The Evolution of Token Models: From ICOs to Current Trends

Overview of Token Development in the Crypto Space

A recent report by Binance Research, summarized by crypto expert Stacy Muur, delves into the changing landscape of token models. This article highlights ten pivotal insights from the report, offering a detailed examination of the evolution of token economics.

1. Limited Success Rate of ICO Projects

During the ICO boom, only a mere 15% of projects successfully made it to exchanges, with a staggering 78% identified as scams. The remaining projects either faltered or faded into obscurity. This era revealed a significant interest from retail investors in startup funding, creating a new, unregulated market. Despite many failures, the experience cultivated a more discerning investor base, leading to the emergence of robust projects like Aave and Cosmos.

Key Insights:

• ICOs presented challenges for founders, potentially stunting growth.
• The influx of developers was driven by retail enthusiasm, though not all projects prioritized sustainability.
• ICOs marked a novel approach to capital raising, showcasing retail investors’ eagerness to engage in startup financing.

2. The Role of Liquidity Mining in Protocol Growth

Liquidity mining, which gained traction with Synthetix in mid-2019, has become a cornerstone of the DeFi ecosystem. Compound Finance advanced this model by integrating governance rights into its tokens. Yearn Finance further innovated by combining liquidity mining with governance, utilizing its YFI token to enhance liquidity and facilitate a fair launch.

3. Challenges with Governance as a Token Utility

Despite initial optimism, governance as a utility for tokens has not sustained demand. For instance, after Uniswap’s airdrop, only 1% of UNI holders increased their stakes, and a vast majority did not engage in governance voting. These well-meaning distribution experiments failed to provide sufficient incentives for long-term token retention.

Key Insights:

• Liquidity mining initiated a new phase of token distribution, rewarding users while experimenting with fair token allocation.
• Retroactive airdrops aimed to incentivize genuine protocol usage but struggled to maintain governance participation.
• Governance rights, while initially promising, did not ensure lasting demand for tokens.

4. The Complexity of Multi-Token Models

The innovative concept of liquidity mining extends beyond DeFi, influencing projects like Axie Infinity and Helium. Both utilized multi-token models to differentiate between speculative and utility-driven demand. However, these attempts often faltered, leading to misaligned incentives and a return to simpler models.

Key Insights:

• Liquidity mining has been adapted for various applications, including gaming and decentralized physical infrastructure networks.
• Implementing a multi-token system to separate speculation from utility is challenging and frequently unsuccessful.
• Token economics is an evolving field, with stakeholder needs becoming clearer as products gain traction.

5. Surge in Private Equity Financing

The years 2021 and 2022 witnessed a significant rise in private equity funding, with $41.46 billion and $40.12 billion raised, respectively. This influx led projects to pursue multiple funding rounds, often extending token lock-up periods. Consequently, this shift has prioritized valuation optimization over token utility.

6. Decline in Activity Post-airdrop

Following airdrop events, a noticeable drop in protocol metrics and market valuations is common. This trend has contributed to skepticism regarding the “low circulation, high FDV” model prevalent in recent years.

7. Performance of Tokens with Higher Circulation

Recent analysis indicates that tokens with greater circulation and lower fully diluted valuations (FDV) tend to perform better post-listing. This trend underscores the importance of aligning projects with community needs to foster healthier token circulation.

8. Resurgence of Token Buybacks

In 2025, token buybacks have gained momentum, with projects like Aave and dYdX employing these strategies to utilize revenue for token repurchases. Successful buybacks are indicative of a project’s financial health, although many still struggle to establish a strong product-market fit.

9. Hyperliquid’s Leadership in Buybacks

Hyperliquid has emerged as a frontrunner in the token buyback trend, having destroyed over $8 million worth of its $HYPE tokens. This model integrates buybacks into its economic framework, utilizing a significant portion of trading fees for this purpose. However, critics argue that without direct earnings for token holders, these buybacks may merely create artificial scarcity.

10. Speculative Nature of ICM Tokens

The Initial Coin Minting (ICM) movement, exemplified by platforms like Believe, allows users to create tokens easily. While this democratizes token issuance, it has led to a proliferation of speculative tokens, often resembling memecoins. The market saturation and technical challenges pose risks for legitimate projects seeking funding.

In summary, the ICM movement shares similarities with the ICO era, emphasizing accessible funding while presenting new challenges for investors and creators alike. The evolution of token models continues to shape the crypto landscape, reflecting both innovation and caution.

Disclaimer: This article is provided for informational purposes only and does not constitute financial advice. Readers are encouraged to conduct their own research before making any investment decisions.