IntoTheBlock: How One DeFi Protocol is Sustaining Growth in the Bear Market

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On-Chain Markets Report by Pedro NegronIntoTheBlock

Bear markets are a prime environment for young startups to adjust and make a statement with bold strategic choices. This phase allows companies to reorganize, in order to achieve efficiency.

Smart decision making is needed to endure a long bear market. It’s a time for startups to focus on the key ingredients in crypto: revenue, total value locked (TVL), and a community that uses the product or service.

We looked at one early-stage protocol that has managed to sustain its growth despite the market downturn: Ribbon Finance. It is a decentralized structured products protocol, which automates option selling strategies for depositors to generate yield on their assets.

Revenue is the total amount of income generated by the protocol. In Ribbon’s case, its revenue comes from the premium gained from selling options. On the graph below Ribbon Finance’s monthly revenue from inception and the fully diluted token value since its launch can be seen.

Source: IntoTheBlock & TokenTerminal. As of May 25th, 2022

As depicted on the graph, Ribbon Finance has managed to maintain a healthy protocol income regardless of the market state. Nevertheless, the protocol experienced a decrease in fully diluted valuation.

Highly Correlated

This brings us to the highly correlated crypto market. Crypto assets still closely track Bitcoin, which is now highly correlated with the stock market. This means that if Bitcoin decreases in price, most likely the rest of the market will follow. Ribbon Finance’s revenue has increased 40% in the last 180 days, to $3.5 million, and more than 4500% in the last 12 months. Despite this the fully diluted protocol valuation has plummeted, likely due to the macroeconomic pressures.

Another key metric to measure Ribbon’s growth is its total value locked (TVL). In Ribbon Finance case revenue derives from the amount of deposits it has. The greater the deposits, the greater the revenue. The graph below shows the protocol’s historic TVL.

In this case, deposits go into Ribbon’s vaults. This consists of speculative vaults integrated with market options strategies. By implementing this the protocol is able to produce attractive organic yield. 

The biggest source of DeFi’s growth has been the yield generating opportunities. Ribbon’s ability to sustain appropriate TVL levels during the market downturn points to the demand for its product. Positive TVL values relate to user satisfaction and trust on the protocol’s ability to deliver accordingly.

Positive Loop

DeFi Protocol’s engagement with its token holders has represented a challenge in the past. Curve led the way in trying to solve this problem with the ve tokenomics model. In this way protocols are able to interact with its users and token holders in a positive loop, while also alleviating market selling pressures from the diminished circulating supply.

Back in March, Ribbon Finance introduced the ve tokenomics to its protocol. This allowed RBN holders to lock their assets and in return be able to vote which vaults get higher token distributions. In addition, veRBN holders also receive dividends paid in ETH from the revenue generated. In the chart below, a historic relation is made between the total RBN circulating supply and the percentage being locked through the ve mechanism.

A strong community goes right to the core of crypto ethos. Currently 3.3k unique addresses hold a balance of RBN, of which 16% are locked on Ribbon’s ve tokenomics mechanism. As depicted above ve tokenomics on Ribbon Finance received fast adoption. Reaching on May 7th a 30% of tokens locked from the total circulating supply.

More recently this percentage decreased when tokens from the protocol’s team and seed round investors came into circulation after their cliff time ended. This increased the number of RBN circulating supply from 67 million to 162 million and decreased the percentage locked from 22% to 16%.

Crypto Native

This means that currently there are more tokens to be freely traded. Even though seed investors are all crypto native firms and probably long term investors, as of now the increase on RBN floating supply represents a greater risk for the asset price.

Bear markets bring demanding conditions to the whole industry. Best positioned and consolidated protocols will manage to survive and strengthen. Through the analysis done, Ribbon Finance shows promising signs in total revenue, TVL and community aspects.

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