MakerDAO Defies Bear With $19M in Profit
DeFi Lender Takes 42% Hit to Top Line But Stays in the Black With RWA Strategy
By: Samuel HaigMarket Analysis
At first glance, MakerDAO’s financial performance in 2022 looks grim — the No. 2 DeFi protocol suffered an 79% drop in operating earnings and its top line revenues skidded by 42%.
Yet, given the carnage in crypto in 2022, MakerDAO, a pioneer in DeFi lending, can at least boast it made money last year. And the protocol’s embrace of real-world assets provided a most welcome source of growth.
Weathering the Bear
According to a report the protocol published Friday, MakerDAO recorded $19M in profits on $62M in revenue in 2022. That’s a far cry from the bottom line of $90M during the bull run in 2021. But given the total crypto market shed about two-thirds of its market capitalization last year, MakerDAO appears to have weathered the bear market better than most.
“Overall, Maker protocol financial results declined on the back of a major deleveraging cycle that unwound a large amount of lending demand for crypto collateral,” the Maker report said. “The larger narrative is that MakerDAO exited 2022 unscathed through unprecedented market volatility that unwound extractive and criminal elements from our industry.”
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MakerDAO’s TVL has jumped almost 20%, to $7B, this year, according to data from DeFi Llama. Its native token, MKR, has eked out a 1.5% increase in the last seven days compared to a -1.1% slip in ETH.
Investors may want to keep their eye on Maker’s operating expenses, which jumped 110% in 2022, to $46M. Two-thirds of the budget was eaten up by the operational budgets of Maker’s Core Unit teams. MKR token vesting also accounted for $12M worth of the protocol’s expenses.
MakerDAO is an overcollateralized debt protocol. Borrowers can mint its DAI stablecoin by depositing collateral assets in the protocol’s smart contracts. DAI is the fourth-largest stablecoin with a $5.1B market cap, according to CoinGecko.
Maker’s revenue fell proportionately to the decline in crypto lending activity observed in 2022. Net stablecoin borrows on Maker, Aave, Compound, and Liquity fell 81% last year.
DAI’s circulating supply fell from roughly 9B at the start of 2022 to 5B at the end of the year.
The report said that Maker’s declining protocol revenues were partially offset by its exposure to real-world assets in 2022.
In 2022, Maker’s RWA exposure grew to $640M from $17M, with RWAs driving roughly half of Maker’s earnings while representing 10% of its asset holdings .
Maker described its protocol economics as transitioning from “being exposed to market demand for crypto-backed lending” to being exposed to real-world assets in 2022.
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Major RWA deals included the deployment of 500M USDC into short-term bonds, ETFs, and treasuries in October as part of a proposal dubbed “Monetalis Clydesdale” and the launch of a 100M DAI vault for Huntingdon Valley Bank — a 151-year-old Pennsylvanian financial institution.
In December, RWA interests generated Maker 2M DAI in protocol revenue, of which 1.3M came from Monetalis Clydesdale.
“RWA vaults roared to life just as crypto lending slowed,” Maker said.
The report also noted that 2.7B DAI held by Maker’s peg stability module (PSM) was not generating yield for the protocol. The PSM allows low-slippage swaps between DAI and other stablecoins, holding significant stablecoin reserves.
“The Maker protocol balance sheet has been under-allocated to productive assets that could earn a positive interest spread,” Maker said. “Our team has been advocating for improving the return on assets as… the Maker protocol was holding an excessive amount of liquidity in the PSM reserves.”
Looking ahead, Maker predicts it will generate $43M in revenue during 2023 and post earnings of $7M for the year.