Jack Kubinec

Since DeFi Pulse popularized the metric in <a href="https://x.com/RyanSAdams/status/1100470822903431169?s=20">2019</a>, total value locked (TVL) has been used as a primary measure for a protocol’s success.&nbsp;



But as DeFi slogged through a bear market for much of 2023, some pointed out that TVL can distort the underlying value of a protocol. Others said DeFi should abandon the metric altogether, saying it’s less meaningful than it’s purported to be.



“You bring ten whales and all of a sudden your TVL shoots through the roof,” Oleg Fomenko, co-founder of Sweat Economy, said. “We’re seeing a lot of projects fall into the same trap.”



A possible alternative metric could be <a href="https://www.dlnews.com/articles/llama-u/how-to-track-defi-protocol-fees-and-revenues-with-defillama/">revenue</a>: the fees protocols collected minus the rewards they paid to liquidity providers (LPs).&nbsp;



Read more: <a href="https://blockworks.co/news/tvl-metrics-defi-lightspeed">Is it time to drop TVL as a DeFi metric?</a>



Revenue was measured with DeFiLlama data through Dec. 13. Notably, Uniswap Labs only began collecting revenue after <a href="https://blockworks.co/news/uniswap-fee-structure-traders">instituting a fee on its interface in October</a>. Blockworks Research <a href="https://app.blockworksresearch.com/assets/uni/analytics?tags=uni">estimates</a> the Uniswap Labs to be on track for $17.7 million in annualized revenue so far.&nbsp;



<h2 class="wp-block-heading">1. Maker —&nbsp;$95.91 million</h2>



<a href="https://blockworks.co/tag/makerdao">Maker</a> has gradually purchased US Treasury bonds <a href="https://blockworks.co/news/makerdao-votes-to-allocate-500m-dai-into-us-treasuries-bonds">since 2022</a>, capturing yield from rising interest rates. Maker’s Spark Protocol subDAO, part of founder Rune Christensen’s so-called Endgame for Maker’s future, gave investors exposure to the T-bill yield through a locked version of its DAI stablecoin. The locked DAI’s yield <a href="https://blockworks.co/news/dai-savings-rate-us">reached as high as 8% this year</a>. The savings DAI token sDAI has been put forward as an <a href="https://x.com/SasuRobert/status/1734502811696541839?s=20">example</a> of a real-world asset because it essentially tokenizes Treasury bonds.



<h2 class="wp-block-heading">2. Lido — $55.79 million</h2>



<a href="https://blockworks.co/tag/lido">Lido</a> capitalized on Ethereum’s move to proof-of-stake in 2022 by letting users stake their ether with the platform in exchange for its tokenized staked ether (<a href="https://blockworks.co/price/steth">stETH</a>) that pays users staking rewards and can be traded or used as collateral. StETH grew to become the <a href="https://blockworks.co/prices">ninth-largest</a> cryptocurrency with a market capitalization of over $20 billion. Lido most recently <a href="https://blockworks.co/news/ethereum-update-liquid-staking">caught a boost</a> from hype surrounding Ethereum’s forthcoming Dencun upgrade, <a href="https://blockworks.co/news/ethereum-dencun-upgrade-progresses">initially slated</a> for a 2023 release before <a href="https://blockworks.co/news/ethereum-developers-hard-fork">being pushed back</a>. Lido currently <a href="https://twitter.com/lidodominance">handles</a> over 32% of all staked ether, <a href="https://blockworks.co/news/lido-centralization-debate-ethereum">sparking a debate</a> about the liquid staking platform’s centralized position on the network.&nbsp;



