Original: https://mirror.xyz/0x6D2BcfEFb7CFa52c2F7526823aA97f593F3683f4/BnXt4W0w72iKiSRhu13vwriMSWicADIIQSpYsdda8oM
At this point, I believe there is a fair consensus within the crypto community that tokens need to evolve from pure governance tokens to value growth tokens, which can be done using several different models of protocol revenue:
- Purchase protocol tokens from the market and distribute among stakers (i.e. xSUSHI)
- Buy protocol tokens from the market and burn it to reduce supply (i.e. BOTTO)
- Buy protocol tokens from the market and keep them in the vault (i.e. YFI)
- Redistribute part of the funds generated by the protocol to token holders of the main token (i.e. GMX)
The first three methods mainly increase each holder’s share in the project and provide continuous buying pressure for the token, while the fourth method provides cash flow for holders so that each holder can choose whether to re-purchase or not. Invest or diversify into other assets.
Today, I want to look at all the protocols that implement the 4th method (cash flow protocol), because I believe they are the ultimate evolution of the model, and if the holder does not get some kind of future value, owning a larger share of the project may itself Not strong enough.
I've tried to be as inclusive as possible, but my analysis is certainly not exhaustive, and some great projects weren't included here, so apologies in advance, that wasn't intended :
This article is not financial advice nor does it endorse any of the projects mentioned here, it is only intended to provide a shortlist of projects that provide project holders with reliable funding so that it can be a starting point for your future research.
1. What is the best metric for comparing projects?
Personally, I think overall, using a cryptographic version of the P/E (price/earnings) ratio does a good job of filtering which projects might be undervalued/overvalued, since it actually calculates how many years it will take for the protocol to achieve its valuation .
Usually the most commonly used calculation method is:
P/E = Fully Diluted Valuation (FDV) / Agreement Annual Yield
Market cap is sometimes used instead of FDV, but in my opinion it's not comprehensive enough as it doesn't take into account future unlocks, which in the current environment are unlocked enough and often enough to differentiate a really good project from a bad one.
But is this metric useful for our analysis of cash flow?
Not at all, in fact, there are really good P/E projects that don't share a penny with token holders/stakeholders. Or at least not yet.
With this in mind, we will use a modified version of the indicator:
Price / Discount Fee = Fully Diluted Valuation / Annual Allocated Fee
This metric allows us to examine how many years it will take a holder to recoup their initial investment in the protocol in terms of cash flow.
So, if the price/discount fee is equal to 5, it means that it will take 5 years to recover the initial investment in the project based on the current cash flow.
2. What cash flow agreements exist in this area?
Cash Flow Protocols sorted by log size
ProtoFi protocol
Fantom-based protocol that provides AMM exchange and mining with a decentralized governance model, ELCT stakers accumulate protocol fees in DAI
The best thing to do is to buy ELCT off the market and hold it, otherwise you need to buy PROTO and hold it, but in this case the price/discount ratio is quite high so the business situation gets worse.
https://twitter.com/ProtoFiProtocol
Synthetix
A pioneer and well-known protocol in the DeFi space, working to allow derivatives trading and atomic swaps via synthetics. The implementation of Atomic Swaps increased fees significantly last month, likely due to arbitrageurs operating between SNX/CEX and greatly increasing APR for stakers.
The approach here is to make sUSD by buying SNX, and manage your collateral ratio carefully to avoid inefficiencies or putting your position at risk.
Rewards are paid in sUSD.
https://twitter.com/synthetix_io
Unidex
An aggregation platform that provides different services such as charts, exchange, leveraged trading, limit orders, etc.
20% of the fees earned by the protocol go to UNIDX holders, making it very attractive in terms of price. They're not very big yet, so it might be difficult for whales to get in.
Buying UNIDX is enough to get some of your rewards in FTM and USDC.
https://twitter.com/UniDexFinance
Looks Rare
Launched in early 2022, this NFT marketplace will allow traders and collectors to buy and sell NFTs at lower fees than Opensea
This is a high-margin (2% commission) and high-volume business, and 100% of the commission is given to LOOKS stakers. If they retain market share (i.e. trading and listing rewards) at the end of liquidity mining, I believe they could end up being one of the largest cash flow protocols in the future
You just need to buy LOOKS and deposit it on their page to get ETH and LOOKS rewards.
https://twitter.com/LooksRare
Yield Yak
Native exchange and yield aggregator in Avalanche that provides a portion of protocol fees to YAK stakers in AVAX
Relatively small protocol at the moment, but with a responsive team and a lot of potential, if they choose to stay native, it will depend heavily on AVAX's growth
Buying and staking YAK on TraderJoe/Pangolin will get you an attractive APR
https://twitter.com/yieldyak_
GMX
A decentralized exchange that allows zero-slippage swaps and perpetual transactions based on oracle-based pricing. It is implemented in both Arbitrum and Avalanche.
GMX stakers get 30% of protocol fees, while the other 70% is allocated to LPs, one of the largest protocols that distributes fair funds to their stakers, and is constantly innovating new products (like PvP AMM, X4, etc.).
Buying GMX and staking is all you need to earn yield in ETH/AVAX
https://twitter.com/GMX_IO
Curve
One of the representatives of the DeFi movement, due to its successful business model and innovative token economics, it has been widely emulated by many protocols (namely veCRV) recently
It has always been one of the protocols distributing the largest fees, and I believe they will continue to be a significant part of the space, even if they may have to face some challenges (i.e. stablecoin integration)
In order to earn part of the protocol fees, holders need to lock up their CRV tokens for a period of time to earn veCRV and be eligible for rewards
https://twitter.com/CurveFinance
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