Grayscale's research division released a framework Oct. 21 for assessing crypto valuations by measuring actual holder returns against supply inflation—a metric that exposes how new token issuance can wipe out earnings even when protocols collect substantial fees.

The firm's head of research, Zach Pandl, introduced two critical metrics: tokenholder yield, which nets staking rewards and buybacks against new token issuance, then divides by circulating market cap; and adjusted earnings yield, which subtracts supply inflation from the protocol's earnings-to-market-cap ratio.

"Crypto valuations don't have to rely on narratives alone," Pandl said. The framework forces investors to confront a brutal reality: a protocol can generate robust fee revenue and still deliver negative returns to token holders if supply expansion outpaces buybacks and burns.

On-chain applications generate fees from trading, lending and other financial activities. After subtracting operational costs paid to liquidity providers, lenders and other suppliers, what remains is core protocol earnings. Buybacks, burns and staking distributions are designed to return that value to holders. But new token issuance and unlocks—common in crypto incentive structures—systematically offset those benefits.

Hyperliquid's HYPE token exemplifies the mechanism at work. Trading volume directly funds HYPE buybacks, linking capital returns directly to the exchange's operational performance and fee collection. Among 10 protocols reviewed using Oct. 20 data, HYPE led tokenholder yield at 8.0 percent. Curve's CRV ranked last at negative 5.5 percent. PancakeSwap's CAKE topped adjusted earnings yield at 14.4 percent—a stark contrast that exposes how different tokenomic structures destroy or preserve holder value.

Staking rewards, which compensate validators for network participation, factor into tokenholder yield calculations. Ethereum validators earn rewards for consensus activities like block proposal and validation; penalties and slashing apply to misconduct or missed duties. Bitcoin is assessed separately as a digital commodity rather than as an income-generating protocol.

Grayscale's analysis covered tokens in its Financials Crypto Sector index and top 100 by circulating market cap, excluding centralized projects.