<h2 class="wp-block-heading">3. PancakeSwap — $52.31 million</h2>



PancakeSwap is the <a href="https://blockworks.co/news/dex-trading-activity-picks-up-steam">second-largest</a> decentralized exchange (DEX) by volume behind Uniswap. The DEX launched v3 of its <a href="https://blockworks.co/news/zksync-era-pancakeswap">platform in March</a>, focusing on concentrated liquidity, where LPs can concentrate their liquidity within specific ranges to enhance chances of their funds being used for a trade and earning fees. PancakeSwap has also <a href="https://pancakeswap.finance/voting/proposal/0x9602c8f56d01f239b88ecf914ee263cc9cdd75b8d10ae4d9536fc27b2680849c">tinkered</a> with its governance model and launched a gaming marketplace. Originally native to the BNB Smart Chain, PancakeSwap remains the <a href="https://dappradar.com/rankings/protocol/bnb-chain/category/defi">largest</a> DeFi app on the chain. Nearly all of PancakeSwap’s volume <a href="https://defillama.com/dexs/pancakeswap">comes</a> from the BNB Smart Chain.



<h2 class="wp-block-heading">4. Convex Finance —&nbsp;$42.23 million</h2>



Convex is an asset management protocol that lets LPs and stakers lock up tokens issued by Curve and earn yield. Curve is the <a href="https://defillama.com/dexs/chains/ethereum">second-largest</a> DEX on Ethereum behind Uniswap, and Convex’s fortunes are largely tied to Curve’s. Convex lets LPs and holders of Curve’s CRV token amplify yield from their tokens. Convex <a href="https://www.defiwars.xyz/wars/curve">controls</a> 48% of vote-escrowed Curve tokens and a third of vote-escrowed Frax tokens.



<h2 class="wp-block-heading">5. GMX —&nbsp;$37.52 million</h2>



GMX is a perpetual swap exchange. Perpetual swaps, or perps, let DeFi traders make highly leveraged trades without the need for large amounts of capital. Unlike traditional futures, perps don’t come with an expiration date when traders need to buy or sell an asset. GMX is the largest protocol by TVL on Arbitrum, and it was the largest recipient of the <a href="https://blockworks.co/news/arbitrum-dao-funding-proposals-budget-voting-community">layer-2’s October grant</a> allocation, <a href="https://docs.google.com/spreadsheets/d/1nQrcwTjsA4IXmZiSTodkjnfHRrO1MpdydJm4BO8bAn8/edit?_branch_match_id=1133666732149676081&amp;_branch_referrer=H4sIAAAAAAAAAwXBURKAIAgFwBMh%2F90Gs1GmAgeeTsdvdwAzD%2BZH7S5qOa%2BvnM4SVRHrpR5iSNoOtU5NclSXaD%2BXGhM4NwAAAA%3D%3D#gid=0">bagging</a> 12 million <a href="https://blockworks.co/price/arb">ARB</a>, worth roughly $14 million at today’s prices.



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2023’s top 5 DeFi protocols by revenue

A raft of withdrawals forced MakerDAO to spend half of the $500 million it holds in a Coinbase Custody account to protect the peg for its DAI stablecoin.



DAI’s USDC reserves — which needed to be above at least $200 million to be considered safe — nearly sank below $60 million Tuesday morning before the manager of Maker’s Coinbase trust transferred $250 million into DAI’s so-called peg stability module (PSM).&nbsp;



The liquidity fire drill highlighted the permissioned process by which the largest decentralized stablecoin refills its reserves.



The PSM is a collateral <a href="https://makerburn.com/#/collateral/PSM-USDC-A">pool</a> that lets users mint DAI for USDC 1:1 and arbitrage DAI back to its dollar peg. If the PSM’s reserves empty out, DAI’s price could drift below a dollar.



“The likeliest outcome is nothing notable happens. The worst outcome would be a depegging of <a href="https://blockworks.co/price/dai">DAI</a> for a few minutes to a few hours. But you&#8217;d observe the <a href="https://blockworks.co/price/usdc">USDC</a> flows on the relevant Coinbase addresses. The USDC would arrive any minute,” PaperImperium, the governance liaison at GFX Labs, said in a direct message.



