Shrinking token supply and rising holder returns set stage for crypto re-rating

Cryptocurrency protocols are reducing token supply and returning more value to holders, creating conditions for a broader re-rating of the asset class.

Growing demand from tokenization and the future adoption of AI agents could provide additional long-term growth drivers.

In an Oct. 18 Real Vision interview, crypto analyst Jamie Coutts said the market was beginning to demonstrate genuine capital discipline for the first time, with lower supply and stronger value-return mechanisms supporting the asset class.

Coutts said token emissions and unlocks were declining, while assets were remaining in major indexes for longer, reinforcing network effects. He argued that protocol economics should center on tokens rather than directing revenue primarily to foundation equity holders or early venture investors.

Compared with 2022, fees generated by blockchains have increased from $5 billion to $15 billion, while protocol revenue has risen 2.9 times. Value paid to token holders has climbed 5.3 times as more protocols conduct buybacks, burn tokens and increase staking rewards, Coutts said.

Projects operating such mechanisms at scale now account for 25% to 26% of the top 100 crypto index. Coutts said protocols that fail to compete on supply management and value accrual, as well as product-market fit, could underperform.

NEAR Protocol was cited as an example of the shift. NEAR reduced inflation from 5% to 2.5%, while another proposal would lower it further to about 1.6%, cutting issuance while strengthening the token’s value-accrual structure.

NEAR’s interoperability protocol, Intents, allows users to access multiple blockchains and decentralized finance services without relinquishing control of their assets. Fees generated through Intents are used to buy back NEAR tokens, while rapidly rising demand has demonstrated product-market fit, Coutts said.

He nevertheless flagged macroeconomic risks. The MOVE Index has risen above 110, real rates have accelerated and high-yield spreads have begun to widen. Market turbulence could therefore persist for another six months, he said.

Even so, Coutts said he believed the most significant low of the new crypto cycle had already occurred this year. A risk-asset pullback caused by a weaker macroeconomic backdrop could create opportunities to add higher-quality crypto assets, he added, while maintaining a positive medium- to long-term view.

For potential new NEAR purchases, Coutts identified the low-$4 range or below, while stressing the need to monitor Intents volumes and price momentum. He said NEAR was no longer primarily competing with Ethereum and Solana for block space, but was instead building an interoperability layer for the wider blockchain ecosystem.

This article is based on market data and analysis and does not constitute investment advice.