Title: “The Rainmakers Shaping the Crypto Market”
Introduction:
In this newsletter, we will analyze the most significant fee-generating protocols in the crypto market, including blockchain and decentralized applications. We will explore why users are willing to pay fees for these protocols, the types of services they offer, their business models, the total amount of fees paid by users, and which specific market sectors are more popular than others. By analyzing a detailed chart, we will delve into the industry trends of the cryptocurrency market. Let’s dive into the details!
1. Focus on Top Fee-Generating Protocols in Blockchain:
The highlighted protocols include Ethereum, Tron, Bitcoin, Solana, BNB Chain, and Base.
The main source of fees comes from general-purpose blockchains.
Among the top 20 protocols, 5 belong to the first layer (L1) blockchains, while only 1 belongs to the second layer (L2) blockchain.
In the past 30 days, Ethereum has generated the highest fees, reaching approximately $180 million. Although Base has a relatively low average transaction fee of only about $0.03 (compared to Ethereum L1’s $4.5), it has successfully entered the top 20 due to increased user activity on the L2 layer.
Apart from L1 and L2 blockchains, all other protocols in the top 20 belong to the decentralized finance (DeFi) category.
2. Top Fee-Generating Protocols: Focus on Lido Finance and Jito:
The highlighted protocols are Lido Finance and Jito.
Lido Finance leads in fee generation among all crypto applications.
Jito operates two different businesses: liquidity staking (JitoSOL) and maximizing extractable value (MEV) market. The former earns profits through management fees based on AUM, while the latter generates profits by charging MEV fees to validators (this chart only includes MEV fees).
In comparison, Lido focuses solely on liquidity staking and earns commissions from the rewards collected from depositors. Lido generates approximately twice the fees compared to Jito, but Jito has a faster growth rate.
Lido manages $3.35 billion in staked assets, while Jito has $160 million. Lido’s fully diluted market value is $190 million, while Jito is $250 million.
3. Top Fee-Generating Protocols: Focus on Decentralized Exchanges (DEX):
The highlighted protocols are Uniswap, PancakeSwap, Aerodrome, Uniswap Labs, and GMX.
Uniswap DAO dominates the DEX category with monthly fees close to $100 million.
It is worth noting that Uniswap Labs, as an independent entity, is included in the analysis. It generates profits by charging fees to users accessing the Uniswap protocol through the official Uniswap Labs frontend application.
Uniswap DAO’s fee generation is approximately twice that of other DEXs in the top 20.
Aerodrome, as a Base-based DEX, generates double the fees compared to its underlying L2 blockchain.
4. Top Fee-Generating Protocols: Focus on MakerDAO and Ethena:
The highlighted protocols are MakerDAO and Ethena.
Ethena has the potential to surpass MakerDAO in terms of fees.
MakerDAO and Ethena dominate the decentralized stablecoin issuers’ space. The largest stablecoin issuers in the market, such as Tether (USDT) and Circle (USDC), are not included as their fees and revenue are primarily generated off-chain.
Ethena is expected to launch in November 2024, while MakerDAO has been operational since November 2017.
5. Top Fee-Generating Protocols: Focus on Lending Protocols:
The highlighted protocols include Aave, Morpho, Compound, and Venus.
Aave is the fourth-largest fee generator in the cryptocurrency space.
In the lending category, Aave stands out, with a fee difference of $30 million compared to the second-ranked Morpho.
Although both Compound and Aave were launched in 2020, Aave has surpassed Compound in terms of active lending and fee generation.
While Aave leads in the entire lending sector, Venus has a significant advantage in the lending market on the BNB Chain, with approximately 90% of fees generated from its operations on the BNB Chain.
6. Top Fee-Generating Protocols: Chain Segmentation:
This section primarily discusses the blockchain on which applications are deployed.
Most of the top fee-generating applications choose to deploy on multiple blockchains.
In the crypto space, the majority of the top 20 fee-generating applications are deployed on Ethereum (including L1 and L2).
It is worth mentioning that asset issuers, such as stablecoin issuers and liquidity providers, mostly manage their operations on a single chain, while their core products (stablecoins or LST) act as bridge assets across multiple chains.
Among the top 20, Aerodrome is the only application that originates from the L2 blockchain (Base).
FAQs:
What are fees?
Fees refer to the total amount paid by end-users for protocol services.
Different market sectors have different fee structures because each protocol has its unique business model:
Blockchain L1 and L2 = Charge transaction fees by selling block space.
Liquidity staking = Earn rewards by investing users’ staked assets.
Exchanges (DEX, derivatives) = Exchange assets for transaction fees.
Lending = Generate revenue by providing interest-bearing loans.
Stablecoin issuers = Earn income by providing interest-bearing dollars or investing user deposits.
Asset management = Generate revenue by investing user deposits.
What is the difference between fees and revenue?
Revenue is calculated based on the fee collection rate (%) of the protocol.
This rate can range from 0% to 100%.
Currently, Uniswap DAO and Bitcoin have an adoption rate of 0%, while Ethereum’s is typically around 80%.
How is revenue different from earnings?
Earnings are derived after deducting token incentives and operational expenses from revenue.
Token incentives refer to the protocol’s expenses on user acquisition, calculated based on the dollar value of the protocol’s native token.
Operational expenses include the investment in manpower and infrastructure during the development, maintenance, and optimization processes.
Note that most protocols do not publicly disclose their operational expenses on-chain, which is why many protocols have not introduced this metric yet.
When should fees, revenue, or earnings be considered?
Based on experience, investors should focus on fees in the early stages of a protocol before monetization begins, and on revenue and/or earnings in the monetization stage:
Early-stage: Focus on fees, indicating the protocol has paying customers.
Later stage: Focus on revenue, showing the protocol’s ability to monetize its paying customers.
Mature stage: Focus on earnings, reflecting the protocol’s ability to create value for its token holders.
Additionally, the following ratios should be considered:
Revenue/Fees = Ideally, it shows the protocol’s influence over the supply side (LPs) and the ability to charge higher fees.
Earnings/Revenue = Ideally, it indicates the protocol’s low user acquisition costs and operational expenses, allowing a higher proportion of revenue to be retained as earnings.
