The Declining Liquidity of Stablecoins: A Call for Sustainable Crypto Models
In recent years, the crypto landscape has drastically shifted, particularly evident in the liquidity metrics of stablecoins. A report by Decentralised illustrates that the average liquidity per stablecoin token has plummeted from $1.8 million in 2021 to a mere $5,500 by March 2025, indicating a staggering 99.7% decrease. This decline can be attributed to an overwhelming increase in token issuance, which has seen the number of available assets soar past 40 million, leading to a corresponding dilution of capital without a significant rise in demand or user engagement. This phenomenon highlights a zero-sum dynamic in crypto capital allocation where the emergence of new tokens overwhelms available capital, resulting in lower liquidity and diminished community strength. As a result, protocols must now confront the necessity of providing compelling reasons for investors to retain their investments, moving beyond superficial incentives such as airdrops.
Stablecoin liquidity serves as a useful proxy for the overall availability of capital in the cryptocurrency market. The report emphasizes that the stagnation of new capital amid a vast increase in token supply has left many crypto projects struggling and severely undercapitalized. In the earlier days, the popular strategies involved creating communities through platforms like Discord and initiating airdrop campaigns. However, these traditional approaches are losing their efficacy in retaining long-term user engagement. The current climate demands a shift towards demonstrating product-market fit and supporting sustainable demand through revenue generation. Revenue plays a dual role as both a financial metric and a vital signaling tool, showcasing a protocol’s relevance and economic utility in a saturated market.
The report categorizes crypto projects into four maturity stages: Explorers, Climbers, Titans, and Seasonals, each reflecting different levels of capital formation, risk tolerance, and methods of value distribution. Explorers represent early-stage protocols often characterized by centralized governance and unstable, incentive-driven revenues. Some of these projects, like Synthetix and Balancer, may experience short-lived spikes in usage, but their primary focus remains on survival rather than profitability. Climbers, accumulating annual revenues between $10 million and $50 million, aim to transition from growth driven by token emissions to strategies focusing on user retention and ecosystem governance. Their challenge lies in balancing growth against distribution while maintaining fair engagement and momentum.
Conversely, Titans such as Aave, Uniswap, and Hyperliquid showcase robust revenue streams and decentralized governance frameworks, focusing on category dominance rather than mere diversification. Due to their established financial reserves and operational prudence, Titans are capable of executing token buybacks or similar value-return strategies. Seasonals capture another segment of the spectrum, exemplified by projects like FriendTech and PumpFun, which rely heavily on hype cycles and struggle to maintain user engagement or consistent revenue. While some may evolve into more resilient entities, most endure as speculative ventures lacking enduring infrastructure relevance.
In terms of revenue distribution models, the report draws parallels to the practices in public equity markets, where newer companies typically reinvest earnings while mature firms might return capital through dividends or buybacks. In the crypto ecosystem, this behavior aligns with project maturity. Titans are in a favorable position to implement buybacks or structured distributions while Explorers and Climbers are advised to concentrate on reinvestment until their operational fundamentals are sound. The report suggests that buybacks can serve as a flexible tool for distribution, particularly for projects with volatile revenue streams. However, it also warns that poorly executed buybacks can inadvertently favor short-term traders over loyal, long-term holders, thus highlighting the necessity for strong treasury management, valuation discipline, and transparent execution in distributing funds effectively.
Investor relations (IR) take on a critical role in enhancing the long-term sustainability of crypto projects. Despite a prevalent narrative around transparency, many projects often selectively share financial data, which can hinder building lasting trust with token holders and institutional players. To cultivate robust relationships, an institutional approach incorporating regular reporting, real-time dashboards, and clear disclosures regarding token distribution is essential. Leading projects are beginning to adopt these critical standards. For instance, Aave conducts a “Buy and Distribute” program with a $95 million treasury, allocating $1 million weekly towards structured buybacks. Hyperliquid sets aside over half of its revenues for buyback initiatives and uses revenue as the sole means of funding its operations without relying on venture capital. Additionally, Jupiter’s implementation of the Litterbox Trust aims to handle future distributions, only coming into play after achieving financial sustainability.
Ultimately, as the liquidity per stablecoin asset declines, the pressure on projects to demonstrate their viability through consistent cash flows and transparent operations will likely escalate. Responsible capital allocation is not merely dictated by market conditions but is also a function of governance, strategic timing, and effective communication. As the crypto environment continues to evolve, embracing sustainable economic structures will be vital for not only surviving but flourishing in a competitive landscape where user attention and capital remain paramount assets. By shifting the focus towards revenue generation, clear investor communication, and robust governance frameworks, crypto projects can position themselves for long-term growth and success in an increasingly complex financial ecosystem.