Author: Donovan Choy and Thor, OnChain Times; Translated by: 0xjs@Golden Finance
introduction
In the ever-changing crypto industry, thousands of projects come and go.
What stand the test of time are the enviable few projects that have found some form of product-market fit.
Which protocols are users actually paying for using? This article will analyze the most profitable business models in the crypto industry from 2024.
8. Base
Base was launched by Coinbase in Q3 2023 and is an Ethereum L2 chain built on the Optimism Stack. Less than a year after its launch, Base has generated an impressive $52 million in revenue year-to-date, making it the eighth-highest revenue-generating protocol. Revenue comes from users paying fees to trade on Rollup.
Source: Token Terminal
In terms of earnings, Base has been quite profitable, with a year-to-date profit of about $35 million. There are two key factors here. First, Base has significantly reduced its data availability costs due to the introduction of blob fees in EIP-4844, which was implemented on March 13. Base immediately took advantage of blob fees, and data availability costs dropped from $9.34 million in Q1 2024 to $699,000 in Q2 2024, a significant reduction of about 13 times. Second, Base's high earnings relative to its L2 competitors are also due to the fact that there is zero cost to pay for token incentives, as it does not have its own native token.
7. Lido
Lido’s business model is fundamentally tied to Ethereum. Historically, Lido’s responsibility has been to lock up staked ETH on the beacon chain. With its stETH derivative, Lido allows ETH stakers to simultaneously earn network rewards (i.e. ETH issuance, priority fees, and MEV rewards) and unlock the illiquidity of their staked capital by staking ETH. This all changed in April 2023 when the Shapella hard fork upgrade allowed beacon chain withdrawals.
Today, Lido remains popular because it allows ETH holders to participate in network validation and receive a percentage of network rewards. Another advantage enjoyed by Lido stakers is the efficiency of automatic compounding, while single stakers are limited to 32 ETH staked.
Lido actually acts as a two-sided market connecting regular ETH holders and professional node operators. The ETH staked by users is directed to a diverse group of node operators approved by the Lido DAO. As of today, there are 109 node operators, the vast majority of which joined when the simple DVT (Distributed Validator Technology) module was implemented in April.
The liquidity staking giant ranks as the seventh-highest-grossing protocol. Year-to-date, Lido has generated $59 million in revenue across the two chains it operates: Ethereum L1 and Polygon PoS. Lido’s revenue comes from a 10% fee on user staking rewards, which is then split 50:50 between node operators and the Lido DAO Treasury.
After deducting the 5% staking rewards paid to node operators and LDO rewards paid to CEX/DEX liquidity pools, Lido DAO’s total profit so far this year has reached US$22.5 million.
Source: Token Terminal
6. Aerodrome
Aerodrome is an AMM DEX on Base L2, founded by the founder of Velodrome DEX on Optimism. Aerodrome was launched in August 2023 and quickly became the largest DEX on Base with a total locked value of $470 million. According to TokenTerminal, Aerodrome has generated $85 million in revenue so far this year, while paying out $29.7 million in token rewards in the past 30 days.
What is the secret of Aerodrome's success? It madly copied and combined many successful mechanisms in the DEX field.
To attract deep liquidity, Aerodrome relies on the veCRV (Voting Escrow CRV) bribe token economics of its AERO token. AERO token holders can lock up AERO for up to four years, gaining voting rights that will determine how many tokens are emitted to LPs in the future based on the number of veAERO votes received each week. On Aerodrome, 100% of the pool trading fees are received by AERO lockers, while the ratio of LPs and CRV lockers on Curve is 50:50. Another interesting change is that unlike Curve, rewards are proportional to the trading volume performance of the pool, thereby encouraging veAERO voters to direct emissions to the most productive trading pools. Both of these core protocol design mechanisms are key incentives behind Aerodrome's deep liquidity pools.
To streamline its voting escrow system, Aerodrome took a page from Curve and implemented its own version of “Votium,” called “Relay,” where locked AERO tokens are automatically pooled for voting and compounded gains can be exchanged back for VELO.
Another factor in Aerodrome’s success is “Slipstream,” a fork of Uniswap V3’s centralized liquidity contract. This has undoubtedly helped Aerodrome compete with Uniswap on particularly high-volume trading pairs such as WETH/USDC.
Source: Twitter
5. Ethena
The most successful protocol of 2024 is undoubtedly Ethena. Backed by major investors Dragonfly and Arthur Hayes, Ethena has risen to prominence as a new entrant into the stablecoin market. Since its launch in January 2024, USDe has grown to an impressive $3.6 billion market cap, becoming the fourth largest stablecoin asset today. However, its USDe token is not technically a stablecoin pegged to the US dollar, but more accurately a synthetic dollar.
How does Ethena work? Like Maker’s DAI, Ethena’s USDe is a stablecoin pegged to the US dollar, backed primarily by ETH and stETH deposits. The difference, however, is how USDe yields are generated. USDe yields come from a delta hedging strategy that exploits the difference in funding rates between CEX and DEX perpetual futures markets. When the funding rate on a CEX is positive, Ethena earns funding fees through short positions on that exchange. At the same time, Ethena pays funding fees through long positions on DEXs with negative funding rates. These simultaneously held positions enable USDe to maintain its peg regardless of directional headwinds on ETH.
