![]() ![]() These first two distribution streams can be grouped together as protocol revenue or ‘earnings’ in TradFi parlance, while the latter is known as supply side revenue and has been pivotal in attracting the liquidity necessary to make decentralised finance work. DeFi protocols and indeed decentralised applications more generally have three different possible channels for revenue distribution: returning value to token holders to the protocol treasury or to users of the protocol such as liquidity providers, lenders and borrowers. This leads us to a key question – what actually constitutes revenue when we are talking about decentralised applications? This question is more complicated than it appears at first glance due to some of the characteristics that make DeFi decentralised. ![]() Whilst TVL (total value locked) dominated the discussion of protocol valuation in the early days of DeFi and remains the metric used by comparison tools such as DeFi Llama, the ease with which TVL can move in search of new and better farming incentives has led investors to increasingly focus on revenue instead, similar to the method of valuation used for a regular company. DeFi (decentralised finance – if you’re new here and aren’t familiar with DeFi then check out this explainer ) is the first and largest dApp sector, and comprises a further three general categories – DEXs (or decentralised exchanges), borrowing & lending protocols and asset management platforms. dApps (decentralised applications) are apps that are built to run on blockchains, typically making them immutable, transparent and trustless. Source: The Block Analysing DeFi protocol profitabilityīefore we dive into the data, we need to define a few key terms. According to research from The Block, DeFi protocols on Ethereum had generated over $3 billion USD (or over $4b AUD) by the end of 2021. However, while this view is certainly not without merit, there are a number of protocols and applications that are already generating real income. A large part of this reasoning stems from the fact that in many cases crypto valuations are largely based on anticipated future value rather than from real revenue being generated today. With the broader crypto market experiencing a prolonged bull run throughout 2021, many digital assets have seen their valuations explode, which has led some observers to conclude that crypto is in a bubble. A look at how decentralised applications deliver real and tangible value to investors and market participants in the form of revenue generation and distribution. ![]()
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