Binance Research released a report on token model evolution on June 12th. Recently, crypto KOL Stacy Muur simplified the report, and this article has appropriately expanded on these 10 key points to provide a comprehensive overview. Here are the details.
1. In the ICO Era, Only 15% of Projects Could List on Exchanges
During the ICO era, only 15% of projects could enter exchanges. 78% of the projects were complete scams. The rest either failed or became irrelevant.
The ICO demonstrated that retail investors had a strong desire to participate in startup financing. It was a new financing channel that functioned like a free market - permissionless and without intermediaries. Although many projects failed, it paved the way for the future, making remaining investors more savvy and cautious when choosing investment companies. This ultimately gave birth to more resilient projects like Aave, 0x, Filecoin, and Cosmos.
Key points:
ICO created an incentive dilemma for founders, which could hinder protocol development
ICO also attracted developers drawn by strong retail interest, although not all projects were built with long-term sustainability in mind
Overall, ICO was a new form of capital formation open to everyone, demonstrating retail investors' strong interest in participating in startup financing
2. Liquidity Mining Has Advantages in Guiding Protocol Growth
Liquidity mining began in July 2019 with Synthetix and quickly became popular in the DeFi space. Compound Finance further deepened the concept of liquidity mining by granting governance rights to its token. Yield aggregation platform Yearn Finance borrowed the concepts of governance rights and liquidity mining and further iterated on them. Similar to Synthetix and Compound, the YFI token was used to guide liquidity through liquidity mining and possessed protocol governance rights. Yearn Finance also used liquidity mining as a fair launch mechanism.
3. The Approach of Using Governance as Token Utility Has Not Been Effective
However, the idea of viewing governance as token utility did not create sustained demand for the token. Taking Uniswap as an example, after the airdrop, only 1% of UNI wallets increased their holdings, with most airdrop recipients selling the tokens. 98% of wallets never participated in the governance process (voting).
Although these experiments aimed to fairly and targeted distribute tokens with good intentions, governance rights ultimately did not provide token holders sufficient reasons to continue holding.
Key Points:
Liquidity mining was the first iteration of token distribution, guiding protocol users through rewards, and later experimented with as a fair token distribution method.
Retroactive airdrops were also introduced as another token distribution form, aiming to reward organic protocol usage and achieve a broader governance participant distribution.
Governance rights were the first form of token utility, allowing token holders to participate in protocol-level decisions. However, given the reflexivity when prices begin to fall, governance cannot sustain demand long-term.
4. The Idea of Distinguishing Speculative Demand from Native Economy with Multi-Token Model is Difficult to Execute
The novelty of liquidity mining goes far beyond DeFi's summer. Being able to freely use protocol tokens as a resource acquisition tool led to massive success for Web3 games like Axie Infinity and DePIN networks like Helium in a short time. Both Axie Infinity and Helium did not adopt a single token model but used a multi-token model to distinguish speculation from utility. One token was used for value accumulation, and another for network usage. However, in both cases, this distinction did not work. Speculators rushed to buy the wrong tokens, incentive mechanisms were misaligned, and value was fractured. Ultimately, both reverted to a simplified model.
Key Points:
The concept of liquidity mining was further expanded as a guiding tool for other use cases like games and DePIN
The idea of distinguishing speculative demand from native economy through a multi-token model is difficult to execute and typically fails due to lack of utility in one of the tokens
Token economics is an iterative process where stakeholder interests and needs become clearer only when the product gains attention
5. Private Financing Influx: Turning to Valuation Speculation
2021 – 2022 witnessed an explosive growth in private financing, raising $41.46 billion and $40.12 billion respectively. From another perspective, the financing amount in 2021 was almost twice that of 2017 – 2020 ($22.6 billion). Such growth pattern has not reoccurred since.
To accommodate the capital influx, projects began conducting more financing rounds to accommodate more investors and extend their development path. Given the increased financing rounds before TGE, private investors would typically extend token lock-up periods, which would reduce the proportion of circulating supply at token issuance. Combined with airdrops and point mining, this could lead to inflated metrics, helping to boost initial FDV. Private funds inadvertently shifted focus from token utility to valuation optimization.
