DeFi protocols are generating more money than ever before, and users are taking the large majority of it, according to a dashboard released by The Block yesterday.
Uniswap, SushiSwap and Compound generate the most revenue out of the DeFi protocols tracked by The Block. This month, they’re each on track to bring in record revenue of $78M, $37.6M and $28.5M, respectively.
Supply Side Revenue
All of Uniswap’s revenue is going to its users, defined in the dashboards cited as “supply-side revenue,” or fees that go to liquidity provider (LP) fees and lenders. The same is true for Balancer and Synthetix. Mote than 80% of total revenue is categorized as supply-side.
Sam Bankman-Fried, CEO of crypto derivatives exchange FTX, believes supply-side revenue should never be counted, saying on Twitter that if “CEXes (centralized exchanges) tried to claim that to investors, they’d get laughed out of the room or sued.”
In the context of CEXs, supply-side revenue would be maker fees, fees which go to market makers who provide liquidity to exchanges. As these market makers are third parties, CEXs don’t capture that value. LPs fill a similar role with DEXs, so Bankman-Fried believes that fees which go to LPs shouldn’t be counted as real revenue.
Larry Cermak, director of research at The Block, pushed back, saying on Twitter that the projects without protocol revenue “are purely in the customer acquisition pre-revenue mode,” meaning that investors tokens with only supply-side revenue have “an expectation that of the fee being turned on at some point in the future.”
When analyzed by protocol revenue, or fees taken directly by the protocol and its token holders, SushiSwap leads the way with almost $92M in annualized protocol revenue, or 17% of its total revenue.
MakerDAO stands out as the only project with its revenue, $54M, fully categorized as “protocol revenue.”
Protocol revenue has been on the rise in 2021, now comprising just over 13% of total revenue, compared with 11% three months ago.
Sushi and Other Standouts
Uniswap has generated over half the total DeFi revenue for the last four months of 2020. Sushiswap, a fork of Uniswap, has turned into a monster 2021, breaching the $37M in total revenue in January, more than quadrupling the protocol’s $9.2M generated in Dec. 2020.
Sushiswap also has a market capitalization to annualized revenue ratio of 3.39 suggesting that relative to Uniswap’s ratio of 6.57, the automated market maker may be undervalued.
Synthetix, the liquidity derivatives protocol, stands out with market capitalization to annualized revenue ratio of 67, potentially suggesting its native token SNX is overvalued. Though as the protocol is the only derivatives protocol in the group, direct comparisons may not be valid.
Total Value Locked Doesn’t Mean Revenue
The top three protocols in terms of total value locked (TVL) are MakerDAO, Aave, and Compound with $6.3B, $5.1B, and $4.9B respectively.
But Compound’s higher revenue leads to the protocol having a lower TVL to annualized revenue ratio relative to Aave and Maker.
This is not to say the latter two protocols are necessarily inefficient as the protocols serve different functions in open finance with different revenue distribution mechanisms.
The ten DeFi protocols tracked have generated a cumulative $600M of revenue so far, with growth accelerating in the last two months. The $1B mark for total revenue, which used to be the goal for total assets locked in the ecosystem, seems just within reach.