How earnings and dilution shape crypto token valuations

Portfolio managers who hold application tokens still lean hard on narratives because cash-flow comparisons across protocols have been thin. A fee figure without the matching issuance schedule can flatter a token; a buyback headline without the earnings behind it can do the same. On Oct. 21, Grayscale Research, which issues crypto investment products, published a note arguing that many of those tokens can be valued with earnings and capital returns once dilution is counted, rather than by story alone [1].

The piece, by Zach Pandl, Grayscale's head of research, draws a line between bitcoin and most of the rest of the market. Bitcoin, it says, is a digital commodity often described as "digital gold" and should be valued that way. Many other crypto assets, by contrast, sit on identifiable onchain businesses that generate fees from trading, lending and similar activity. After supply-side costs paid to liquidity providers, lenders and other service parties, the remaining earnings can be measured and compared across protocols [1]. That residual is what the note treats as the economic base for valuation.

How value reaches tokenholders

Those earnings matter only if they reach the token. Grayscale lists three common return paths: buybacks that shrink circulating supply, burns that cut total supply, and staking distributions paid to holders. New issuance and unlocks work the other way. They add supply and can cancel part or all of the return, so the net claim on the protocol is the return less the dilution [1].

The note packages that trade-off in two ratios. Tokenholder Yield is (staking rewards + buybacks − issuance) divided by circulating market capitalization. Adjusted Earnings Yield is total earnings divided by circulating market capitalization, minus circulating supply inflation. The first tracks what holders receive after supply growth; the second asks whether protocol earnings outrun inflation at the current market price [1].

Neither formula picks a winner. Grayscale's Exhibit 1 shows that tokenholder yield and adjusted earnings yield vary widely by protocol, which is the point of the frame: the same ledger can produce a positive or negative result depending on how much a protocol earns, how much it returns, and how fast it issues [1]. A protocol that buys back tokens can still post a negative tokenholder yield if issuance is larger. This article does not reproduce that exhibit's protocol list or any yield figure. The formulas are tools for reading a protocol's own disclosures, not a shortlist of tokens to buy.

Why the frame is incomplete

The fair objection is threefold. Narratives still set most of the price action in crypto, and a yield label does not stop a token from trading on attention. Data quality is uneven: fees, buybacks and issuance schedules are not standardized across chains, and different researchers can count the same flow differently. And Grayscale is not a neutral statistician. It sells investment products tied to digital assets, so readers should treat the note as research from an issuer, not as an independent screen [1].

A further limit is scope. The framework applies where an onchain application has measurable fees and a stated policy for returning value. It does not turn every token into an equity analogue, and it does not replace the commodity-style case Grayscale keeps for bitcoin.

In Le Coin's view, the useful claim is narrower than a valuation system for the whole market. For protocols with measurable fees and a stated return policy, putting buybacks and issuance on one line is a clearer read than quoting revenue alone. For bitcoin and other assets without that cash-flow loop, the note itself points elsewhere.

The tell

What would change the reading is evidence that the market prices these yields, or that protocol reporting settles on common definitions for earnings, buybacks and issuance. Until either shows up in how tokens trade or how issuers disclose, the formulas stay a research vocabulary, not a trading rule.

Sources

1. Zach Pandl, "Bringing Rigor to Crypto Asset Valuations," Grayscale Research / The Stack, Oct. 21, 2026, https://www.grayscale.com/the-stack/bringing-rigor-to-crypto-asset-valuations, accessed 2026-10-24, 9:25 a.m. ET.

Holding the Corner.

Not financial advice.