Jeff Dorman, chief investment officer at Arca, said crypto asset valuations could rise sharply as more protocols adopt value-capture mechanisms such as token buybacks that tie revenue to tokenholders. Dorman was responding to a recent piece by Bitwise CIO Matt Hougan, who argued that valuations for such assets could double or move even higher. Arca, Dorman wrote, agrees with that view and believes the market is finally beginning to accept the logic behind it.
For nearly a decade, Arca has held that digital assets should eventually be analyzed like other investable assets, using fundamentals and expected future cash flows. Tokens are not stocks, and tokenholders do not receive value in the same way shareholders do. Still, Dorman argued, the core principles of investing do not stop applying just because an asset lives onchain or because the issuer is a protocol rather than a Delaware corporation.
How Arca has framed digital asset valuation over time
Dorman revisited Arca’s earlier work to show that this view is not new. In July 2019, when much of the market still grouped most digital assets under the broad label of “cryptocurrencies,” Arca argued that the term was too imprecise. Digital assets, in its view, represented different kinds of economic rights. Some were currencies, some were utility tokens, and some were closer in nature to claims linked to equity-like businesses capable of producing cash flow.
At the time, Arca highlighted exchange tokens in particular. Those assets combined product utility with an economic connection to the business behind them, including through token buybacks that could allow holders to indirectly benefit from a portion of revenue or profit.
In its December 2019 annual review, Arca divided digital assets into four categories. One of those categories was “businesses that use tokens and generate real cash flow.” Back then, some centralized crypto companies were already producing meaningful revenue, but most decentralized protocols were still experimental. Arca wrote at the time that decentralized protocols might need another “5 to 10 years” before they could create real economic value.
Dorman said that estimate now looks reasonably close. Six and a half years later, protocols including Hyperliquid (HYPE), Aave (AAVE), Aerodrome (AERO), and Maple Finance (SYRUP) are generating real fees and revenue from real users. In many cases, he wrote, their margins and capital efficiency would compare favorably with those of most public companies.
That changes the central question. The market is no longer asking whether decentralized protocols can create economic value. The harder question now is what they should do with it.
Revenue alone does not make a token valuable
Dorman stressed that protocol revenue does not automatically translate into token value. He described this as one of the most persistent issues Arca has emphasized in its research.
He pointed back to August 2020, when Arca analyzed the then-emerging DeFi protocol Aave. At the time, it separated two concepts: incentives funded through token issuance and economic returns created by real users and real business activity. Arca wrote then, “In our view, exogenous cash flow from real business activity is the key driver of long-term tokenholder value growth.”
Six years later, Dorman wrote, Aave is still around and the problem remains. If a protocol can produce $500 million in annual revenue but none of that ever reaches the token, tokenholders have little reason to care. That is one of the clearest differences between digital assets and stocks.
When investors buy shares in a company, they own a portion of its residual claim. A company can reinvest profits, distribute dividends, or buy back stock. Even if it never directly returns a dollar to shareholders, there is still another path to monetization: the business itself can be acquired.
A startup can spend years reinvesting every dollar it earns because investors believe those investments will produce more profit later. Once the business matures, it can begin paying dividends or repurchasing shares. Or another company, or a private equity buyer, can acquire it at 20x earnings, with shareholders receiving the deal value and often a premium to the market price.
Crypto protocols typically do not have that kind of endgame, Dorman argued. No one is going to acquire the Aave protocol at 20x EBITDA and mail a check to AAVE holders. No one is going to buy Hyperliquid and offer HYPE holders a 30% control premium. Protocols are decentralized networks and, at least in theory, are designed to keep operating indefinitely rather than end in a sale.
That makes the link between protocol economics and token economics even more important than the link between corporate profits and equity value, in Dorman’s view. If a protocol generates billions of dollars over its lifetime but not one dollar ever reaches tokenholders, there may never be a final event that closes the gap between protocol value and token value.
Protocol profits eventually need to flow into the token
Dorman said Arca has become increasingly convinced that buybacks are one of the simplest and most direct ways to connect protocol success with tokenholder value. That does not mean every protocol should immediately spend all of its revenue buying back tokens. In many cases, he wrote, that would be poor capital allocation.
