Grayscale Investments is urging crypto investors to look beyond headline staking rewards and token buybacks when evaluating income-generating blockchain protocols, warning that new token issuance can erode or even eliminate the economic benefits received by holders. In a research framework published on October 21, Grayscale’s head of research, Zach Pandl, outlined an earnings-based approach designed to distinguish a protocol’s underlying business performance from the returns ultimately attributable to its tokenholders.
“Crypto valuations don’t have to rely on narratives alone,” Pandl wrote, emphasizing the importance of measurable financial activity when assessing digital assets. The framework examines protocol earnings, distributions to tokenholders and changes in circulating supply to provide a more comprehensive view of potential returns.
Onchain applications generate revenue through activities such as trading, lending and other financial services. However, gross fees do not necessarily represent earnings available to tokenholders. Payments to liquidity providers, lenders and other suppliers must first be deducted to estimate the economic value retained by the protocol. Grayscale then compares those earnings with circulating market capitalization to assess how the market values the activity being generated.
The firm’s tokenholder-yield measure takes a broader approach by combining staking distributions and token buybacks, subtracting new token issuance and dividing the resulting figure by circulating market capitalization. Its adjusted earnings yield compares total protocol earnings with market capitalization and then subtracts circulating supply inflation. Together, the measures seek to show whether a protocol generates sufficient economic activity and whether its token distribution mechanisms translate that activity into benefits for holders.
The distinction matters because staking rewards and buybacks can appear attractive without necessarily creating positive net returns. A protocol may distribute tokens to participants while simultaneously issuing additional supply, diluting existing holders. If new issuance exceeds the value returned through distributions and repurchases, the net tokenholder yield can become negative.
Buybacks funded by protocol revenue provide one example of how financial activity can support tokenholder returns. Hyperliquid’s HYPE buybacks use revenue generated by the trading platform to repurchase tokens. The scale of those repurchases depends on the fees the exchange collects, linking the mechanism to actual platform activity rather than relying exclusively on new token issuance.
Token burns operate differently. Buybacks can reduce circulating supply, depending on how repurchased tokens are held or used, while burns permanently remove tokens from supply. Grayscale’s framework evaluates these mechanisms alongside issuance and token unlocks, recognizing that their economic effects depend on how they are implemented.
The firm’s comparative charts cover eligible tokens within the FTSE Grayscale Financials Crypto Sector that rank among the top 100 by circulating market capitalization, excluding centralized projects. Using data dated October 20, HYPE recorded the highest tokenholder yield among the 10 protocols shown, at 8.0%, while CRV ranked last at negative 5.5%. For adjusted earnings yield, CAKE led the comparison at 14.4%.
These figures illustrate why tokenholder yield and adjusted earnings yield should be considered separately. A protocol can generate meaningful earnings without returning an equivalent amount to holders, while generous distributions can be offset by inflation. Investors evaluating a token therefore need to understand both the economic activity supporting it and the mechanisms through which value reaches holders.
Staking rewards provide another important component of the calculation. Participants receive compensation for helping secure or operate a network, but those payouts must be assessed alongside the supply dynamics of the asset. Ethereum, for example, rewards validators for participating in consensus, including proposing blocks and checking other validators’ work. The network also applies penalties for missed duties and slashing for specified misconduct, tying rewards to validator performance and adherence to protocol rules.
However, staking returns are not automatically equivalent to investment profits. The value of rewards can fluctuate with the token’s market price, while new issuance, operating costs and other risks affect the final outcome. Grayscale’s approach attempts to make these factors more visible by accounting for issuance rather than treating the advertised staking rate as a complete measure of return.
Bitcoin occupies a different position in Pandl’s analysis. Grayscale treats the asset primarily as a digital commodity and a decentralized alternative to fiat currencies, comparing its monetary role with digital gold rather than evaluating it through the earnings framework applied to financial applications. The firm has also used blockchain activity and historical benchmarks in its bitcoin valuation indicators.
Relative valuation can provide another perspective for monetary crypto assets. Grayscale’s analysis of XRP and Zcash, for example, compared their market capitalizations with Bitcoin using 30-day averages to assess their relative scale within the firm’s digital currency sector. Such comparisons do not establish an asset’s intrinsic value, but they can help investors examine market pricing within a defined category.
Ultimately, Grayscale’s framework reinforces the need to distinguish protocol growth from sustainable tokenholder value. Revenue, buybacks and staking rewards can support a token’s investment case, but their significance depends on supply growth, valuation and the durability of the underlying activity. For investors, the central question is not simply how much a protocol distributes, but how much economic value it generates and how much of that value remains attributable to each tokenholder after inflation is accounted for.
