DeFi
DeFi protocols like Lido generate more fees than Layer 1 blockchains
Posted on July 15, 2024 at 6:25 p.m. EST.
In what has become a growing trend, some decentralized protocols are now earn more in fees than their base layer networks.
According to Ethan Francis, head of protocol relations at Web3 infrastructure provider Particle Network, fees generated by DeFi projects will continue to grow over the next six to 12 months due to “chain abstraction,” in which end users transacting on-chain won’t know which chains they’re using. “We’re moving pretty quickly toward that future, especially on the user experience side, where users will eventually be able to access different protocols and applications in general from any chain,” Francis told Unchained in a conversation.
As a result, “over the next six years, [or] “In 12 months, these apps will have users from across the ecosystem… I expect that with this movement and the UX, the fees will be significantly higher.”
“Fee-based models are proving to be the champions of crypto revenue models,” Francis said, pointing to how DeFi protocols generate millions of dollars in fees on a weekly basis, sometimes more than commodity blockchains.
Here are the top five protocols in terms of fees generated over the past week, outside of Layer 1 blockchain networks:
1. Lido – $19.1 million
Lido, the leader liquid staking The provider is at the forefront of fee generation among crypto projects, surpassing even major layer-1 blockchain networks such as Bitcoin ($5.9 million), Ethereum ($16.2 million), Solana ($9.3 million), and Tron ($9.6 million), according to data from DefiLlama.
Lido is widely known for its flagship cryptocurrency, stETH, which allows holders to earn rewards by helping to secure Ethereum while keeping their illiquid ETH liquid. When someone decides to stake and contribute to the security of Ethereum, their ETH is locked in a smart contract and cannot be used elsewhere. However, Lido users can use their stETH for a variety of different financial actions, such as supplying liquidity pools or providing collateral on lending platforms.
According to Lido documentsThe protocol generates fees by charging 10% on staking rewards, with the money split between node operators and the DAO treasury. The treasury has an onchain wallet of $328 million per Etherscan.
2. Raydium – $18.0 million
Raydium, an automated market maker originating from Solana, charges a small trading fee ranging from 0.01% to 1% every time a DeFi user trades cryptocurrencies in a Raydium pool. These fees are split and then allocated to incentivize liquidity providers, fund RAY buybacks, and grow the protocol’s treasury, according to Raydium. documents.
With a 24-hour trading volume of over $29.5 million, Raydium is one of the most popular places on Solana to trade cryptocurrencies, especially memecoins. For example, memecoins inspired by Republican presidential candidate Donald Trump who survived an assassination attempt on Saturday are dominating the market. Top 10 Liquidity Pools by Fees Collected in the Last 24 HoursThese liquidity pools include SOL-FIGHT, SOL-EAR and SOL-DJT.
3. Uniswap – $9 million
Uniswap, the popular automated market maker on Ethereum, has since expanded to other networks such as Base, Arbitrum, and ZKsync. The fees paid by users go to liquidity providers, who are individuals or entities that deposit their crypto assets into Uniswap’s liquidity pools, allowing users to trade without the need for a traditional intermediary.
Uniswap documents Exchange documents state that all token swaps carry a 0.3% fee that is paid to liquidity providers. “The swap fee is immediately deposited into the liquidity pool. This increases the value of the liquidity tokens, functioning as a payment to all liquidity providers proportional to their share of the pool,” the exchange documents state.
Uniswap has taken governance steps to implement a protocol fee to reward UNI token holders who stake and delegate their tokens, but at press time, the fees go to liquidity providers.
Learn more: Uniswap Foundation Reveals Assets and Fund Usage Ahead of Fee Change Vote
4. AAVE – $6.3 million
AAVEThe leading lending platform with nearly $21 billion in liquidity locked across eight networks, according to its homepage, is also a leading protocol in terms of fees collected.
“Users pay fees every time they borrow, deposit, liquidate, or use flash loans. The Aave protocol splits the fees between the Aave DAO and those who support the protocol’s risk in the security module by staking the native token, AAVE,” wrote a Delphi Digital analyst in a Research report 2023.
5. PancakeSwap – $5.7 million
PancakeSwap, a protocol on BNB Chain similar to Raydium and Uniswap in that it is another place to trade cryptocurrencies, is also among the top fee-generating platforms.
According to CoinGecko, PancakeSwap V3 is the sixth-largest decentralized exchange by 24-hour trading volume, with a figure of $48.7 million. Those who provide liquidity to the platform are rewarded with transaction fees when people use PanscakeSwap’s pools to execute a trade.
“Every time someone trades on PancakeSwap, for every [swap] In each Exchange V3 liquidity pool, depending on the liquidity pool fee level, the trader pays a fee ranging from 0.01% to 1%,” according to the exchange documents State.
Honorable mentions: Jito and Maker
Solana, infrastructure heavyweight Jitoknown for its liquid staking services and stablecoin issuer MakerDAOwhich issues the DAI token, collected $5.23 million and $4.59 million in fees, respectively, over the past week.
Jito’s fees come from a variety of sourcesFor example, holders of Jito’s liquid staking token, JitoSOL, pay an annual management fee equal to 4% of total rewards that is applied to both staking rewards and MEV earnings. Jito has also implemented a withdrawal fee for users who withdraw directly through its front-end website to prevent “certain abuses in the protocol design,” according to Jito’s documents.
Jito DAO, comprised of JTO token holders, “has governance power over components of the Jito network such as Realms treasury management to allocate funds for community growth, protocol fee distributions, stake pool fees, and other features,” according to the protocol documents.
Along the same lines, MKR token holders have governance powers over MakerDAO, such as whether or not to change its “stability fee,” which is charged based on each user’s collateralized debt position.
Sage is a crypto journalist at Unchained. He owns AAVE and stETH, as well as some NFTs, gold, silver, BTC, ETH, LINK, PEOPLE, DOGE, PEPE, MOG, and BONK.