Castle Labs: Why did the six major protocols earn 7.4 billion dollars this year while the coin prices are still falling?

Author: Castle Labs

Compiled by: Jiahua, ChainCatcher

Since the beginning of this year, crypto protocols have generated a total revenue of $7.42 billion. Despite such impressive figures, the prices of most crypto tokens still do not reflect the success of the protocols themselves.

The reason lies in the fact that not all revenue holds the same value. This disconnect is related to the long-standing project architecture and token design in the crypto industry. However, the situation is changing, and investors' evaluation methods for tokens are also evolving. They are increasingly focused on how products generate revenue, how that revenue is distributed, and whether token holders can truly share in the value brought by the growth of the protocol. This marks a shift in the market from speculation to investment.

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

How does the protocol generate revenue, and is that revenue sustainable?

How is the revenue distributed by the protocol, and can token holders derive value from it?

How much of the value created by the protocol is diluted by token issuance, unlocking, and incentive spending?

Does the project have an equity structure that grants shareholders greater economic rights than token holders?

Answering these four questions can essentially determine the true quality of a project, but most projects fail to provide clear answers. Each token's value capture mechanism is different, and some even lack a value capture mechanism altogether. Even if the protocol does return value to holders, the performance of the token price may not meet expectations.

Take @PumpFun as an example. Since the token launched, the protocol's annualized revenue has been about $450 million, but the token price has continued to decline due to multiple factors, including rapid token unlocking and unmet market expectations for airdrops.

This article will outline the different ways leading protocols create and distribute revenue, and will include token issuance, unlocking, and incentive spending in the calculations, presenting the nuances that investors need to consider when evaluating a protocol or token.

Sources and Distribution of Revenue in Crypto Protocols

Before discussing how token holders capture value, it is essential to answer a fundamental question: How much revenue do these protocols' main products generate, and how is that revenue distributed?

This article selects six protocols for analysis: @Aave, @AerodromeFi, @HyperliquidX, Pump, @SkyEcosystem, and @Uniswap. Together, they generated a total of $726 million in revenue in the first half of 2026.

Higher revenue usually indicates that the product has reached a certain scale, but looking at revenue alone is insufficient to determine whether the business is sustainable. To eliminate the impact of short-term fluctuations, a more reasonable approach is to observe revenue performance over different time spans to assess stability.

Therefore, the following sections also compare these protocols' revenues in the first and second quarters of 2026 and calculate the changes between the two. For most protocols, this change is negative, reflecting a decline in performance in the second quarter amid a weakening overall market environment.

First, let's look at the sources of revenue for these protocols. Hyperliquid's revenue primarily comes from perpetual contract exchanges, including trading fees from the native market and HIP-3 market, as well as spot market fees, Builder Code auctions, priority fees, and gas fees from HyperEVM.

Aerodrome is a decentralized exchange, with revenue mainly from exchange fees and external voting incentives; Uniswap also generates revenue through exchange fees. Sky's revenue comes from multiple businesses, including stability fees from DAI and USDS lending, liquidation penalties, trading fees from the Peg Stability Module (PSM), and interest income from the Direct Deposit Module (D3M) and Real World Assets (RWA).

Aave's revenue comes from the portion of borrowing interest attributable to the protocol, as well as flash loan fees, liquidation penalties, and interest income from the native stablecoin GHO. PumpFun's revenue primarily comes from trading fees and fees charged when newly created tokens reach a specified market cap and "graduate" from the joint curve.

After sorting out the sources of revenue, it is also necessary to compare holder income with token issuance, unlocking, and incentive spending. The value returned to holders by the protocol may be high, but if new supply and incentive spending are higher, the actual value capture will still be diluted.

A protocol could generate $100 million in revenue each year, but if it needs to issue $200 million worth of token incentives annually to maintain operations, the value of that $100 million revenue would be significantly discounted. Token issuance and unlocking are important because they reflect how much new token supply flows into inflationary issuance, team and investor unlocks, and, most critically, ecological incentives.

Most protocols distribute revenue between token holders and the protocol treasury, and the specific distribution depends on each protocol's mechanism design and governance arrangements. To measure the dilution of token value from new supply, we subtract the value of token issuance, unlocking, and incentive spending from the income of token holders.

For Aerodrome, Sky, and Uniswap, after accounting for these expenses, the net value flowing to holders turns negative, even though these protocols do distribute some revenue to holders. This indicates that to maintain current revenue and liquidity levels, these protocols incur higher token incentive costs, compressing the net value ultimately flowing to holders.

Currently, there are mainly two ways for token holders to capture value: buybacks and fee distribution.