6. L2 Platform Airdrop Snapshots Lead to Decreased Bridge Activities
However, after the airdrop ends, protocol metrics (as shown in the figure below) and market valuations are usually seen declining. This led to negative views about the "low circulation, high FDV" issuance model common in the past two to three years.
All well-known L2 platforms see decreased bridge activities after announcing snapshot completion
7. Tokens with Higher Circulation and Lower FDV Perform Better After Listing
Compared to the analysis in May 2024 (gray), recently issued tokens (yellow) show steady circulation growth. This means users can "vote with their wallets" by choosing to abandon tokens with unfavorable tokenomics. Therefore, projects must adapt to community demands, seeing healthier circulation across all projects.
Compared to last year, recently issued tokens show an upward circulation trend
Similarly, comparing recently issued tokens with previous analyses shows a decline in fully diluted valuation at issuance. The average FDV for recently issued tokens is $1.94 billion, compared to $5.5 billion in previous analyses.
Compared to a year ago, the average FDV of recent TGEs has dropped by over 50%
Compared to tokens analyzed in May 2024, recently issued tokens with higher circulation and lower FDV show stronger price performance (see below).
8. Token Buybacks are Recovering
In 2025, token buybacks are trending upward, with projects like Aave, dYdX, Jupiter, and Hyperliquid implementing such plans, using protocol revenues to purchase and burn tokens from the market.
Projects capable of successful token buybacks should be viewed positively, as only financially strong projects can achieve this. The reality is that many crypto projects fail to find product-market fit, and those that do still need to find the best method to promote organic token demand. Buybacks might serve as a transitional measure, allowing projects to focus on growth while avoiding token price disruptions.
9. Hyperliquid Leads Token Buybacks
Hyperliquid currently leads the token buyback trend, having burned over $8 million worth of $HYPE tokens. Hyperliquid's uniqueness lies in buybacks being an integral part of its economic model. 54% of perpetual trading fees, spot trading fees, and HIP-1 auction fees are used for token buybacks. As of May 28, 2025, the Hyperliquid Assistance Fund holds 23,635,530.65 $HYPE tokens, valued at approximately $786 million.
However, there is no revenue stream flowing to token holders, and the buyback only supports the price. Critics argue that these funds could be used for better purposes besides artificially creating scarcity. For example, Hyperliquid could consider allocating USDC fees generated from trading to reward $HYPE stakers. In this case, the $HYPE token would have a closer connection to protocol growth (and fees). Only tokens with revenue can better align incentive mechanisms.
10. ICM Remains Primarily Speculative, with Most Issued Tokens Similar to Memecoins
Believe is an emerging participant in the ICM movement, allowing users to easily create tokens on the Solana blockchain by posting in a specific format on X (such as "$TICKER + @launchcoin"), thereby triggering token automatic deployment through the Bonding Curve model.
This simplified process enables creators and founders to issue tokens without technical expertise or traditional financing barriers. The platform then equally shares transaction fees between creators and itself, with tokens reaching a market cap of $100,000 being transferred to deeper liquidity pools on platforms like Meteora.
Launchcoin has since experienced rapid growth, having issued over 27,495 tokens with a total trading volume of $3.4 billion as of May 29, 2025. Although the sample size remains small, the potential for transaction fees as direct creator income is enormous, enabling founders to fund development without diluting equity. At its peak, Believe's daily transaction fees exceeded $7 million, with 50% going to creators. In comparison, Virtuals' daily transaction fees peaked at $350,000.
However, ICM remains primarily speculative, with most issued tokens resembling memecoins. Given the permissionless nature of such platforms, over 27,000 tokens have been issued on Believe alone, leading to market saturation, diluted liquidity, and distracting investors from legitimate startups. Other issues include sniper bots, highlighting technical challenges that could harm legitimate startup success.
Overall, the ICM movement bears many similarities to the ICO investment era. It embraces the same philosophy of making funding accessible to everyone but provides founders with greater accessibility.
