What Makes a Good Token? | Roundup

I think one of the most challenging things about crypto from a mental model standpoint is we are combining the mental models of public market investing where companies are primarily in their later stage by the time you've gone public versus very early stage investing.

And so one thing that I feel like I have consistently seen is this idea of hey we have these publicly traded tokens. We can take these mental models and frameworks that we have from investing in public market and apply them. And I don't think that that maps one to one.

I think that there's a life cycle of capital investment and return on invested capital that you want to see before capital is handed back to shareholders and the company statistically dies and so I think that the reason just because there is a reward for buybacks in public markets which empirically exists does not mean I don't think that you can copy that one to one on early stage private markets.

This episode is sponsored by Canton, the only public permissionless blockchain built for institutional finance. We'll hear more from Canton later in the episode.

Blockworks Digital Asset Summit is back in New York March 24th through 26th. We'll have top speakers from leading asset managers, financial institutions, DeFi protocols, crypto companies, and policy makers all under one roof. Think Black Rockck, Coinbase, Robin Hood, and more.

Link: [URL]

Hey everyone, quick disclaimer before we get into today's episode. Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only and the views expressed by anyone on the show are solely our opinions, not financial advice. Our guests and I may hold positions in the companies, funds, or projects discussed.

All right, everyone. Welcome back to another episode of Bell Curve. You got all the fellas here. Miles, Zave, me. Good to be back.

Good morning.

Oh, it's a good morning. We did our bare market episode, so I guess we've established that we're in one of those. So, someone has to restart the DGEN Spartan bare market tracker. I don't know if you guys ever remember that.

What happened to that guy?

Just fell. It just signed off. I respect, didn't he?

Yeah, I think that's right. Yeah, he was very bullish on Lido and Coinbase. So, I think he put half of his net worth into each and it just kind of leveled out. They each canceled the other one out and he just rode off into the sunset.

Didn't lose money.

I don't know. All right. Feel his pen. Feel his pen.

So, we're going to be talking about, we actually had the the idea of this episode was to talk about buybacks, but we wanted to make it more expansive. And we we had the idea of making this actually about what makes for a good token.

And so that's encompassing of what are the different types of tokens that exist. That is how should you think about valuation. We are going to talk about buybacks and value acrruel as well. So, we're going to tackle hopefully all these subjects.

But before we get there, I just want to do a quick shameless show here. We've got digital asset summit coming up. Both of you guys are going to be there. We're going to be doing live bell curve related topics. So, this is there's a discount for all you lucky listeners. Bell 200, you do 200 bucks off.

But yeah, we got chairman of the SEC and the CFTC both there. We got the CEO of Western Union. We got the CEO of Binance there. We've got Steven [ __ ] who sits on the, you know, Fed board of governors. So, it's going to be a very institutional event.

Very good. And then we've got all of your your favorites, the Athenas, the Sparks, the Aves. Stani is going to be making an appearance. It's going to be really good. And of course, Miles and Safe. So, that's that.

Must be must be really fun to like track the history of Dask because it was always like the institutional event, right? And it always felt like kind of like these guys were so far away from the action, not years away from actually doing anything and just kind of observing and sharing thoughts on like where this could go.

And you know now they're like kind of they're actually on the playing field, right? And so yeah, I I'm very curious to hear like the difference between what the stuff we hear like this year versus even like, you know, two or three years ago. But it'll be a lot of fun. come ask questions or heckle us or grab a beer.

No, it's my first event for the year, so I've been saving it for this one. So, looking forward to being back in New York with everyone and yeah, look forward to an epic event.

You know what? It's fun. What DS used to be when we did it in 2019 was basically going to the one, you know, like 25year-old guy who works at JP Morgan is like, "No, guys, this is super serious. Like, please, it was like hear from from him."

But now those people are running teams and yeah actually there's yeah chairman of the SEC and CFDC who actually you know they they're teaming up for project crypto and doing real stuff. So it it is you know this moment in time is interesting too because you know we're talking about this bare market if you were to talk to institutions you know actual banks big asset managers fintexs completely different vibe for them so it is biggest divergence and it just keeps getting bigger and bigger.

