Most DeFi Protocols Are Struggling To Make Money, Here’s Why

Most DeFi Protocols Are Struggling To Make Money, Here's Why
Most DeFi Protocols Are Struggling To Make Money, Here’s Why

Though the DeFi sector has, in fact, proven to be amazingly strong and flexible in response to the events in the market space during the past few months, without a doubt, there are several opportunities for generating enormous financial services on DeFi, but the space needs to attend to some critical challenges. In a Twitter thread, Thor Hartvigsen postulated on March 5, 2023, that of hundreds of DeFi protocols, only a few are profitable tokens that have a strong income and good earnings and have been the top actors historically.

Thor Hartvigsen explained some commonly used terminology in the DeFi space. In his thread, he talked about familiarizing oneself with these terminologies and uploaded a photo file showing the theme. The definitions included fees, revenue, supply-side fees, earnings, and token emissions.

Ten tokens and protocols were studied and analyzed, starting with Ethereum, which had experienced a 90% reduction in inflation within a one-year interval from five million ETH tokens to six hundred thousand ETH tokens. Therefore, the side fees from the total supply are also considered to be part of the earnings

Thor also inducted the Gains Network as the next blockchain after Ethereum. He noted that in February, the Gains Network had the best quarter because of a massive increase in trading volume after its launch on Arbitrum. The Gains Network is known to operate with nearly no on-chain expenses. He mentioned GMX being among the biggest fee-generating protocols. With time, GMX emissions will reduce and GMX earnings will turn positive, said Thor. The Arbitrum chain is one of the only ones to act as a net gain, as it has no costs in terms of tokens, after Ethereum. The thread reported that ENS generates revenue from fee renewals and the registration of new users. Including paychecks and other expenses, the GMX protocol is running on a surplus.

Unlike GMX and Gains, the token dYdX avoids payment of any fees to providers of liquidity because they have their own order book, hence they generate tons of revenue, Thor said. Thor also observed that there has been a notable reduction in AAVE emissions recently, which has amounted to mouth-watering earnings in the month of February.

The almost-unending thread did not fail to recognize the activities of NFTs and some huge protocol earnings under it in the month of February. From the largest earning protocol to the scantiest, we have Opensea ($6.3m), SuperRare ($412k), LooksRare ($120k), Sudo ($33k), and Blur ($0), whose fees or royalties are paid only to creators.

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