DEFI

The DeFi Edge | Seven DeFi Protocols with Real Income and Token Empowerment

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The DeFi Edge | Seven DeFi Protocols with Real Income and Token Empowerment

Famous researcher The DeFi Edge released a DeFi revenue list, which consists of seven projects that differ from protocols that simply inflate token supply to boost APY. These projects generate actual revenue through user interaction with the protocol and share the profits with the users.

This article is authorized to be reposted from Deep Tide TechFlow, original article here.

Most DeFi projects incentivize liquidity by offering a large amount of tokens as rewards. People tend to favor this approach as the initial mining rewards are often high. Projects frequently use this method to drive TVL growth. However, the issues with doing this are:

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  1. If they continuously inflate tokens without generating enough value, the system will fail;
  2. These users are not loyal. Once the incentives decrease, they will switch to the next new DEX;

If high token emission is combined with low protocol revenue, the token price may drop. People expect a valuable token, not rubbish, and DeFi users are becoming aware of this. If a protocol can generate free cash flow, we want a piece of that.

So, what defines a real revenue protocol?

  1. Product/market fit: People are using the protocol regardless of market conditions or token incentives.
  2. The protocol generates on-chain revenue through its product.
  3. Revenue > Operating expenses + token emissions: As long as the protocol's revenue is higher, some token emissions are acceptable.
  4. Are they paying in stable currencies: The most preferred choices are ETH and stablecoins.

Here are the 7 protocols that meet the criteria:

1. BTRFLY (Redacted Cartel)

BTRFLY has launched V2. They are transitioning from a bond-centric, dilutive model to a real revenue model. Users can lock BTRFLY to earn income allocated in ETH (income lock). Income is derived from their funds and product ecosystem.

2. Gains Network on Polygon

A decentralized leverage trading platform. It offers up to 150x leverage for cryptocurrencies, stocks, and forex. Currently, they offer DAI Vault and GNS-Dai LP, with single-asset GNS staking coming soon.

3. Umami (Arbitrum)

I. Single-Asset Staking:

Stake your UMAMI in mUMAMI to earn stable WETH passive income from Umami's protocol/treasury revenue, approximately at a 5% annual rate. We can also compound earnings through mUmami.

II. GLP/TCR USDC Pool:

APR is around 20%. I know, 20% stablecoin yield might trigger your PTSD...

  1. Mint GLP to charge fees to GMX.
  2. It hedges against volatile market fluctuations through TracerDao's non-liquidating hedging market.

Unfortunately, the pool is currently full due to demand.

4. Kujira (Cosmos L1)

Kujira has several products:

  • Orca - Buy assets at a discounted price through liquidation;
  • Fin - Decentralized order book trading;
  • Blue - Core of the ecosystem;
  • $USK - Decentralized stablecoin;

Stake KUJI to earn a portion of Kujira's income, with the current annual rate at 0.49%. The generated swap fees are real income for KUJI stakers, and as adoption increases and more dApps launch on Kujira, the APR should rise.

5. Trader Joe (Avalanche)

The top DEX on Avalanche. Stake JOE to sJOE and receive stablecoin rewards - 'USDC'.

Trader Joe charges a 0.05% fee per swap. This is converted into stablecoins and distributed to the sJOE pool every 24 hours.

6. Synthetix Ethereum/Optimism

One of the most impressive dApps in DeFi, a true innovator. You can create synthetic assets through Kentra and trade real-world assets on-chain, including cryptocurrencies, forex, precious metals, etc.

Stake SNX and receive:

  1. sUSD from traders (Kwenta futures, Lyra options, etc.), sUSD being their native stablecoin;
  2. SNX inflation rewards.

7. GMX (Arbitrum/Avax)

A decentralized contract exchange with leverage up to 30x:

  1. They charge a 30% fee on exchanges and leveraged trades.
  2. Converted to ETH/AVAX and distributed to staked GMX tokens.

GMX has been a hot topic during the bear market for good reason. It is the top dApp on Arbitrum and its usage continues to grow.

Research Tools

  • TokenTerminal/CryptoFees - Identifying revenue sources
  • Dune Analytics - Great dashboards available for protocols like GMX and Gains
  • Messari - Token supply information
  • Protocol Data - Finding internal dashboards from protocols

Questions to Ask When Evaluating Projects:

  • Where does the revenue come from?
  • How much revenue does the protocol generate?
  • What is the native token supply and emission rate?
  • With what tokens are the rewards paid?
  • What is the network's appeal?

Risks

  1. Due to their revenue-sharing models, some protocols may attract regulatory scrutiny.
  2. A significant portion is based on financial engineering, such as contracts and options.