Ignoring tokens, does running DeFi protocols make money? Uniswap leads with nearly $1 billion in annual revenue

How much money can you make by operating a DeFi protocol? How much additional income can you get from participating in DeFi trading?

(This article is authorized to be reprinted from PANews, the original title is "Who Got Rich from DeFi? 36 DeFi Protocols Generate Annual Revenue of Approximately $2.9 Billion, with an Average Market-to-Sales Ratio of 21.8 times", original article here)

Liquidity mining has driven the prosperity of DeFi. According to PAData's comprehensive analysis of the DeFi field in the first half of this year, the total net lock-up value of DeFi in the first half of the year has soared to $56.862 billion, an increase of approximately 307.09%. The average monthly trading volume on AMM DEX in the first half of the year reached about $80.3 billion, an increase of approximately 24.12%. The total revenue of 16 major DeFi protocols in the first half of the year exceeded $1.843 billion. It can be seen that after more than a year of development, DeFi has formed a considerable scale.

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Who has benefited from the significant development of DeFi? How much money can you make by operating a DeFi protocol? How much additional income can you get from participating in DeFi trading? After a comprehensive analysis of the revenue and distribution data of 16 DeFi protocols, PAData found:

1) The daily average (median) revenue of a single DeFi protocol is about $158,100, with Uniswap and PancakeSwap having the highest revenue exceeding $2.8 million and $1.2 million respectively, both surpassing the daily transaction fee income of Bitcoin during the same period.

2) Based on the recent estimated daily revenue, the total revenue of the 16 DeFi protocols this year will exceed $2.645 billion, slightly lower than around $2 billion of the three major public chains (Ethereum, Bitcoin, and BSC). Among them, Uniswap's estimated annual revenue is close to $1 billion, accounting for 37.42% of the total DeFi revenue.

3) In terms of revenue distribution, in the observed samples, protocols that primarily benefit from bilateral users or unilateral user income are more common. Among them, in protocols that primarily benefit from bilateral user income distribution, the user income ratio exceeds 68%, and the user income ratio of multiple protocols even exceeds 85%. Overall, DeFi revenue distribution is further skewed towards users.

4) Aave, Compound, MakerDAO, dYdX, and Hegic's revenue sources highly depend on individual liquidity pools/lending assets >40%. Only Uniswap and Balancer have a higher degree of revenue source diversification, with the top three trading pairs that contribute the most revenue accounting for about 32%.

5) The average market-to-sales ratio (P/S) of the 14 protocols is about 21.8 times, with only 4 protocols experiencing a recent decline in valuation, while most protocols are on the rise. Overall, only Cream, Curve, Hegic, SushiSwap, and Synthetix show a certain positive correlation between total revenue and governance tokens, that is, when revenue grows, the token price of governance tokens also rises. The relationship between the price-to-earnings ratio (P/E) of these 5 protocols and governance tokens is similar. Overall, this may indicate that the revenue distribution mechanism of the protocol is not related to token price performance.

1. Multiple DeFi Protocols Generate Over $100,000 in Daily Revenue

Uniswap Tops DeFi with Nearly $1 Billion in Annual Revenue

The revenue generated by users for using public chains/protocols can be considered as the revenue of the public chain/protocol. According to Token Terminal's statistics, in the last 30 days, the daily average (median) revenue of 16 DeFi protocols is approximately $158,100. Among them, Uniswap has the highest revenue, reaching $2.8127 million, followed by PancakeSwap at $1.2774 million. The daily revenue levels of these two protocols have exceeded the daily total transaction fees of Bitcoin and BSC during the same period. In terms of fee income alone, Uniswap's revenue capacity has even surpassed Bitcoin by more than 2 times.

However, due to the recent overall downturn in the cryptocurrency market, the revenue of DeFi protocols has also declined. According to statistics, the average total revenue of the 16 DeFi protocols in the last 30 days has decreased by 32.72%. Only structured derivatives protocol Ribbon Finance and synthetic asset protocol Synthetix have seen revenue growth, with increases of over 50%. The revenue of the remaining 14 protocols has declined, with many protocols seeing decreases of over 50%, such as SushiSwap, Curve, QuickSwap, Balancer, Perpetual Protocol, etc.

