Crypto investors must scrutinize token incentive structures as alignment impacts value and trust

Investing in crypto is inherently tied to the design of incentives. This concept has recently come into sharp focus as token holders grapple with the realities of their positions in various crypto projects. Unlike traditional equity markets, where investors benefit from legal frameworks and long-standing precedents that align management with shareholders, crypto markets lack such assurances. The alignment—or misalignment—of incentives between token holders and protocol owners can significantly impact the value of a token and the trust of its community [1].

Take, for instance, the PUMP token. Holders find themselves in a peculiar position, effectively sending money to Pump.fun with no formal claim on the project’s $2 billion in cash. While they expected to benefit from Pump.fun’s revenue, they received a token with no such entitlement. Yet, Pump.fun has used nearly all of its revenue in recent weeks to buy back PUMP tokens, which has led to speculation about whether the token is undervalued [1]. However, this assumes that token burning—or airdropping—will continue, a practice that could radically alter the token’s supply and value. Luca Netz, a vocal figure in the crypto space, argues that airdropping a portion of the token to the community could lower the token price and make future buybacks more advantageous for the project’s founders, who hold the majority of the cash [1].

The incentive misalignment between token holders and protocol owners is a recurring issue in crypto. In the case of Grass, an AI-driven data project, token holders have little visibility into the company’s financials. Despite the project reportedly earning millions of dollars a month, its revenue is not disclosed on-chain or in public reports. Dan Shapiro of Blockworks Research attempted to estimate the value of Grass' data network using third-party data licensing deals as a proxy, but such assumptions are speculative at best. What’s more, recent whispers suggest that Grass may have shifted its focus to data labeling, a move that has not been communicated to token holders [1]. The lack of transparency raises questions about how token holders can make informed investment decisions.

In contrast, the MAPLE token offers a different model. Unlike PUMP or GRASS, MAPLE holders can vote on how a portion of Maple Finance’s revenue is allocated. This democratic process provides a level of control and clarity that is absent in many crypto projects. As Shaunda Devens noted, “No fees are allocated to the Labs entity, and the Labs entity is funded exclusively through grants, not through revenue-generating activities” [1]. This structure empowers MAPLE holders in a way that resembles traditional equity ownership, with clear governance mechanisms and decision-making power.

The broader implication is that crypto investors must carefully consider how incentives are structured in any project they invest in. In traditional markets, legal protections and institutional frameworks serve as a buffer against misaligned interests. In crypto, investors must rely primarily on smart contracts and community governance. The lack of disclosure and legal recourse means that many tokens come with higher risks—yet many of them remain inexplicably expensive [1].

As the crypto market matures, it is increasingly clear that tokens with clear, ownership-like incentives—like MAPLE—may be more attractive to rational investors. On the other hand, tokens with opaque structures and uncertain tokenomics, like GRASS or PUMP, carry substantial risks that may not yet be fully priced in. The sooner investors begin to differentiate between these models, the more mature and resilient the crypto market will become.

Until then, projects like Pump.fun may be wise to heed advice such as Netz’s. A “token nuke” could serve as a wake-up call—not just for the project but for the broader crypto community. It could also encourage a broader discussion about the true value of incentives in crypto investing [1].

Source: [1] [Investing in crypto is investing in incentives](https://blockworks.co/news/crypto-investing-in-incentives)