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Matthias Knab, Opalesque for New Managers: The argument that digital assets should be valued like any other cash-flow producing asset has been made for years by a handful of managers, mostly to an audience that was not listening. It is now going mainstream - and according to Los Angeles-based digital asset manager Arca, it is arriving at precisely the moment the underlying assets have matured enough for it to actually work.
Writing in the firm's weekly commentary, Arca CIO Jeff Dorman picked up on a recent memo from Bitwise CIO Matt Hougan, who argued that crypto valuations could double or more as protocols connect their revenues to tokenholders through buybacks and other value-accrual mechanisms. Arca agrees, and points out it has been making a version of the same case since 2019, when most of the market was still calling every digital asset a "cryptocurrency" regardless of what it actually did.
Back then, Arca separated the universe into buckets, one of which was simply real cash-flow producing businesses that happen to use tokens. At the time the firm estimated decentralized protocols were still five to ten years away from creating meaningful economic value. Roughly six and a half years later, protocols including Hyperliquid, Aave, Aerodrome and Maple Finance are generating genuine fees from genuine customers, in several cases at margins and capital efficiency that would embarrass a listed company.
Revenue alone proves nothing
The harder question, Dorman argues, is no longer whether protocols can generate economic value but what they do with it. A protocol producing $500m of annual revenue is of limited interest to a tokenholder if none of it ever reaches the token.
This is where digital assets diverge sharply from equities. A shareholder owns a residual claim. Even if a company never pays a dividend or repurchases a share, there is a terminal event available: someone can buy the whole business, and shareholders get paid, usually at a premium. Crypto protocols have no equivalent escape hatch. Nobody is going to acquire Aave at 20x EBITDA and mail cheques to AAVE holders, or take out Hyperliquid at a 30% takeover premium. These are networks designed to run indefinitely, with no exit multiple waiting at the end.
That absence, Arca argues, makes the link between protocol economics and token economics more important for tokens than it is for equities - not less. Without it, nothing ever closes the gap between the value of the protocol and the value of the asset.
A timing question, not a moral one
None of which means every protocol should be spending its revenue on buybacks today. Many are still in a growth phase with genuine reinvestment opportunities: product, liquidity incentives, new markets, acquisitions, reserves. If a dollar reinvested creates five dollars of future value, reinvesting is the better allocation. Amazon did not become a generational investment by maximising early dividends.
The distinction Arca draws is between a protocol saying it has better uses for capital right now, and a protocol offering no reason to believe revenue will ever accrue to tokenholders. The first is capital allocation. The second makes valuation nearly impossible.
The debate flared again recently when Morpho founder Paul Frambot argued against aggressive buybacks in favour of reinvestment. Arca largely agrees with the principle while flagging one asymmetry: Meta shareholders own Meta, with a legally enforceable claim and multiple routes to monetisation. MORPHO holders do not have that. Reinvestment can postpone value accrual; it cannot substitute for it forever.
Not all buybacks are equal
Arca also cautions against taking the word "buyback" at face value. A protocol that earns $100m, spends $50m repurchasing its token and then distributes $50m of tokens as incentives has recycled emissions rather than returned capital. Burns permanently reduce supply. Distributions to stakers transfer value directly. Treasury accumulation may or may not help, depending on who the treasury is ultimately run for.
Where the opportunity sits
The valuation implication is the interesting part. A protocol can grow earnings 50% while simultaneously being re-rated from 8x to 16x as investors gain confidence those earnings will eventually reach the token. Earnings need not double for the token to double.
Profitable protocols have historically traded at steep discounts to comparable listed companies, and Arca concedes much of that discount is deserved. Equity holders have enforceable rights, audited accounts, established governance, securities law protection and fiduciary duties running in their favour. Tokenholders frequently have none of it. A discount is appropriate. The open question is how large it should be for a protocol with recurring revenue, high margins, rapid growth, global distribution, minimal capital requirements and a transparent mechanism converting excess cash flow into token purchases.
Arca's conclusion is that the largest opportunity in digital assets may not be finding protocols with growing revenue, but finding the ones the market is still valuing with an outdated framework. After fifteen years spent trying to invent entirely new ways to value tokens, the next innovation may turn out to be the one equity investors settled on a long time ago: earn money, grow it, allocate it well, and eventually return it to the owners of the asset.
Read the full commentary here: Crypto Investors Finally Discovered the P/E Ratio and Capital Allocations
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