Many of today’s leading protocols are still, in economic terms, early-stage businesses. They are growing quickly and still have a long list of productive uses for capital. That can include improving products, funding liquidity incentives, entering new markets, acquiring teams or technology, building insurance reserves, subsidizing new products, or investing in the surrounding ecosystem.
If a protocol can invest $1 today and create $5 of value later, Dorman said, Arca would clearly prefer reinvestment over a buyback.
He argued that this is not unique to crypto. Amazon did not become one of the most successful investments in history by maximizing dividends and buybacks during its early high-growth phase. When retained capital can earn a higher return, strong companies keep investing. Protocols, he said, should do the same.
But Dorman drew a sharp line between two different claims: “We are not buying back tokens today because there are better uses for capital right now,” and “There is no reason to believe this revenue will ever reach tokenholders in any form.” The first can be excellent capital allocation. The second makes valuation close to impossible. Buybacks do not need to happen now, he wrote, but investors must believe they will happen at some point.
Morpho founder Paul Frambot recently revived this debate, arguing against aggressive buybacks and saying that young, fast-growing protocols should reinvest profits rather than distribute them. Dorman noted that Frambot made a similar case in a blog post last year. Arca broadly agrees with that logic: if expected returns on new capital remain high, keep investing; when those returns fall, return capital.
Still, Dorman said there is a crucial difference between a protocol like Morpho and the tech companies often used as comparisons. Meta shareholders own Meta. Even before Meta began returning capital, those shareholders still held a legal residual claim on the company’s growing profits and assets. In theory, they could eventually realize that value through dividends, buybacks, or an acquisition. MORPHO holders do not have an equally clear realization path.
That means reinvesting protocol income can delay value realization for tokenholders, but it cannot replace value capture forever. At some point, the economic value created by a protocol has to make its way into the token.
Dorman also said Crypto Twitter has turned the issue into another binary argument over whether buybacks are good or bad. The real issue, he wrote, is timing, echoing a point Arca made in March 2025. Buybacks do not need to begin today, but every protocol eventually has to answer one question: what do tokenholders actually own?
Once protocols earn real cash flow, capital allocation becomes central
For much of crypto’s history, capital allocation was barely a topic because most projects had little capital to allocate. Teams raised money, spent it, issued tokens to incentivize users, and then raised again once funds ran low.
Dorman said that is changing. Once a protocol starts producing meaningful free cash flow, founders and governance participants face the same questions that Jamie Dimon, Warren Buffett, and public-company CEOs have confronted for decades: what should be done with the cash?
Should it be reinvested in the core business? Used for acquisitions? Spent to subsidize growth? Held in reserve? Deployed into adjacent products? And once returns on those opportunities start to decline, should the excess capital be returned to tokenholders?
Those are capital allocation decisions. As a result, Dorman said, digital asset investors should not judge a protocol only by how much revenue it generates. They also need to examine what management or governance does with that revenue.
He offered a simple example. Imagine two protocols that each generate $100 million in annual revenue, each grow revenue at 30%, and have broadly similar margins and competitive positions. Protocol A reinvests all profits indefinitely and has no credible mechanism to ensure those economics will ever flow to tokenholders. Protocol B is also reinvesting aggressively today, but its governance framework and token design clearly state that once reasonable reserves and growth investment needs are met, excess cash flow will be used to buy back its own token.
Those two tokens should not trade at the same multiple, Dorman argued. Protocol B has established a credible transmission mechanism from protocol revenue to token value. Protocol A has not.
Buybacks are not automatically the same as value return
Dorman also warned that the word “buyback” itself needs closer inspection. A protocol might generate $100 million in revenue, spend $50 million buying its own token, and then reissue $50 million worth of the same token as incentives. That does not necessarily mean it returned $50 million of value to holders. It may only be recycling token emissions.
A buyback and burn permanently reduces supply. A buyback followed by direct distribution to holders or stakers transfers economic value more clearly. If repurchased tokens are placed into a treasury, that can still create value, but only if the treasury is ultimately managed for the benefit of tokenholders. The mechanism matters.
