Crypto Projects Pivot from Tokens to Equity: A New Trend?

• Across Protocol has initiated a proposal to transition from a DAO and token-based structure to a traditional corporate equity model.
• Industry experts suggest that the DAO model can hinder business growth, speed, and the ability to form institutional partnerships.
• Many crypto tokens are currently underperforming despite their underlying protocols generating significant revenue, leading to a disconnect between value creation and token price.

The Move Toward Corporate Structures

The bridge protocol Across Protocol, which is backed by Paradigm, is exploring a shift from its current decentralized autonomous organization (DAO) setup to a corporate equity structure. This move stems from the realization that the DAO model often slows down execution and complicates the process of forming partnerships with centralized entities. Rob Hadick, a general partner at Dragonfly, noted that traditional DAO governance can be antithetical to building efficient businesses, as it often results in slower decision-making by individuals who may lack the expertise of the founding team.

Historically, many projects adopted DAO structures as a form of "decentralization theater" to mitigate regulatory risks. Raye Hadi of ARK Invest and Thomas Klocanas of Strobe Ventures pointed out that while teams used these structures to avoid securities classifications, growing regulatory clarity is now allowing projects to reconsider more effective corporate frameworks.

Disconnect Between Protocol Revenue and Token Value

A significant issue facing the market is that token prices often fail to reflect a protocol's financial success. Most tokens do not grant holders a direct claim on cash flows or revenue. Amir Hajian from Keyrock emphasized that protocols need explicit mechanisms, such as buybacks or revenue sharing, to connect protocol earnings to the token. Without these, value often remains with the labs company or a foundation rather than the token holders.

• Hyperliquid generated over $923 million in revenue over the past year, with its token HYPE showing strong performance.
• Sky (formerly MakerDAO), Tron (TRX), and Ethereum (ETH) have remained relatively resilient.
• Tokens for high-revenue apps like PumpFun (PUMP), Jupiter (JUP), Aave (AAVE), and Lido (LDO) have significantly underperformed compared to their protocol's usage.

Identifying Candidates for Restructuring

Not every project is a candidate for shifting to equity. Experts like Lex Sokolin of Generative Ventures distinguish between protocols like Bitcoin or Ethereum, which require decentralized participation, and application-layer projects that function more like businesses. Infrastructure and middleware, such as cross-chain bridges and oracles, are seen as the most likely to move toward equity because they serve institutional clients who require enforceable contracts and service level agreements (SLAs).

Long-Term Market Impact

As more successful protocols consider "take-private" transactions to move toward equity, the investable universe of tokens may shrink. Boris Revsin of Tribe Capital suggests this could lead to a higher-quality market overall, even if the total number of tokens decreases. Rob Hadick noted that Dragonfly has already increased its focus on equity investments over the last year, reflecting a broader trend where high-quality founders are increasingly opting for traditional business models over crypto-native token structures.