Ethena currently does not charge any protocol fees. Currently, its main income comes from staking ETH deposited by users to earn network issuance and MEV capture. According to TokenTerminal, Ethena is the fifth largest revenue protocol today, with annual revenue of $93 million. After accounting for costs paid in sUSDe earnings, Ethena's earnings are $41 million, making it the most profitable dapp so far this year.
However, it is worth noting that Ethena’s business is designed to excel in bull markets, which cannot last forever. Ethena’s successful points campaign is also unsustainable. With each wave of ENA unlocked, people’s interest and confidence in Ethena continue to be weakened. To cope with this situation, Ethena has tried to introduce utility into ENA in two ways: locking ENA in Season 2 to obtain the highest points, and more recently, using the vault on Symbiotic to obtain re-staking income.
4. Solana
For a blockchain that was all but declared dead less than a year ago, Solana has performed quite well. Solana’s resurgence has been fueled by a combination of factors: memecoin trading, its “state compression” update (which helped attract DePINs) and a resurgence in NFT trading, and the much-lauded JTO airdrop in December 2023, which triggered a massive capital inflow into Solana.
Solana is currently ranked fourth in terms of revenue generation, with $135 million in annual revenue year-to-date. This is the transaction fees that users pay to validators for using the network. However, if we take token issuance (costs) into account, Solana does not appear to be profitable, having paid out $311 million in token rewards in the last 30 days alone.
Source: Token Terminal
This brings us to the thorny issue of valuation of L1 businesses. Solana supporters may argue that evaluating the profitability of L1 blockchains on the “revenue - cost = profit” basis described above is irrelevant. This criticism argues that network issuance is not a cost because L1 token holders on PoS chains can access these value streams by staking on popular liquidity staking platforms, such as Jito on Solana or Lido on Ethereum.
3. Maker
Maker was launched in late 2019 with a simple and easy to understand business model - issuing DAI stablecoins against crypto collateral for which the protocol charges an interest rate. However, behind the scenes, Maker's inner workings are quite complex.
Maker has gone through many changes since its initial inception. To stimulate demand for DAI, Maker incurred costs through the "DAI Savings Rate" (DSR), which is the collateral yield for locking up DAI. To survive the bear market, Maker established a core division focused on purchasing real-world assets such as US Treasuries. To scale, Maker has relied on USDC stablecoin deposits through the pegged stability module since 2022, sacrificing decentralization.
Today, the total supply of DAI is 5.2 billion, down 55% from its all-time high of around 10 billion during the 2021 bull run. The protocol has generated $176 million in revenue so far this year. According to Makerburn, the protocol has an annualized revenue of $289 million. A large portion of the revenue in recent months (14.5%) is attributed to the DAO’s controversial decision in April to allow DAI loans to be issued against USDe collateral in Ethena held in Morpho’s vault. RWA revenue is also considerable, with an annualized revenue of $74 million, accounting for 25.6% of total revenue.
How much money does Maker make? As mentioned above, one of the ways Maker tries to incentivize demand for DAI is through the DSR, which is the yield paid to users who stake DAI. Not every DAI holder can take advantage of the DSR, as it is also used for various purposes in DeFi. Assuming a DSR of 8% and a collateralization rate of 40%, Maker's cost is approximately $166 million. Therefore, after deducting another $50 million in fixed operating costs, Maker's annualized revenue can be estimated to be approximately $73 million.
2. Tron
The second largest revenue generator in Web3 is the L1 public chain Tron Network, with revenue of approximately US$852 million so far this year, according to data from TokenTerminal.
Source: Token Terminal
Much of Tron’s success stems from the high volume of stablecoin activity on its network. In Artemis’ interview with David Uhryniak, Head of Ecosystem Development at Tron DAO, much of this stablecoin traffic comes from users in developing economies such as Argentina, Turkey, and various African countries. Based on the chart below, we can see that Tron is often tied with Ethereum and Solana for the highest stablecoin transfer volume.
Tron’s primary use case as a stablecoin network is also reflected in its stablecoin supply of 50-60 billion, second only to Ethereum.
1. Ethereum
Finally, we come to the highest-earning business in Web3 today: Ethereum. On a year-to-date basis, Ethereum has approximately $1.42 billion in revenue.
So what is Ethereum’s profitability like? When we subtract the inflation rewards paid to PoS validators from the transaction fees paid by users using the Ethereum mainnet, we can see from the chart below that the network was profitable in Q1 but lost money in Q2. The losses in Q2 were likely due to most transaction activity moving to Ethereum Rollup to take advantage of lower gas costs.
Source: Token Terminal
However, as with other L1s, the “revenue minus profit” framework used to assess blockchain profitability obfuscates the true flow of value to ETH stakers, as users can earn a percentage of network issuance by staking on liquid staking platforms.
Eight cash cows so far in 2024
Summarizing all of the above, we get the following table:
Honorable Mention: Aave
In the DeFi lending space, Aave unsurprisingly tops the list with $31 million in revenue year-to-date. Aave has been a market leader in lending for the past three years and currently has a 62% market share based on active loans.
Aave's last major release was V3 in March 2022, which introduced features such as cross-chain swaps and independent lending markets. The protocol recently announced in May that V4 is coming soon, scheduled for release in 2025. The key upgrade of V4 is a unified liquidity layer powered by Chainlink's CCIP that aggregates liquidity between different chains. Other improvements include Aave dedicated chains, automatic interest rate curves, smart accounts, and an updated liquidation engine.