Read more: <a href="https://blockworks.co/news/makerdao-usdc-dai-reserve-diversification">MakerDAO sticks with USDC reserve despite calls for diversification</a>



A Maker community member <a href="http://forum.makerdao.com/t/out-of-schedule-executive-to-fortify-elasticity-of-on-chain-1-1-liquidity-of-usdc/21168/29?u=jackkubinec">noticed</a> on Saturday that the PSM’s funds had dropped below $300 million, which should trigger a transfer from Maker’s $500 million Coinbase Custody account. Allan Pedersen, CEO of Monetalis — an adviser appointed by Maker to work with real-world assets — then commented multiple times on the forum asking the trust management firm SHRM to fund the PSM.&nbsp;



Monetalis was also obligated to email and call SHRM about the forum post, according to a Maker <a href="https://gateway.pinata.cloud/ipfs/QmYPbYoPjrSzBu5gt9tip78siG1gFvY8K4HTkHEFJgMmM8">document</a> outlining the process.



Over $100 million left the PSM between Sunday and Tuesday before the Coinbase Custody transfer <a href="https://etherscan.io/tx/0x3cd3d27a4ca0fe349864b5a30d94ee671c9a92a081fe9bc34d2092135d817767">arrived</a>. A source familiar with the matter told Blockworks that the larger transfers out of the PSM seemed to be going towards centralized exchanges.&nbsp;



On Maker&#8217;s forum, Pedersen wrote that teams are working to automate the PSM using smart contracts, “​​but, for now, the instruction-based automation using trustees, administrators, legal structures and banks/central exchanges is safe and stable.”



&#8220;This was a rather routine governance process where we maintained a good healthy balance of assets. During this situation, there was an additional 200 million worth of USDP and GUSD in the PSM,&#8221; Tadeo, developer relations at Maker’s Spark subDAO, said.



Updated Nov. 2, 2023 at 9:15 am ET: Clarified details about the PSM and the role of Monetalis add a comment from Maker. An earlier version of this article incorrectly referred to USDC withdrawals from the PSM as &#8220;liquidations.&#8221;



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MakerDAO moves $250M from Coinbase to rebuild DAI collateral

After countless forum posts and Discord back-and-forths, MakerDAO’s expansive “endgame” plan is finally seeing concrete action.



Maker passed a poll initiating the Spark Lend DeFi protocol on the Gnosis Chain. This sets the stage for the impending launch of its DeFi-focused subDAO. The move is meant as an example for how Spark Lend can proceed after the Maker “endgame” is finalized and the subDAO becomes fully autonomous.&nbsp;



In preparation for the endgame, MakerDAO has launched a <a href="https://blockworks.co/news/are-subdaos-the-future-of-dao-governance">prototypical set of so-called subDAOs</a> meant to govern different aspects of the DAO. SparkDAO is Maker’s DeFi subDAO, and its <a href="https://blockworks.co/news/dai-savings-rate-us">Spark Protocol lending platform has been buoyed by the popularity of sDAI</a>, or savings DAI, a yield-bearing token benefiting from high Treasury returns.



Users can now access Spark Lend, an Aave fork with similar features, on both Gnosis Chain and Ethereum. While demand grows, Karpatkey — the treasury manager for Gnosis — is providing liquidity to the DAI market, essentially acting as a stand-in for Maker until it assumes the operations itself.



The endgame is largely aimed at reducing DAO governance fatigue, an issue MakerDAO founder Rune Christensen called the “central issue” of DAOs on the Unchained podcast this week. For now, the protocol’s governance process remains unchanged, and the passed proposal is headed to a second “executive” vote.



Maker subDAOs are meant to be specialized groups who can make decisions quickly. They operate with their own governance tokens and have a reduced number of stakeholders voting on each proposal.&nbsp;



Currently, Spark and other initial Maker subDAOs lack their own tokens and are not autonomous. While subDAOs could eventually overturn Spark&#8217;s work, Phoenix Labs CEO Sam MacPherson believes Spark sets a precedent for future subDAOs. Until SparkDAO governance starts in earnest, Maker&#8217;s focus remains on expanding Spark Lend&#8217;s deployment.



“Other chains will be putting out proposals, and we’re going to go to all of them is the idea,” MacPherson said.&nbsp;



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Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



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