Crypto needs to fix token holder protections

Tokens still suffer from a lack of transparency

article-image

Andy Vinnikov/Kirill Stytsenko/Shutterstock and Adobe modified by Blockworks

share

This is a segment from the 0xResearch newsletter. To read full editions, subscribe.


Since its genesis, crypto has been a wildly speculative market where excellence in storytelling commands a price premium.

Crypto’s average daily volatility is several times higher than that of traditional assets like gold or equities.

Storytelling pervades all capital markets, but why is it especially pervasive and magnified in crypto? 

I can think of two reasons. 

The most obvious: its permissionless nature. Anyone can buy a token (no KYC), and anyone can launch a token (see pump.fun’s success).

A second and more subtle reason: weak legal protections for token holders.

As a professional investor, these are all questions you have to reckon with:

  • Will your DAO launch a second token?
  • Do protocol revenues accrete to private equity, rather than the token?
  • What do your token’s market-making agreements look like?
  • Will founders sell their allocations on the private OTC market quietly?

All of these questions (with no answers) create uncertainty for investors, which shrinks the available market pie to the most degenerate gamblers.

That, in turn, produces incentives for companies to ignore the laws of profit and loss and rather play the narrative game, or what Theia Research’s Felipe Montealegre termed “narrative Stalinism” in a recent talk.

“Whoever decides what the narrative is decides what tokens do well regardless of product-market fit and customers, and decides who gets more capital or less capital to invest. It’s a perverse equilibrium.”

To be sure, storytelling is and has always been part of investing

Investing is fundamentally a social, not natural, science.

And the social sciences will always contain elements of subjectivity — contrary to mainstream economics, where the economy can be neatly modulated on a supply and demand graph with perfect causal explanations.

F. Ross Johnson, the CEO of the great American food and tobacco conglomerate RJR Nabisco in the 1980s, often lamented the poor market valuation of his shares despite its great cash flows.

In the revered business book Barbarians at the Gate, Johnson famously complained: 

“It’s plain as the nose on your face that this company is wildly undervalued…we tried to put food and tobacco businesses together, and it hasn’t worked. Diversification is not working. We are sitting on food assets that are worth 25x earnings and we trade at 9x earnings, because we’re still seen as a tobacco company.”

Negative cultural perceptions of tobacco soiled RJR Nabisco’s prospects.

But in the case of crypto, the problem is even more fundamental.

Fundamental property rights suck.

As Montealegre argued, most companies play the game of “narrative Stalinism” because weak token holder protections raise the cost of capital and entry barriers for more risk-averse institutional investors.

From the viewpoint of a fundamentals investor, wishing for an alt season so “number goes up” is pure hopium. You’re better off betting on a token with real revenue flows, but first: Fix the property rights problem.

Fundamental companies

Despite the prevailing problems in crypto capital markets, however, a handful of companies have punched up against their weight. Revenue-generating companies are scarce, but they exist.

Within finance, Jupiter, Raydium and Ethena are all million-dollar-generating businesses. The Hyperliquid perps DEX stands out at the top, with $1-2 million in daily revenues.

If you prefer businesses not tethered to the “circular” economy of DeFi, there is the onchain private credit Maple Finance, which hit a monthly high in $1 million revenue in May. Or Shuffle, a gambling app generating an annualized $100 million + in “net gaming revenue.”

Even the nascent DePIN sector has a few breakouts of its own, namely the data-scraping Grass (allegedly generating eight figure annualized revenues) and the real-time kinematic network Geodnet, making sub $2-3 million in annual recurring revenues (ARR). 

Debate around the right ways to value tokens is also notably louder, as seen in recent talk around real economic value (REV). This suggests a growing class of investors moving away from speculation, and toward more rigorous approaches to valuations.


Get the news in your inbox. Explore Blockworks newsletters:

Tags

Decoding crypto and the markets. Daily, with Byron Gilliam.

Upcoming Events

Old Billingsgate

Mon - Wed, October 13 - 15, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

Industry City | Brooklyn, NY

TUES - THURS, JUNE 24 - 26, 2025

Permissionless IV serves as the definitive gathering for crypto’s technical founders, developers, and builders to come together and create the future.If you’re ready to shape the future of crypto, Permissionless IV is where it happens.

Brooklyn, NY

SUN - MON, JUN. 22 - 23, 2025

Blockworks and Cracked Labs are teaming up for the third installment of the Permissionless Hackathon, happening June 22–23, 2025 in Brooklyn, NY. This is a 36-hour IRL builder sprint where developers, designers, and creatives ship real projects solving real problems across […]

recent research

REPORT_Template.png

Research

The Sonic blockchain is leveraging redesigned airdrop incentives and its FeeM program to propel DeFi activity and attract institutional capital, setting the stage for ecosystem growth. Within this environment, leading protocols Shadow Exchange and Silo are poised to asymmetrically benefit due to innovative features and favorable valuations, despite facing ecosystem dependency and competitive pressures. This positions them as compelling, potentially shorter-term, investment opportunities contingent on Sonic's sustained success.

article-image

Tokens still suffer from a lack of transparency

article-image

Sponsored

The blockchain creates a fair environment where AI agents and users can access deep liquidity without MEV or other forms of value extraction

article-image

After upping its offer multiple times, Circle is finally trading on the NYSE

article-image

Circle goes public on the NYSE Thursday — here’s what to expect

article-image

Sponsored

WalletConnect is the default for secure, scalable onchain interaction — but this isn’t a peak, it’s the launchpad