Source: Binance

Key Points

• Narratives, sentiment, and hype can attract short-term user interest, but are insufficient for long-term growth, especially in bear markets. Projects that rely solely on industry narratives or extrinsic rewards tend to attract short-lived users and may struggle in the long run.

• Projects should focus on providing real value to users through tangible benefits such as successful use cases and sustainable returns. This user-centric approach can keep users engaged and foster loyalty after the initial hype. Ultimately, providing meaningful value and continuous innovation ensures the long-term growth of individual projects and creates a healthier and more resilient cryptocurrency market.

• In this report, we focus on three ways to arrive at “real value” (not exhaustive): real demand, real income and profit, and real yield.

• Real demand refers to the willingness and ability of participants to use and pay for a product or service without relying on extrinsic rewards. Strong product-market fit creates intrinsic demand, allowing projects to generate sustained returns.

• Real revenue refers to tangible revenue generated by a project, typically from protocol fees. When combined with healthy token economics and low operating expenses, a project can achieve operational profitability.

• Real yields in the crypto economy come from tangible revenue streams and are not entirely dependent on inflationary token issuance.

Challenges in Sustaining Interest

Narratives, sentiment, and hype are critical in driving short-term price movements and attracting retail interest. However, these factors alone are not sufficient to sustain long-term growth in price and activity. This is more pronounced in sideways or bear markets, when on-chain activity decreases and capital inflows slow. Projects that rely solely on industry narratives or provide extrinsic rewards (such as points or airdrops) to incentivize activity face a more difficult operating environment.

Projects that provide some kind of intrinsic tangible value tend to perform better in this situation because they can maintain a base level of activity regardless of market conditions.

Current Situation

Many projects have successfully attracted users’ attention by leveraging popular trends of the moment, such as hot narratives such as artificial intelligence, re-staking, or infrastructure layers. However, some of these projects have failed to maintain momentum and have experienced a decline in user interest over time.

Projects that rely heavily or entirely on extrinsic incentives (such as points systems and airdrop promises) to attract and retain users have shown a similar trend. While these strategies can generate user interest and engagement in the early stages, they often fail to foster long-term commitment. Once the points program ends or the tokens are airdropped, users will churn away, lacking intrinsic reasons to retain them.

Overall, projects that rely solely on hype or extrinsic rewards tend to attract only a short-lived user base. Moreover, without tangible innovation, these projects will fail to contribute significantly to the overall development and maturity of the cryptocurrency ecosystem.

Focus on Providing Real Value

To achieve sustainable growth, projects must focus on providing real value to users. For the purposes of this report, we broadly define “real value” as a product or project that provides a tangible benefit, which can be a successful use case, a sustainable rate of return, or other forms of tangible rewards. We will cover this in more detail in the next section.

The purpose of providing real value is to keep users engaged after the initial hype period, and they will continue to use the platform even without extrinsic rewards. Over time, this user-centric approach can foster loyalty and encourage users to promote the platform to others, thus forming a growth flywheel.

Figure 1: Attract, engage and delight users to create a growth flywheel

Source: Hubspot.

In fact, by developing solutions that meet real needs and provide intrinsic benefits, projects can cultivate a loyal user base that will remain involved after short-term incentives. This approach not only ensures the long-term development of individual projects, but also helps to create a healthier and more resilient cryptocurrency market. In the long run, the success of the cryptocurrency ecosystem will depend on the ability of projects to provide meaningful value and drive continued innovation.

Understand the various aspects of real value

As mentioned above, we broadly define “real value” as products or projects that provide tangible benefits. There are many ways to create value for market participants, but we focus on three main areas:

• Real demand: refers to providing a product or service that meets a real user need or use case.

• Real revenue/income/cash flow: refers to achieving financial sustainability, generally through generating fees.

• Real yield: refers to providing token holders with income generated by a tangible source of income.

1. Real demand

Real demand is the willingness and ability of cryptocurrency participants to use and pay for a specific product or service without providing extrinsic rewards (such as airdrop promises and points mining, etc.). This is often achieved through strong product-market fit, which includes filling a gap or need in the market, or providing valuable features and use cases that resonate with a wide range of users.

Strong product-market fit creates intrinsic demand, allowing projects to generate sustained revenue. This, in turn, provides the necessary resources and user traction for the project to continue to grow, meeting the evolving needs of end users.

We are witnessing real demand in established industries, which continue to grow in user traction and financial metrics. Decentralized Finance (DeFi) is a prime example of this trend, becoming an important part of the cryptoeconomy by providing indispensable use case projects:

• Decentralized exchanges (DEX) provide users with the infrastructure to exchange tokens on-chain.

• Liquidity staking allows users to stake assets while still maintaining liquidity.

• Money markets enable peer-to-peer (C2C) asset lending.

