’t been neatly solved: you hold the same token, but it has different legal meanings across different layers. Holders who have completed KYC can receive revenue distributions, while those who haven’t cannot. The same contract, the same token. This inconsistency is more legally complicated than direct revenue distribution.

Where might this lead?

Three scenarios look plausible, and I honestly don’t know which will prevail.

Scenario One: The SEC explicitly endorses Buyback & Burn. They issue a no-action letter confirming that buyback mechanisms do not constitute investment contracts. The industry gains a clear floor upon which to build. Many are waiting for this signal; it would significantly change the entire framework.

Scenario Two: The dual-layer model becomes the standard. As regulatory frameworks mature, the permission layer receives explicit safe harbor treatment. KYC holders gain compliant revenue rights, while non-KYC holders retain liquidity and governance rights, creating two parallel markets. This requires protocols to absorb significant compliance costs and act swiftly.

Scenario Three: Most token prices become permanently decoupled from protocol performance. The protocol does well, but tokens do not. Prices become a function of market sentiment, with no structural connection to how much the underlying protocol actually earns. This is bad for retail holders but not necessarily fatal for the protocol itself.

Some of my thoughts

I once hoped tokens could function like stocks, but new regulations have essentially blocked this path. No one wants to fully consider what this truly means.

If a token cannot legally offer holders a way to share in the protocol's success, then holding it long term essentially amounts to betting on sentiment. Sentiment can sometimes yield astonishing returns. But it is not an investment logic.

Buyback & Burn is where we stand now. The dual-layer model is likely the direction this is heading. But in this space between here and there, most tokens are priced based on something that hasn't been clearly defined yet.

The alpha for the next cycle may not be about finding the fastest-growing protocols. It may lie in identifying those that truly understand how to connect token value to business performance and can withstand legal scrutiny.

Those are the ones worth holding.