Buybacks

Buybacks are one of the most direct ways for protocols to return value to token holders. Protocols use revenue to buy tokens on the secondary market, thereby creating real buy-side pressure. The repurchased tokens can be burned or placed into the protocol treasury for future incentives, governance, or staking rewards. For example, Aave allocates the tokens obtained from buybacks to the protocol treasury.

To further strengthen the connection between protocol growth and token value, some protocols directly burn the tokens obtained from buybacks, thereby reducing supply. For instance, @Lighter_xyz has burned approximately 15.6 million LIT tokens through revenue buybacks, accounting for 6.6% of the total token supply, valued at about $36 million.

Hyperliquid executes buybacks and burns programmatically and has burned over 47 million HYPE tokens to date, approximately 4.72% of its supply. Uniswap burned 100 million UNI tokens in a one-time event in December 2025. Since then, the protocol has continued to reduce supply through buybacks supported by its fee mechanism, with a total burn of about 107 million UNI, approximately 11% of the total supply.

Not all protocols will burn the tokens obtained from buybacks, and the specific execution methods for burning can vary significantly. For example, BNB used to implement quarterly burns, but some of the burns targeted tokens that had not yet entered circulation, thus having a relatively limited direct impact on short-term secondary market supply and demand.

Users need to understand the specific details of the burn mechanism: where do the burned tokens come from? Do they truly come from the market's circulating supply?

Each project's buyback method also varies. @maplefinance's token holders recently passed a buyback plan linked to revenue levels. Under the new mechanism, the higher the protocol's revenue, the higher the proportion allocated to token holders.

This is an update to the original MIP-019 plan, which fixed 25% of revenue for token buybacks. Based on an average revenue of about $1.15 million in the first half of 2026, the applicable buyback ratio will drop to 10%. This means that the proportion of revenue used for buybacks is lower than in the original plan, but the proposal still passed with a support rate of 99.97%.

In addition to buybacks, token holders can also stake their tokens with the protocol and earn staking rewards from the treasury or future issuance reserves. After the recent token economics update, Lighter's target staking yield is 6%. Based on the current staking scale of about 125 million LIT, the protocol will distribute about 7.5 million LIT annually.

Similarly, there are currently over 430 million HYPE tokens staked, with stakers earning about 2.1% from future issuance reserves.

However, relying solely on buybacks and burns cannot save a continuously declining token model, nor can it compensate for the ongoing decline in protocol revenue. Buybacks and burns must be observed within the overall framework of buy and sell pressure for the protocol.

Token incentives can be used in the early stages to kickstart liquidity and drive ecological growth, and then gradually decrease as organic demand for the product forms. In contrast, buybacks and burns can create buy-side pressure using platform revenue and reduce supply, thereby offsetting the dilution brought by inflationary token economics.

Fee Distribution

Other protocols, such as Aerodrome and @CurveFinance, adopt a ve token economic model to directly distribute fees to holders. Under this model, holders need to lock their tokens and convert them into voting escrow tokens, such as veAERO or veCRV.

The ve model primarily creates value for holders in three ways.

First, protocol trading fees. These protocols distribute 50% to 100% of trading fees to ve token holders.

Second, yield boosts. Holding ve tokens can increase the mining rewards liquidity providers earn in the relevant liquidity pools.

Third, voting incentives, commonly referred to as "bribes." Projects pay rewards to ve token holders in exchange for their governance votes, directing subsequent token issuance towards designated liquidity pools.

However, the design of ve-type protocols can also drive higher token issuance. This means that the seemingly substantial income for holders under the ve model is often partially built on high token incentives.

According to the statistical criteria used in this article, the aforementioned protocols have cumulatively returned over $2.75 billion in value to holders, most of which comes from Hyperliquid and the large-scale UNI burn implemented by Uniswap in December 2025.

But as mentioned earlier, merely capturing value is not enough; the dilution caused by token issuance and unlocking also needs to be balanced. The next section will explore what other factors, aside from holder income and token release, may suppress token price increases.

The Quality of Tokens

Over the years, crypto products have continuously grown and generated considerable revenue. However, just because a protocol generates revenue does not necessarily mean its token will perform better.

The struggle of tokens from high-revenue protocols often results from several factors working together.

Revenue does not flow to the tokens.

Even if a protocol generates real revenue, this portion of value often remains in the protocol treasury and does not reach the token holders. How the buyback funds are utilized is crucial.

Funds in the protocol treasury are discretionary assets, and their specific use depends on the protocol itself. Since projects typically do not have contractual obligations to continue buybacks, protocols can pause, reduce, or even cancel buybacks at any time. While these decisions require governance procedures, most voting power is often still held by the project team, investors, or a few large holders.

The dual structure of equity and tokens may render token holders "second-class holders."

An increasing number of projects adopt a dual structure of company equity and crypto tokens, but the economic rights enjoyed by the two types of assets are not the same. XRP is a typical example.

