Which potential projects deserve attention? DeFi Market Q2 Data Insights
Editor's Note: This article comes fromCrypto Valley Live (ID: cryptovalley)Editor's Note: This article comes from
Crypto Valley Live (ID: cryptovalley)
Crypto Valley Live (ID: cryptovalley)
, Author: Lucas Campbell, translation: Liam, reproduced by Odaily with permission.
With the birth of crypto capital assets, a series of convincing token valuation models have emerged.
Through the SAFG framework, the agreement can distribute tokens to users who provide value-added services for the agreement in almost any jurisdiction. These can be as simple as just using the application, providing liquidity, or participating in governance. A caveat to the SAFG token model is that tokens do not represent economic rights in the first place. Instead, the protocol must first decentralize itself, and governance ultimately decides to empower assets economically through the value that flows through the protocol.
DeFi protocol
This trend isn't going away anytime soon. In fact, it may just be getting started.
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DeFi protocol
Below is a quick introduction to the DeFi protocols covered in this article and their respective monetization mechanisms.
0x - Liquidity Protocol - Market fees are distributed to ZRX token holders/liquidity providers.
Aave - Lending Protocol - Part of the accrued interest is distributed to LEND token holders through burning.
Augur - Derivatives Protocol - Fees from prediction markets are distributed to REP token holders for participation.
Bancor - Liquidity Protocol - A portion of transaction fees are allocated to BNT's liquidity providers.
Compound - lending agreement - accrued interest is distributed to funding pool providers.
Kyber - Liquidity Protocol - A portion of transaction fees are distributed to KNC token holders through token burns or as dividends for participation in governance (Katalyst upgrade).
Maker - Lending Protocol - distributes interest accrued on unexpired Dai to MKR holders in the form of token burns.
Synthetix - Derivatives Protocol - Transaction fees are distributed to SNX stakers for minting Synths.
Loopring - Liquidity Protocol - A portion of transaction fees are distributed to LRC token holders.
Balancer - Liquidity Protocol - Trading fees are allocated to Balancer liquidity providers.
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quarterly earnings
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(Above) DeFi quarterly returns are calculated by dividing the average annualized returns in Q2 (as reported by Token Terminal) by 4.
In Q2, DeFi protocols experienced a decline in revenue, with earnings down 42% from the previous quarter.
This is largely due to MakerDAO's move to a 0% SF and DSR environment, as the protocol fought to restore DAI's peg to its rightful place during the Black Thursday volatility at the end of March. Thus, between April and June, Maker’s earnings dropped to about $152,000, compared to $1.2 million in the same time period in the first quarter.
The top earners in Q2 were Kyber, Compound, and dYdX. Kyber’s liquidity protocol earned $634,000 in the quarter, while Compound and dYdX were slightly lower at $624,700 and $624,300, respectively. Another notable profitable protocol in Q2 was 0x, which generated $445,000 in quarterly revenue for ZRX holders.
While existing DeFi is still at the top of the revenue leaderboard, the second quarter could see rapid development of new entrants and upgrades of some major protocols. Although Uniswap, DeFi's most popular liquidity protocol, launched its V2 version in May, we have also seen new players in the space, including Balancer, Ren, Gnosis, and Loopring, all of which have launched major upgrades or have new ones. Product launches, bringing new traction (and revenue) to the protocol.
As a result, we are starting to see an increasingly diverse ecosystem of DeFi protocols as they all prepare to compete for a piece of the market.
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Price Performance and P/E Ratio
Despite the decline in earnings, DeFi tokens performed very well in the second quarter. The driving force behind the strong performance is the launch of yield farming, which is now a new theme in Ethereum and DeFi.
The best-performing DeFi asset this quarter was Bancor’s BNT, which surged 546% after announcing a liquidity protocol V2 upgrade. Another outstanding performer in the second quarter was Aave’s LEND, which had the strongest performance compared to all other DeFi tokens this year. In the second quarter alone, LEND rose 514%, while the money market protocol simultaneously locked its value from $30 million to over $120 million by the end of June.
While Augur continues to maintain a huge P/E ratio of 26,673, its partner 0x has lowered the P/E ratio (from 6,571 reported in May) to a more sustainable 251 as the liquidity protocol has steadily increased in recent months income. On the other hand, Bancor continues to have the lowest P/E ratio, the only DeFi protocol with a double-digit ratio in Q2.
(Above) The price-to-earnings ratio for the second quarter is calculated by dividing the annualized earnings for the second quarter on July 7, 2020 by the market value.
DEXs
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Kyber
Section overview:
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Balancer
The DEX sector was the biggest winner in the second quarter, with a new high in profitability, an increase of 5% from the previous quarter and a 41.9% increase from the second quarter of last year. The main contribution to the growth comes from Kyber, 0x, Bancor, and the newly added Balancer.