Even so, Dorman said the broader principle is straightforward: if a protocol creates economic value, there must ultimately be a mechanism through which tokenholders can share in it. Otherwise, “protocol revenue” is just an interesting statistic.
From revenue to valuation
Dorman said Arca could already see this framework beginning to work in practice by 2021. In July of that year, the firm wrote about a group of digital assets whose underlying projects it described as “real businesses, real cash flow, tokens that can capture economic value, and a way to measure whether they are succeeding.” At the time, Arca viewed those projects as early examples of something it had long wanted to see: customers and users sharing in the economic value created by the network.
Back then, however, there were not many such projects. Dorman said that is no longer the case, which is why Hougan’s thesis matters now.
The key point in Hougan’s article, he wrote, is not merely that revenue should reach tokenholders. It is that the underlying assets have matured just as this valuation framework is becoming mainstream. That combination could have a large effect on pricing.
In Dorman’s view, the discount applied to these assets may start to narrow. If a protocol grows revenue by 50%, the token may become more valuable simply because the protocol’s profit engine is getting stronger. But something else can happen at the same time: investors may also be willing to pay a higher multiple for those profits.
He gave an example. Suppose a protocol grows profits by 50% annually, and as investors become more confident that those profits will eventually flow to tokenholders, the valuation multiple rises from 8x earnings to 16x. In that case, the token price could double even without profits doubling. The reason is simple: the market is paying more for each dollar of profit because the probability of tokenholder value capture is seen as higher.
That, Dorman said, is the essence of Hougan’s argument: as the connection between protocol revenue and token value becomes clearer, crypto asset valuations could double or more. Arca believes that is correct.
He added that profit-generating crypto protocols have long traded at steep discounts to comparable public companies, and some of that discount is justified. Equity holders have legally protected ownership rights. Corporate governance is more mature. Financials are audited. Securities laws offer investor protections. Management teams carry fiduciary duties. After decades of precedent, shareholders have a much clearer understanding of what exactly they own.
Tokenholders usually do not. So a token with the same economics as a stock may still deserve some discount. The harder question, Dorman wrote, is how large that discount should be.
If a protocol has hundreds of millions of dollars in recurring revenue, very high margins, rapid growth, global reach, low capital needs, and a transparent mechanism that uses excess cash flow to repurchase its own token, should it really trade at only a small fraction of the multiple awarded to a slower-growing public company? Maybe, he said. But Arca is increasingly skeptical that the answer is yes.
That suggests one of the biggest opportunities in digital assets may not be limited to finding protocols whose revenue is still growing. It may lie in identifying protocols whose fundamentals have already changed while the market is still valuing them with an outdated framework.
Crypto investing is moving toward fundamentals
Dorman closed by returning to Arca’s long-running view that digital assets will eventually be valued with the same basic principles used across the rest of investing.
- In 2019, Arca discussed businesses with cash flow that used token buybacks.
- In 2020, it argued that exogenous cash flow was central to long-term tokenholder value growth.
- In 2021, it focused on digital assets that were generating real revenue and allowing tokens to capture economic value.
That did not mean the market was ready for fundamentals back then. Dorman said most assets were not ready either. The framework was not wrong; the industry was simply too immature for it to work consistently.
Now the setup looks different. Protocols have customers. They generate revenue. They produce profits. Operators and governance systems have to make real capital allocation decisions. More excess cash flow is being used to purchase tokens.
As a result, Dorman said, the questions digital asset investors should ask are starting to sound very familiar: How fast is revenue growing? What are the margins? How durable is the competitive advantage? How much capital must be reinvested to sustain growth? What return does that reinvestment produce? And once the best reinvestment opportunities begin to shrink, how much excess capital will eventually be returned to tokenholders?
Put differently, crypto investing is finally starting to look like fundamental investing. After more than 15 years of trying to invent new ways to value tokens, Dorman wrote, the next important “innovation” in digital assets may be the logic equity investors have known all along: earn profits, grow them, allocate capital well, and make sure asset holders ultimately share in those profits.