The typical liquidity for stablecoins per token experienced a significant drop, plummeting from $1.8 million in 2021 to merely $5,500 by March 2025—a staggering decrease of 99.7%. This shift is compelling protocols to provide compelling reasons for investors to hold their tokens.
A recent analysis revealed that this decline underscores a troubling trend where the volume of new token issuance has surged beyond 40 million, leading to capital dilution without a matching increase in demand or user retention.
This trend showcases a zero-sum game within crypto capital allocation, where the rapid introduction of new tokens surpasses the growth of capital pools, which in turn leads to diminished liquidity, weaker community engagement, and reduced activity levels.
In the absence of reliable revenue streams, user interest often fades after initial short-lived incentives such as airdrops lose their allure. Without a solid economic foundation, attracting and maintaining attention has become more of a burden than an asset.
Liquidity Constraints
The analysis utilized stablecoin liquidity as an indicator of capital availability, pointing out that the stagnation in new capital flows coupled with the rapid increase in token counts has left numerous crypto endeavors underfunded.
Given the limited resources allocated per token, the previously successful strategies employed in 2021—such as building communities through Discord and conducting airdrop campaigns—have lost their effectiveness in fostering lasting engagement.
Instead, the analysis suggests that projects now need to showcase product-market alignment and ongoing demand through actual revenue generation.
Revenue serves both as a crucial financial metric and a way to convey relevance and economic utility. Protocols that can successfully generate and maintain cash flows are better equipped to validate their token valuations, establish governance credibility, and ensure continued user engagement.
The trends indicate a clear distinction between established platforms like Ethereum (ETH), which benefit from ecosystem depth and inherent incentives, and newer protocols that must establish their worth through consistent performance and transparent operations.
Different Capital Requirements and Approaches
The analysis categorized crypto projects into four developmental stages: Explorers, Climbers, Titans, and Seasonals, with each representing unique approaches to capital development, risk tolerance, and value distribution.
Explorers are nascent protocols characterized by centralized governance and volatile, incentive-driven revenues. While some—like Synthetix and Balancer—experience temporary surges in usage, their primary focus remains on survival rather than achieving profitability.
Climbers, generating annual revenues between $10 million and $50 million, begin the shift from growth driven by token emissions to user retention and ecosystem governance. These projects are now faced with the challenge of strategic decision-making regarding growth and distribution while striving to maintain their momentum.
On the other hand, Titans—such as Aave, Uniswap, and Hyperliquid—enjoy stable revenue, operate under decentralized governance, and harness powerful network effects. Their primary goal is market leadership, not diversification. Thanks to their established treasuries and disciplined operations, Titans have the luxury to conduct token buybacks or similar value-return initiatives.
In contrast, Seasonals represent fleeting trends propelled by hype and social momentum. Projects such as FriendTech and PumpFun may experience brief bursts of high activity but encounter difficulties in sustaining user interest or consistent revenue over time.
While some of these projects might evolve, most remain speculative endeavors lacking enduring infrastructure relevance.
Models of Revenue Distribution
Drawing parallels with public equity markets, the analysis pointed out that younger companies typically reinvest profits, while more established firms return capital through dividends or buybacks.
In the crypto landscape, this distribution approach closely aligns with the level of protocol maturity. Titans are positioned to execute buybacks or structured distributions, whereas Explorers and Climbers are encouraged to prioritize reinvestment until their operational fundamentals are firmly established.
Moreover, buybacks are depicted as a versatile distribution tool, especially suited for projects experiencing volatile revenue or seasonal demand fluctuations. However, the analysis cautioned against poorly executed buybacks that may favor short-term traders over long-term holders. Successful buyback initiatives necessitate robust treasury reserves, strict valuation discipline, and clear execution plans; otherwise, they risk eroding trust and misdirecting capital.
This trend mirrors wider shifts in traditional markets, where buybacks comprised around 60% of corporate profit distributions, outpacing dividends.
This strategy empowers firms to adjust capital return in response to market dynamics, but potential governance risks remain if the motivations behind buyback decisions become misaligned.
Importance of Investor Relations
The analysis highlighted investor relations (IR) as a vital yet underdeveloped aspect among crypto initiatives. Despite claims of transparency, most teams tend to provide financial information selectively.
To foster lasting trust with token holders and institutional stakeholders, a more formal approach is essential, incorporating quarterly reports, real-time dashboards, and clear disclosures regarding token distribution.
Leading projects are beginning to adopt these standards. For instance, one project’s “Buy and Distribute” initiative, bolstered by a $95 million treasury, allocates $1 million weekly for structured buybacks.
Another example dedicates 54% of revenue to buybacks and 46% to liquidity provider incentives, relying solely on revenue rather than external venture backing. Additionally, one project has launched the Litterbox Trust, a non-custodial approach to managing $9.7 million for future distributions, contingent upon achieving financial sustainability.
These examples illustrate that effective capital allocation hinges not just on market conditions, but also on timing, governance, and communication. As liquidity continues to wane for each token, the pressure on projects to prove their sustainability through cash flow and transparency is poised to grow.