So I don't really know what that means but but it's good. I mean it means that we're maturing because do you remember the amount of institutional interest would always basically be correlated to the price of you know tokens right and whenever like we started a bull market it was like oh they love crypto and then we wouldn't hear from them for years you know in a bare market right and now they're you know building products that are not just predicated on selling these tokens or allowing people to access to these tokens they're actually using the chains and So, you know, the interest is much less like volatile and stickier, which is great.

Yeah, I think as well like it's a great time to understand that market, the institutional market, like what are they actually using and paying for. I think still the crypto native crowd sort of assumes some things that they're using and paying for without actually knowing exactly where the flows are happening on chain. So, that's what I'm personally the most interested to learn more about at the event.

So maybe to build on both of those ideas and segue into our topic of the day, I I think it would be interesting to, you know, talking about questioning assumptions that we've had for a long time in the industry. you know, when we talk about what makes a good token, before we get to the buyback debate and the value capture versus value acrruel, you know, discussion that I'm sure everyone's heard quite a bit, thought it would just be interesting to start with a taxonomy of the different types of tokens that exist and historically how we've defined that and then question if it's really quite as expansive and broad as you know as the classifica the classifications that exist today.

So you know if you were to look at the different types of tokens that exist there are stable coins which I think we all know what those are. Das are network tokens so this is like ETH soul AVAC which are actually required to use the network. Uh governance tokens so these are um like the the through line for all of these tokens is the label is how their value is derived right like that's the utility function supposedly of the token.

So for a network or gas token, you're you need to hold this. And so there's kind of this like latent there's this, you know, demand or bid kind of like an industrial commodity or something like that. Um utility tokens, it actually you unlock specific product features like BNB or link are good examples.

So basically to have a bunch of and this is kind of the the Chuck-e-Cheese analogy if people remember this from 2017 which is you know we're not preunding a company we're selling Chuck-e-Cheese uh you know tokens. So that's I mean it's hilarious that we literally called these things Chuck-e-Cheese tokens.

Um they're revenue sharing or dividend tokens. So obviously not exactly like this but this is a tokens that give you a claim on cash flows, right? So this would be the most equity like construction or or way of viewing a token and maybe you get that paid back in a burn or buyback and then memecoins which are just pure social consensus and narrative no cash flows. So Bitcoin edgy this podcast um it's an edgy podcast but those those are the those are the categories.

I'm curious when you guys look at this these this category list in the cold light of day in 2026. What do what do you think? Do all of these need to exist? Should they exist? What do what do you think about this?

I don't think it my my initial reaction when I read I was like thinking about this is that this is really no longer relevant like or nearly as relevant as it used to be. I think back in like you know the early stages of I don't know 2018 to 2022 like we were there was so much more like wonkiness in terms of value acral governance and all of these things and regulatory just noise and we had to make up all these new like sort of concepts and now I think in reality like there's not the the framework through which investors evaluate something like an L1 token is not that different than the framework through which they evaluate you know let's say an app token.

Like there's value acrruel tied to usage of the product and that product can either be a development platform or it can be an app on those development platforms, right? And there's like so many considerations to get that go into like okay is that going to grow in the future and what multiple should be assigned to like the current level of value acral right and yeah there's like nuances that we can get into between like the you know L1s versus app tokens but I don't think it's that different right I think it's basically at this point like we're not making up new frameworks.

We don't need like we basically just map over how we evaluate equities to these projects or how you evaluate you know startups to these pro to these um to these projects and that's it. Like I don't think there was a a good argument for like a commodity based valuation for L1 tokens a while ago and that maybe is the only thing that I think still like holds as you know okay maybe we shouldn't just look at all of these like equities but yeah Z go for it.

Yeah, I think maybe just a comment around the evolution of some of these types of tokens where uh let's say four or five years ago way before regulation was introduced you had a lot more governance tokens especially in DeFi and DeFi historically has been one of the categories in crypto which has actually generated a lot of value and also been something that people want to get involved with.

Back in the day, there was a kind of narrative sold to holders of the tokens that they would have a role to play in governing the treasury of some of these protocols that lived on chain. For example, like unis swap, lido, also compound.

Uh, in general, postregulation, as a lot of us are aware, we've moved more towards kind of like buybacks, revenue sharing. I know a lot of us try to avoid the word dividend, but there's a lot of different ways to to spin what that actually means. And so, you don't really see as many governance tokens anymore.