While Balancer was initially launched in March, the introduction of liquidity mining in late May served as a catalyst for the protocol’s growth. Since then, the liquidity and asset management protocol has soared to new heights and reached No. 5 on DeFi Pulse, with a whopping $154 million in value locked.
DEX trading volume
While Balancer currently dwarfs Uniswap in terms of value locked ($155M vs. $84M, considering both Uniswap V1 and v2), Uniswap clearly dominates in terms of trading volume as it traded over 143M in the past week US dollars, while Balancer is only 34 million US dollars.
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DEX trading volume
Notably, the top three DEXs by trading volume are all non-tokenized, showing that while tokenized incentives are catalysts for growth, they are not final or omnipotent. Instead, it's all about product-market fit and an intuitive and easy-to-grasp user interface.
With this in mind and in terms of quarterly trading volume, the top tokenized DEXs are Kyber and 0x, which recorded cumulative trading volumes of $352 million and $347 million, respectively, in Q2.
New DEX Tokens to Watch
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Curve (CRV) - Curve is one of the rising stars in the DEX space as AMMs are amassing massive volumes and took second place in the space with $436 million in volume in Q2. It's something to watch as the CRV governance token rolls out, (expected to happen in the next few weeks/months) and gets distributed to anyone who has provided liquidity to the protocol since launch .
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Maker
Although the lending industry was the main force in 2019, the industry as a whole saw a noticeable decline, almost entirely due to Maker's losses."In Q2 2019, Maker effectively captured over 99% of the lending industry’s revenue. A year later, Maker's 0% SF environment brought opportunities for new players.
Compound now dominates the space, as the protocol chose to increase the reserve factor to 50% for major tokenized assets (i.e. BAT, ZRX, and REP) and 20% for USDT. As a result, Compound took the lead in the lending space for the first time in Q2, with $624,000 in quarterly earnings, compared to Maker’s $152,000 and Aave’s $114,000.
Take turns sitting in the village."
As a result, users flock to mint new Dai in order to deposit it on Compound and maximize their COMP yield.
With the supply of Dai reaching new highs, the Maker protocol has huge potential for profitability. But with Dai’s peg above $1, it’s hard to imagine a correction coming anytime soon, as Maker governance is still exploring new mechanisms to help stabilize the peg of DeFi’s most popular stablecoin.
BZRX - After the flash loan incident in February 2020, bZx is back on track with the launch of the BZRX token. The token model features governance rights and liquidity mining incentives, so it will be interesting to watch how the lending protocol performs after its native token launch and reboot in August.
Derivatives
Upgrades for Aave: The growing lending protocol has also been heralding token and governance upgrades. Given Aave's growth in 2020 and its recently announced credit mandate, expect big moves from the Aave camp in the coming weeks.
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Derivatives
So far, Synthetix remains the only major player in the derivatives space. But Synthetix appears to be becoming a de-derivatives protocol (due to disproportionate benefits), and recent fixes have seen protocol revenue drop significantly.
Fortunately, Synthetix has been iterating and releasing new products at top speed. The DeFi derivatives protocol recently launched binary options, allowing users to place bets on the future price of any supported asset on the protocol within a predetermined time period. The team will also launch futures contracts later this year. Given the immediate success of binary options and the virtually limitless market potential on Ethereum futures contracts, we can expect plenty of traction from the Synthetix camp.
While sUSD still has some way to go before it can compete with other stablecoins in terms of market cap, the growth in Q2 is a positive sign and points to a trend ahead (especially if Synthetix follows suit by lowering c-ratio and increasing ether square collateral).
Augur also lacks real adoption, which has nearly stagnated revenue for the prediction market protocol, bringing in just $2,100 in quarterly revenue. But the upcoming Augur V2 should (hopefully) bring revival to one of Ethereum’s OG gaming platform currency protocols. Interestingly, while Augur was busy building out V2, we also saw notable new players in prediction markets, including Gnosis’ Omen and Polymarket — two prediction market platforms that brought competition to Augur V2.
Derivative Tokens to Watch
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UMA - The UMA protocol is a contender in the derivatives space for good reason, as it offers an attractive modular design. In short, anyone will be able to use UMA to create any synthetic asset collateralized by ETH or DAI. The protocol also strongly hints at a mechanism for yield farming, which would provide attractive incentives for users to mint synthetic assets on the protocol.
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epilogue
Although profits have declined this quarter, DeFi tokens have continued to increase to new highs on the basis of liquidity mining.
Even if the price-earnings ratio reaches hundreds, relatively speaking, this is actually not too high. Compared with the traditional capital market, Tesla does not even have a positive return, and the price-earnings ratio of other large technology companies such as Netflix is also a few hundred lower.
This is because the P/E ratio is about future growth potential.
Tesla has a top-notch electric car. It's a company building clean energy for the future. And clean energy is the future. Investors are thus valuing that potential at as much as $286 billion, unfazed by the fact that the company never made money.
