Protocols Must Share Revenue with Token Holders

Jeff Dorman, Chief Investment Officer of Arca, believes that the next significant innovation in digital assets will be connecting token value to a protocol's profit margins and capital efficiency. This is not new logic for stock investors but something that has yet to take hold in the crypto world.

The idea is simple: if a decentralized protocol generates revenue, it should share some of this with its token holders through mechanisms like buybacks or dividends. Dorman notes that while some protocols have started generating real fees and revenue from users, this does not necessarily mean their tokens have value.

For instance, Aave has been around for six years but still faces the issue of exogenous cash flow from real business being key to long-term token holder value growth. If a protocol can generate $500 million in revenue each year but never distributes it to token holders, why should they care?

Dorman emphasizes that tokens differ significantly from stocks because there is no exit strategy for protocols like Aave or Hyperliquid. No one will acquire them at 20 times EBITDA and send a check to all token holders.