If we estimate the total annual revenue based on the daily average revenue in the last 30 days, Token Terminal's statistics show that the total revenue of the 36 DApp protocols this year is approximately $2.891 billion, with the total revenue of the 16 DeFi protocols in this observation range reaching $2.645 billion this year, which is only about $210 million less than the annual revenue of Ethereum, Bitcoin, and BSC combined. The revenue scale of DeFi protocols is now on par with public chains.

Notably, the estimated annual revenue of individual top DeFi protocols can now rival the transaction fee income of top public chains. For example, Uniswap's estimated revenue this year is approximately $994 million, although it is still behind Ethereum, it has already surpassed the estimated transaction fee total of Bitcoin and BSC this year, by more than 2 times. Additionally, PancakeSwap's estimated revenue for this year is also comparable to that of Bitcoin and BSC.

In addition, the estimated revenue for Aave, SushiSwap, Compound, and QuickSwap this year exceeds $100 million, while the estimated revenue for other mainstream protocols is also above $10 million. In comparison, in the public chain sector, apart from Ethereum, Bitcoin, and BSC, the revenue-generating capabilities of other public chains are far below those of DeFi protocols.

2. DeFi Revenue Distribution Tilting Towards Users

Many Protocols Highly Rely on a Single Liquidity Pool for Revenue

How is the revenue generated by DeFi protocols distributed? Generally speaking, revenue distribution models can be categorized into single-sided revenue models and two-sided revenue models based on the entities that receive the income. These models can be further divided into single-sided protocol revenue models, single-sided user revenue models, as well as two-sided equal revenue models, two-sided protocol-dominant revenue models (where protocol income accounts for over 50%), and two-sided user-dominant revenue models (where user income accounts for over 50%).

PAData observed the revenue distribution models of 15 protocols, among which Aave, Bancor, Cream, and MakerDAO changed their revenue distribution models over the past year. Aave and Cream shifted from single-sided user revenue models to two-sided user-dominant revenue models, Bancor shifted from a single-sided user revenue model to a two-sided equal revenue model, and MakerDAO shifted from a single-sided protocol revenue model to a two-sided protocol-dominant revenue model, with these changes mostly occurring after August last year.

Based on the latest revenue models of each protocol, 10 out of the 15 protocols adopt two-sided revenue models, accounting for approximately 67% of the total, with 8 protocols using two-sided user-dominant revenue models, which is the majority. On the other hand, 5 protocols utilize single-sided revenue models, accounting for around 33% of the total, with 3 protocols using single-sided protocol revenue models, which is the majority. The choice of revenue model is not closely related to the category of DeFi.

Overall, the majority of protocols lean towards two-sided user-dominant or single-sided user revenue models, with a total of 10 protocols. The revenue distribution model of DeFi protocols is further tilting towards users. This bias is more evident when looking at the user income share. Under the single-sided user revenue model, 100% of the income is allocated to users. In the two-sided user-dominant revenue model, user income shares exceed 65%, with PancakeSwap having the lowest at around 68% and Aave the highest at around 95%.

Among the 12 DeFi protocols with revenue composition records, Aave, Compound, dYdX, Hegic, and MakerDAO's revenue sources heavily rely on a single liquidity pool or lending asset, with over 40% of their revenue coming from a specific liquidity pool or lending asset. For instance, Aave heavily depends on USDC lending, Compound heavily relies on DAI lending, and dYdX heavily relies on the ETH/DAI fund pool for trading. Only Uniswap and Balancer have a higher degree of revenue source diversification, with the top three trading pairs contributing to the largest share of their revenue, accounting for approximately 32%.

In terms of revenue composition changes this year, Aave, Cream, dYdX, and Hegic have more unstable revenue compositions. The contribution of a single liquidity pool or lending asset to revenue share has seen significant fluctuations of over 20%, such as USDC's contribution to Aave's revenue share increasing by 43% this year, while CRV decreased by 20%. For dYdX, the contribution of the ETH/USDC pair to revenue share surged by 72% this year, while the ETH/DAI pair decreased by 38%.