Utility tokens, when I entered the space, this was a really massive topic for tokens and probably most actually tokens were utility tokens like paying for different things to use the network. For example, with chain link for, you know, to pay for oracle payments. these days as well postregulation even things like utility tokens are moving more towards kind of like just paying in USD no longer paying in a token and I think a lot of this is because of the regulatory climate so I guess like the big question is right now how pro is the current regulatory climate especially in US to buy back tokens to give value back to token holders or is there still a risk really where they some tokens are still avoiding paying back some of the sort of value they're accuring to their treasury and the protocol and I think LTO is a great example here which I'm sure we're going to dive into deeper later in this podcast.

I guess the one thing I would push back on is there is that there's any difference between a governance token and um like a revenue sharing or dividend token at least looking forward to the next 10 years like whether or not that value you know is acred to a treasury and then reinvested to pay like into growth or to pay for operational expenses or whether or not they just you know decide to allocate that capital back to token holders is just a it's it's a management decision, right?

Um, and I and I do think that that like is increasingly going to be like, you know, kind of the the the status quo, which is great. Um, having governance tokens that acrewed no value was, you know, only rational if there was a reason for them not acrewing value, like the reason that Facebook didn't charge early in the days, you know, of its growth. So, that's my one push back on that. Like I think this delineation is kind of like a thing of the past and it and that's a good

Before we get back into the episode, here's a quick word from our sponsor, Canton. The only public permissionless blockchain built for institutional finance. TRDFI wasn't built for 24/7 [music] markets. DeFi wasn't built for regulated institutions. But Canton [music] is where the power of finance meets the promise of blockchain. The only public [music] blockchain with institutional-grade privacy, true composability, real assets, [music] real markets. Why reinvent finance when Canton [music] makes it work the way it should? Canton, where finance flows.

Can I um so I I think there's also a to draw the through line of this whole episode where we say, what do we mean when we say what makes a good token? I think the answer the answer to that probably be is that it has to go up. Um and I think that people have looked for different ways to accomplish that in a way which doesn't get them arrested.

And here here are actually two different forces that I think have confused people. And if you guys know, you know, the three body problem, the idea that there are three bodies of mass in space and two bodies, you can kind of predict where exactly they're going to be, but as soon as you introduce a third, it gets all complex and wound up and you can't understand at any given point if you turn the crank where one body is going to be relative to another.

Here are the three bodies, right? There's there's a valuation methodology. There is something genuinely net new in the form of Bitcoin. Um, so I think Bitcoin was a we've talked about this on the open source. I actually would put L1's as a net new thing that didn't exist before this and then there is regulation and there is what can we say right so all of these three things interacted with each other and you got these constructions like a utility token um and you got a governance token and the governance thing is kind of related to how value gets created in equities and and these things just got all so tangled up that it's very difficult to rewind the clock and understand do we think this way because we're copying Bitcoin? Do we think this way because we are trying to get a certain regulatory treatment and infinite combinations of all of these things?

And I I think personally what I would boil this down to the way that I would explain this is that and actually the SEC has been saying this is that what I don't think we've done is really invent anything on crypto rails is just a wrapper for an asset that exists. And I think mostly you can bucket these things into you know this is a commodity and this is how we look at and value commodities. This is an equity and this is how we look at and value equities. And I I think the regulators are saying that and I think that's very reasonable and fair.

So that's my explanation for why utility that it we're just we got all wrapped around the axle because of these, you know, a net new invention, but then people having to speak out of um, you know, two sides of their mouth.

Yeah. I still think we're in a bit of an awkward phase though because not all utility tokens and governance tokens have moved towards this kind of like revenue sharing token model. Um, and so I think a lot of that is still because it's still not 100% clear, I guess, what this regime looks like long term.

And again, want to take it back to Lido where like this is a good business like earning a lot of revenue per year and you know, potentially growing that over time. And the token is down like I don't know maybe 80 or 90% from all-time highs. And I think if I think back to pre-regulation, why people held these tokens in the first place, like you know, governance tokens have been called kind of useless by many people over time. But I think a lot of people held these tokens with the thinking that in a more regulatory favorable environment, they'd actually have a claim on future cash flows.