• Cross-chain bridges facilitate the transfer of assets between different chains.

• Cross-chain bridges facilitate the transfer of assets between different chains.

• Decentralized exchanges (DEX) provide users with the infrastructure to exchange tokens on-chain.

• Liquidity staking allows users to stake assets while still maintaining liquidity.

• Money markets enable peer-to-peer (C2C) asset lending ...

• Stablecoins provide a stable store of value in the form of crypto assets, which can be further used to pay for services.

In addition to decentralized finance, we also observed that emerging categories have successfully captured strong market demand and attracted a large number of users:

• Centralized exchanges provide a comprehensive set of integrated tools, including fiat currency deposits, spot and margin trading, wealth management products, and Web3 wallets.

• Telegram trading bots optimize the on-chain trading experience and capture the strong demand for memecoin trading by making the trading process more convenient and smooth.

• Prediction markets enable participants to trade shares or tokens based on the results of future events such as political elections, sports events, and pop culture events.

• Games capture the actual needs of a large number of game players outside the cryptocurrency community, further introducing innovative in-game economics.

• On-chain analytics tools collect, organize, and transform raw blockchain data into actionable insights, some of which offer additional features via paid subscriptions.

This list is not exhaustive, but serves only to illustrate the durability they have demonstrated in terms of user traction and growth over time.

It is critical to distinguish between projects with strong product-market fit, which provide real and sustained value, and projects that lack sustainable growth potential, which rely on short-term interest and artificial demand and do not solve real problems.

2. Real Revenue and Profits

Real revenue refers to the tangible revenue generated by a project, typically from protocol fees. When combined with healthy token economics, a project can be profitable if it consistently generates enough revenue to cover operating costs and can operate sustainably in the long term without relying on external capital.

The profitability of a project can be calculated as follows:

Profit = Revenue - Operating Expenses - Token Issuance

Profit is calculated by subtracting operating expenses and token issuance from the project's total revenue. As observed, it’s not just about revenue, a project can only be profitable if its total revenue exceeds its costs, including operating expenses and token issuance.

Figure 2: Top 10 protocols based on 30-day profitability

Based on the last 30 days of data, the leading protocols in profitability (within Token Terminal’s sample dataset) are Tron, Maker, and Uniswap.

On the other hand, while some projects may be able to generate significant revenue, they may actually be operating at a net loss due to high token issuance or supply-side incentives. Needless to say, we believe it is unreasonable to require all protocols to be immediately profitable, as most have only been around for a few years (or months). Referring to traditional early-stage startups, it is common to use losses to promote growth in the early stages, and it may work in the long run. Nevertheless, investors should still evaluate and determine whether there is a viable path to profitability in the foreseeable future.

3. Realized Yield

Realized yield comes from a tangible source of income and is not entirely dependent on inflationary token issuance. This is similar to dividends in traditional finance, where companies return part of their earnings to shareholders. Similarly, in the cryptocurrency economic system, "realized yield" is a mechanism for distributing real returns to token holders or users. This is usually in the form of staking rewards, token repricing, or buybacks and burns.

Crypto projects achieve consensus with stakeholders by providing real yields to token holders. For example, decentralized exchanges that provide yields to liquidity providers through transaction fees, liquidity staking and re-staking protocols that distribute yields through staking rewards, and synthetic dollar and stablecoin protocols that generate yields through underlying assets (such as treasuries).

Figure 3: Schematic diagram of the distribution of actual yields on decentralized trading platforms

On the other hand, there are some native tokens whose only function is governance. While this is fundamentally fine and these tokens are critical to the functionality and decentralization of the project, they generally do not provide direct financial returns to their holders. The lack of an actual yield means that the value of these tokens is primarily tied to their utility and the success of the associated project.

Finally, investors should also be wary of tokens that primarily earn yields through inflationary token issuance. Such tokens tend to attract mercenary capital and are inherently unsustainable. Tokens with high inflationary incentives experience a constant increase in token supply, which leads to an imbalance between supply and demand over time. If there is no corresponding increase in token demand, the token price will fall. Instead, we should focus on yield distribution models that can provide tangible returns without relying on inflationary means.

Conclusion

As we continue to witness innovation in the cryptocurrency economy, it is critical to understand the fundamental business models that distinguish long-term sustainable projects from short-term hype. In this emerging cyclical market, projects that provide real value by demonstrating strong product-market fit, consistent revenue/earnings growth, and real yields are more likely to stand the test of time.

In contrast, projects driven by fleeting trends or speculative interest may experience rapid growth in the early stages, but often lack the foundational elements required for sustainability. Without a clear value proposition and a solid business model, they will be left without a foothold when market enthusiasm fades.

To achieve long-term growth, we hope to see more projects that focus on providing real value and tangible benefits to users.