On the other hand, Uniswap, QuickSwap, SushiSwap, Compound, and MakerDAO's revenue compositions are relatively stable. The maximum variation in the contribution of a single liquidity pool or lending asset to revenue share is generally less than 15%, with Uniswap's top three pools seeing increases ranging from 6% to 14% this year, and QuickSwap ranging from 6% to 16%.

However, the stability of revenue composition does not have an absolute relationship with the revenue composition pattern of the protocol, nor does it have an absolute relationship with the category to which the protocol belongs. The uniqueness of revenue composition in DeFi protocols is more significant.

3. Revenue and Coin Price Performance of Multiple Protocols in a Positive Cycle

By comparing the market value after dilution of governance tokens of DeFi protocols with the total revenue, an estimate of the protocol can be made using the Price-to-Sales ratio (P/S). In general, the lower the P/S ratio, the lower the valuation, and the more investment potential there is. However, this is also influenced by the initial economic model of the token, so it should be noted that the P/S ratio valuation model has only moderate reference value for DeFi protocols.

According to statistics, the average P/S ratio of 14 DeFi protocols in the last 30 days is approximately 21.8 times. Curve has the highest P/S ratio, reaching 69.75 times, followed by Balancer and Synthetix, both with P/S ratios of over 40 times. On the other hand, Cream, Hegic, PancakeSwap, QuickSwap, and SushiSwap have lower P/S ratios, all below 10 times.

Looking at the recent changes in the P/S ratios of various protocols, only Bancor, Hegic, QuickSwap, and Synthetix have seen a decrease in valuation, with decreases ranging from 9% to 28%, while the valuations of the other 10 protocols have increased, with increases ranging from 4% to 32%. The average change in the P/S ratio of the 14 protocols is about 8.74%, indicating that overall, the valuations of DeFi protocols have been on the rise recently.

For investors, valuation is a factor that influences trading strategies. So, in the DeFi field, does the P/S ratio reflect the performance of the protocol's revenue on token prices?

PAData conducted a correlation analysis of the P/S ratios and token prices of 12 protocols, and the results show that, overall, Cream, Curve, Hegic, SushiSwap, and Synthetix have Pearson coefficients of 0.5 or higher between total revenue and governance tokens, indicating that when the total revenue of these protocols increases, there is a greater likelihood of the token price rising. In contrast, Bancor has a Pearson coefficient of approximately -0.7 between total revenue and governance tokens, meaning that when revenue increases, the token price may instead decrease. The correlation between these two factors is not as apparent for other protocols.

On a smaller market cycle basis, the relationship between the total revenue of DeFi protocols and the token price is much more complex, and the performance of each protocol varies. For example, with MakerDAO, in the first half of this year, the Pearson coefficients between total revenue and token price were all above 0.6, meaning that when revenue increased, the token price could also rise, and vice versa. However, in July, this coefficient quickly turned to -0.5, indicating that when revenue increases, the token price may instead decrease, and vice versa. On the other hand, Bancor showed the opposite trend. In the first half of the year, most of the Pearson coefficients between total revenue and token price were negative, exceeding -0.5 in both March and June, indicating an inverse relationship between revenue and token price. However, in July, when the market was trending downward, this coefficient turned to 0.9, and revenue and token price began moving in the same direction.

Considering the Price-to-Earnings ratio (P/E, the ratio of diluted market value of governance tokens to protocol revenue), it can be observed that there is a similar relationship between the P/E ratio and governance tokens. Similarly, Cream, Curve, Hegic, SushiSwap, and Synthetix show a certain positive correlation between protocol revenue and governance tokens, while Bancor exhibits a certain negative correlation. The correlation in smaller market cycles is also very close. Overall, this may indicate that there is no direct relationship between the revenue distribution method of a protocol and its token price performance, meaning that if the protocol earns more revenue, it does not necessarily mean that token holders will benefit from the protocol's development.