But you're seeing now even in this environment, some tokens aren't allowing holders to have a claim on those cash flows. And I think they're being punished. And I think the financial markets are really rewarding tokens that are being bought back. For example, Hyperlquid.

There's a big outstanding question there around like when do you buy back the token? And I think because this is a new era for crypto like having even the opportunity to do that in the first place without feeling like you'll be subpoenas. Um I think this is interesting to explore in terms of like what is actually working right now in crypto. Does it work at all?

I know all of us here have differing opinions on on buybacks, but it's certainly the thing being rewarded the most right now, financial markets, and it's also a big trend right now in the space to be doing this and move away from utility tokens and governance tokens, right?

And I think like uh the the you know value capture and then value like distribution to token holders like it goes back to like a trust problem that was you know like the trust between token holders and protocols has been broken so many times, right? um when it really should just be more like you know public equities where it's a capital allocation question like there is if if token holders like by default have rights to the you know over the cash flow created by like the by the product or by the protocol or by the company then it's just a question of okay for every dollar that we get in do we think we can reinvest that into growth that creates $2 of future revenue in the future right and that versus like do we think it's more valuable to either distribute a dividend right now or to buy back our own token because we think it we're you know it's undervalued right so we're going through this weird like period where we have to reestablish trust we have to get clarity on like what rights token holders actually have and then there will be so much less noise in this you know question of like well if they don't do buybacks or dividends are they actually acrewing value like Lido has been acrewing value to a treasury for like four or five years now, right?

Um, and they're one of the few protocols that actually moved their operational expenses under the DAO completely, right? And thus to the token holders um, and very, you know, like they were just a little bit too far ahead of that, you know, their their time there. And so it just hasn't really looked like values being acred. They also couldn't tell anyone about it, right? They couldn't be like, "Hey, look at this great thing that we've done to acrew value to our token." Uh, yeah, maybe.

I don't or they just like, you know, took the bath of, okay, if we're going to have a single asset that represents all interests in Lido and it's going to be a token, there's not going to be any equity, right? then we're just going to shed all parts all equity components you know that touch the protocol and move them under the you know the the like I don't know the umbrella or governance of the DAO um and that is I think what you do want to do and that's what we'll see going forward um I think that's what we'll see from like you know the metadow projects that are like actually doing this right from first principles from an early stage

Um not speaking to whether food that was such an interesting debate. I I don't want to derail us much but I no no no but but it is a reflection that and the revenue meta that you know all of this is a reflection that we're just kind of like finally starting over um and trying to shed like the clearly like wrong lessons learned that turned out to be wrong, right? because people stopped getting rewarded for like, you know, these weird, you know, uh, dynamics where you could just launch a token, push out a narrative, and you'd be like worth5 billion. Um, that's no longer the case, right? So, it's it's a multitude of things though, to defend some of these teams.

They there was a very legitimate threat that you would go to jail if you did this the wrong way. that I don't think anyone on this call I certainly if we had been a token project I wouldn't have been like come get me I'm gonna do this the right way and no I don't want to go to jail and I want to live in the United States so I wouldn't have done that so I but I also think that that opened the door to I mean just close your eyes and put yourself in the shoes of these protocol founders right I mean oh the lawyers tell me I have to do that or I go to jail and I don't have to share any of these revenues cuz I cuz I cuz I can't I mean it's so understandable how it happened and now you'll see the good founders move some of that.

But here's an interesting thing that you wouldn't have necessarily thought. On top of not being able to have the correct construction, the narrative the the narrative actually fit this bad behavior in a way. And that's why you see so many teams push back on the idea that we might have to generate revenue and they they all want to be valued in this this special snowflake type of way.

And I like arguably like Bitcoin did get that valuation, right? Like that's the market has said you don't need to generate any any fees. This is how we're bucking you we're bucketing you as gold. Um and so I think from a combination of looking at Bitcoin success literally not being legally allowed to acrew value or generate value in the other way that the the narrative started to fit that reality and and so now what a lot of teams I have an enormous amount of empathy.