According to pricing data from private equity trading platform Forge, since 2025, the indicative price of Ripple Labs' equity has increased by about 105%, while the XRP token has decreased by about 45% during the same period.

Ripple simultaneously holds company equity and XRP tokens, but XRP holders do not automatically enjoy the company's revenue or residual claims from Ripple Labs. Therefore, the value created by the company's business growth may be more reflected in the company equity rather than in XRP itself.

Faster unlocking speeds can lead to greater expected selling pressure.

Even if a protocol shares revenue, a faster token unlocking pace may still depress token prices. Another compounding factor is the low circulation and high FDV token structure, as there is still a large supply waiting to be unlocked and absorbed by the market.

If the market cap is calculated based solely on the current circulating market value, these tokens often appear "cheap." However, when considering the yet-to-be-unlocked supply in the fully diluted valuation, their true valuation may not be low, and future unlocks may continue to create selling pressure.

Only by considering these factors together can one reflect the true nature of a token and explain the price trends in most cases. Of course, in addition to these, market conditions, investor sentiment, and competitive landscape also affect token performance.

The PUMP token has fallen 60% since its launch, despite the project completing over $315 million in buybacks. On the other hand, HYPE has risen 1400% since its launch and has returned about $1.2 billion in value to holders through buybacks.

Both are engaged in continuous buybacks, but PUMP's price performance remains unsatisfactory. The market often attributes this to poor team communication, unmet airdrop expectations, rapid unlocking pace, and sales of related tokens by the team.

The AAVE token has also struggled since the beginning of the year. Its buyback plan, initiated in April 2025, has completed about $45 million in buybacks, and is currently paused due to the Kelp DAO incident.

AAVE's performance is under multiple pressures, including the exit of DAO service providers like BGD Labs and ACI, the impact of the Kelp DAO incident, and increasingly fierce competition from Morpho in the institutional market.

Meanwhile, as AAVE's price declines, the protocol's paper losses on these buybacks have exceeded $23 million. Its average buyback price is about $182, while the current price is around $90.

This indicates that while buybacks can create real buy-side pressure, they do not guarantee the efficiency of fund usage. If the timing of purchases is not optimal, it may also erode the value accumulated by the protocol.

However, buybacks remain one of the easiest ways to verify and directly connect protocol revenue with token demand. Buyback actions can be tracked on-chain, and the protocol must genuinely buy tokens from the market, creating direct buy-side pressure with revenue.

Thus, it establishes a positive reinforcement relationship between protocol success, revenue growth, and token supply contraction. But buybacks are not inherently superior to other distribution methods.

On the surface, direct dividends seem more attractive. Users can receive stablecoin cash flow based on the tokens they hold and decide how to use it. In contrast, buybacks create buy-side pressure directly in the market, but the ultimate effect still depends on the buyback price, how the repurchased tokens are handled, and the overall market selling pressure.

There is no universally applicable advantage or disadvantage between the two; the key lies in what development stage the protocol is in and what functions the token still serves.

Directly distributing fees also has another layer of controversy. If a token lacks governance, staking, or product usage scenarios aside from receiving cash flow, its valuation may gradually approach that of a mere income certificate. Supporters argue that it is precisely because tokens can continuously receive dividends that more people are willing to hold them long-term.

Currently, most projects still choose buybacks, indicating that they generally believe the market buy-side pressure and supply contraction brought by buybacks are more attractive.

Conclusion

Many crypto protocols have established considerable revenue, but just because a protocol makes money does not mean its tokens can capture that value.

Whether revenue flows to holders is only part of the evaluation framework. Unlocks by teams and investors, liquidity incentives, negative events, competitive landscape, and market sentiment can all create greater selling pressure, offsetting the buy-side pressure from buybacks, burns, or fee distributions.

Therefore, investors cannot simply look at how much money the protocol has made; they must continue to ask: Where does the revenue come from, and is it sustainable? How is the revenue distributed? How much dilution will token issuance and unlocking cause? Do equity holders have economic rights superior to those of token holders?

Becoming a business that can continuously generate revenue is the first step for a protocol. The next step is to establish a clear, credible, and verifiable value return mechanism that truly converts protocol growth into benefits for token holders.

Hyperliquid demonstrates the potential effects of aligning interests from the beginning in token design. It returns most of its revenue to holders, and protocols like Aerodrome and Uniswap are also attempting to establish more direct value distribution mechanisms.

Protocol teams are increasingly realizing that a good token must have a good value distribution mechanism. As investors pay more attention to real revenue and value capture, the long-standing disconnect between protocols and tokens may gradually narrow.

But ultimately, the winners will not just be the protocols that make the most money, but those that can both generate profits and effectively retain value for token holders.