They have these comp convoluted complicated structures which don't make any sense and they have to make legitimately hard choices. So to talk about Hayden Adams here. So unis swap is probably the canonical example of you know they had early product market fit category lead right they've surrendered a little bit of that lead but they still have this unbelievable brand and you know the front end was generating 200 million in fees. I have it would have been so easy to just say you know what we're not going to go first on this and they he did there were real challenges right like they they raised money in the equity entity right and they turned the $200 million fee switch to zero I I can't imagine what those convers that took bravery and guts I think and I would not underestimate one the combination of a bunch of people were hired onto these teams with the expectation that they'd never have to make any money like that is the legitimate on the ground truth So think about how difficult that is to, you know, undo from a team standpoint.

Then you've set up legal structures to with totally separate teams that might not even talk. I I I just I wouldn't underestimate the sheer unpleasantness associated with unwinding these structures. And I think that's why it takes so long. And I'm not and I'm not I'm I'm more saying that like I don't know if it's that useful to be like taking in all those considerations to a forwardlooking view of how to think about tokens because that is there's so much contextual like baggage that just should never have happened.

Like Uniswap didn't even want a token. like SPF launched [ __ ] sushi swap and forced their hand out of like a defensive in a defensive move before they had any of this figured out, right? And so like what can we learn from that? Like pretty much nothing because that is not like the you know the the current circumstances on the field that like founders are dealing with now they can actually think about this stuff more from first principles.

My guess is that we get some sort of like exemption period for these projects that will give them flexibility in the like early days not to have to like play these decentralization theater games. Um and and be able to operate like more, you know, like a normal company, but also have a token. Um, we'll see. Like there may be, you know, we may be in a period right now where this is the only time that you can there's still gray area like where you can just operate a token project like a company. We'll see.

Yeah. I think yeah, in terms of like timing of all this, like realistically it was kind of when Trump uh got into office where a lot of the kind of buyback conversation started. And I think in terms of a team that has executed the best in the space that I think all of us are reliant on is is like Hyperlid. They kind of came out at the exact time when everything was more favorable to do these things like buying back the token and burning etc.

Uh before that it was really unclear and on top of that hyperlid didn't really have this Dow structure that a lot of like the other kind of teams like Ave and Unis swap had. And I think with all Dows, as we might explore at some point, there's a massive coordination problem. And so, how do you go from like a utility or governance token to like a buyback and burn token or whatever model you choose that acrews more value to the token holder? That is really hard.

You have to coordinate many many token holders all at once and you have to move everyone in this direction. There's a lot of politics involved with that. Uh, Hyperlid came out with a clean slate and timed it really well. And you know before that they were building building building bang more favorable regulatory environment and they've been very successful ever since.

The legacy teams in crypto I think have struggled more because like you said before miles which I think is a really good point like unis swap sort of was forced to launch the token in order to compete. I think what unis swap is doing now to acrew more value to the token in the unification proposal. This is more of like an aggressive move in order for them to compete again with something like a hyperlquid because the financial market is rewarding teams that are actually acrewing value back to token holders and not teams that like do not do that. So they have to do it. They have almost no choice.

I think if unis swap didn't do this the token would continue falling and you know it'd almost be like trending down for as long as possible until they actually pivoted and changed their path. So I think in general it' be interesting to see like you said as well Miles like forwardlooking versus backwards looking. A lot of teams we're talking about right now on this podcast are teams generating revenue which are legacy teams. There haven't been that many teams outside of hyperlquid. Maybe pumped up fun is another example of like they've just come out with no DOW baggage and just buying back the tokens, you know, as much as possible. And you're seeing the financial market continues to reward this.

So I think unfortunately for legacy teams and Dow structures they've got more to overcome and more challenges to get on top of as opposed to like pumped up fun hyperlquid and probably future tokens that just go straight for the buyback approach at least right now that that's what the market is rewarding and the reason why they're rewarding it is because they want to see products and revenues and actual business models that make sense. I think this memecoin era really kind of like was the last of it for many people in the crypto space before regulations when memecoins were just popping off everywhere didn't make sense like people were just speculating on the next coin with like no value acrew no product no nothing it's kind of like in your face almost for Lido and a where like they have real businesses where their token is trending down now having the opposite I think like that pendulum is swinging but it's going more back to the sort of defi native side where like buybacks and value of cruel is actually now more important than ever because we we can do it. So I think we should be doing it.

Everyone in crypto loves to talk about transparency, but would any serious business publish its payroll for the [music] world to see or hand competitors its contracts? That's not a feature. That's a bug. And it's why most financial institutions can't operate on today's public rails. Canon network is different. It's the only public permissionless layer 1 blockchain built with privacy at its core, sharing data only on a need to- know basis. That's why Goldman Sachs, NASDAQ, and Broadridge are already building on the network. Only Canton [music] delivers the network effects of a public chain with the privacy and control real finance demands. Learn more about Canton by following the link in today's show notes.

Well, okay. So, here I want to Okay, maybe we can start to talk about buybacks um buybacks in this context. And um you know I I think that one of the things and we're going to get into this if we have maybe some time we can talk about futuri but I think one of the most challenging things about crypto from a mental model standpoint is we are combining the mental models of public market investing where companies are primarily in their later stage by the time you've gone public versus very early stage investing.

And so one thing that I feel like I have consistently seen is this idea of hey we have these publicly traded tokens. We can take these mental models and frameworks that we have from investing in public market and apply them. And I don't think that that maps one to one.

I think that there's a life cycle of capital investment and return on invested capital that you want to see before capital is handed back to shareholders and the company statistically dies and so I think that the reason just because there is a reward for buybacks in public markets which empirically exists does not mean I don't think that you can copy that one to one on early stage private markets and here's the analogy that I want to give you for I've tried this on both you already. So, let's see if this resonates with the audience.

But imagine you were trying to value two different boxes. You're like, and these boxes each do different things. In one box, you can put in $1 and you get $2 out. And it's infinite. As many dollars as you can find, you can give it to the box and it'll give you $2. How much would you pay to own that box versus a box where you put $1 in, you want you get $1 out up until $500 million, and then it just gives you your money back.

I I know that's kind of a silly analogy, but that to me is why like the reason why you get rewarded at the early stage of a business, the value you're creating is being able to allocate capital at scale to get high returns. The reason Elon Musk is the richest guy in the world is because you can give him a hundred billion or $200 billion and he'll give you 400 or 800. It's it seems to be almost infinite, right? versus if you could give someone a million dollars and they could give you 10 that's worth far far far less.

And so I I understand the reason why we want to do buybacks today because we need to prove to the market that there's some value acrruel here, right? The market's crying out like please just you know it's it's a low trust environment. We have so few success cases, but from a first principal st I hate to use that word, but from a first principal standpoint, it's very hard for me to make the case that it makes sense for an early stage project.

No, I couldn't agree more. It's like first stage one make revenue. Stage two like make more revenue than you have operational expenses. Stage three is basically to like exhaust all reinvestment of free cash flow into like higher ROI opportunities. And then stage four is like once you've gotten past that point, you have a surplus of, you know, revenue that you think is there's no like, you know, really high ROI opportunity to like put that to work, then you give it back to to shareholders. And that's typically been the way equities have always worked, right?

Um, so I'd ask like Hyperliquid's the darling right of the market today and a large part of that has been because they've won investor trust and a part of that is because they have, you know, been consistently doing buybacks and burns. Um, is there an argument to say that that's actually at this point kind of lazy, right? and that if you were like truly a long-term holder of Hyperlquid, you might wish that that team re, you know, took in the couple hundred million dollars of revenue that they're getting and invested that into turning Hyperlid, you know, allowing Hyperlid to compete with like the actual like biggest incumbents in the world in 10 years. Um, I don't know.

I think I think like I totally understand where you're coming from, Miles. When it comes to crypto in particular and also putting a spotlight on Hyperlid, um I just wonder like, you know, with the amount of money, the sheer amount of money they're generating, like how could they even reinvest that into growth right now. I kind of think growth in crypto is capped almost at the moment. Like we're trying to continue growing it. Talked about DAS earlier with institutions coming in. Like if you're earning hundreds of millions in revenue per year, like where do you even put that almost? And their team is so small, uh like maybe they could make some acquisitions or something like that, which I think could make sense.

And I know they're trying to compete with Binance, but I also wonder if this regulatory tape is still something in crypto where if you grow too aggressively, regulators get fearful almost of what happened with someone like SPF and FTX. I