Cash Flow protocols: Deep down the hard money rabbit hole
0x6D2B
July 9th, 2022

At this point, I believe it exists a fair consensus within the crypto community about tokens needing to evolve from pure governance tokens to value accrual ones, this can be done through several different models using protocol revenue:

  • Buy the protocol token from the market & distribute among stakers (i.e. xSUSHI)
  • Buy the protocol token from the market & burn it to reduce supply (i.e. BOTTO)
  • Buy the protocol token from the market & keep it in the treasury (i.e. YFI)
  • Redistribute part of the money generated by the protocol to token holders in major tokens (i.e. GMX)

First three methods mainly increase the share of each holder in the project and provide a constant buy pressure on the token while the 4th provides the holder with cashflows so each holder can choose whether to reinvest or diversify in other assets.

Today, I would like to take a look at all the protocols that have implemented the 4th method (cashflow protocols) as I believe they are the ultimate evolution of the model & having a bigger share of the project might not be powerful enough in itself if there is not some kind of future value accruing to holders.

I have tried to be as inclusive as possible, but most surely my analysis has not been exhaustive and some great projects have not been included here so apologies upfront, it has not been on purpose :)

This article is not financial advice and does not endorse any of the projects being mentioned here, it just aims to provide a shortlist of the projects that are delivering sound money to project holders so it can be a starting point for your research anon.

1. Which is the best metric to compare projects?

Personally I believe that overall using the crypto version of P/E (Price / Earning) ratios do a really good job filtering which projects might be undervalued/overvalued as it de facto calculates how many years will take a protocol to earn their valuation.

Usually the most frequent way to calculate them is:

P/E = Fully Diluted Valuation (FDV) / Protocol yearly earnings

Sometimes market cap is used instead of FDV, but in my opinion it is not comprehensive enough as it does not take into account future unlocks which in current context are big & frequent enough as to differentiate a really good project from a bad one.

But ser, does this metric serve us to analyze cashflows?

Not at all, in fact there are really good projects P/E wise that do not share a single penny with token holders/stakers. Or at least not yet.

To take this into account, we will use a modified version of this metric:

Price / DisFees = Fully Diluted Valuation / Yearly distributed fees

This metric allows us to check how many years will take to a holder to recover their initial investment in the protocol based on cashflows.

So if Price / DisFees equal to 5, that means that 5 years will be needed to recover the initial investment in the project based on current cashflows

2. Which are the cashflow protocols in the space?

Cashflow protocols sorted on a log scale
Cashflow protocols sorted on a log scale
  1. ProtoFi Protocol

    Protocol based on Fantom offering AMM swaps & farms with a decentralized governance model where ELCT stakers accrue the protocol fees in DAI

    Best move here would be to buy ELCT OTC and stake it, otherwise you need to buy PROTO and stake it, but in that case the Price / DisFees ratio is considerably higher and thus the business case gets way worse.

    https://twitter.com/ProtoFiProtocol

  2. Synthetix

    Pioneer in the DeFi landscape and well known protocol dedicated to allow derivatives trading & atomic swaps through synthetics. Implementation of atomic swaps have increased fees a lot last months, presumably due to arbitrageurs operating between SNX/CEX and improving greatly the APR for stakers.

    Play here is to mint sUSD by staking SNX & manage carefully your collaterization ratio to avoid being inefficient or have your position at risk.

    Rewards are paid in sUSD.

    https://twitter.com/synthetix_io

  3. Unidex

    Aggregator platform that offers different services like charts, swaps, leverage trading, limit orders etc

    20% of the fees obtained by the protocol go to UNIDX holders allowing it to be very attractive price wise. They are not very big yet so whales could find difficult to enter with size though

    Buying UNIDX is enough to claim your part of the rewards in FTM & USDC.

    https://twitter.com/UniDexFinance

  4. LooksRare

    NFT marketplace launched at the beginning of 2022 that allows traders & collectors to buy & sell NFTs with a reduced fee compared to Opensea

    It is a business with high margins (2% fee) and big volumes where 100% of the fees go to LOOKS stakers. If they manage to retain market share when liquidity mining ends (i.e. trading & listing rewards) I believe they could end up being one of the biggest cashflow protocols in the future

    You just need to buy LOOKS & stake it in their page to access ETH and LOOKS rewards.

    https://twitter.com/LooksRare

  5. YieldYak

    Native swap & yield aggregator in Avalanche that delivers part of the protocol fees to YAK stakers in AVAX

    Relatively small protocol at the moment but with a very responsive team and lots of potential that will depend a lot on AVAX growth if they choose to keep being native

    Buying YAK on TraderJoe/Pangolin and staking will give you access to the juicy APR

    https://twitter.com/yieldyak_

  6. GMX

    Decentralized exchange that allows zero slippage swaps & perpetual trading based on oracle pricing. It is implemented both in Arbitrum & Avalanche.

    GMX stakers receive 30% of protocol fees while the other 70% is distributed to LPs, is one of the biggest protocols distributing sound money to their stakers and keep innovating with new products (i.e. PvP AMM, X4 etc)

    Buying GMX and staking is all you will need to accrue yields in ETH/AVAX

    https://twitter.com/GMX_IO

  7. Curve

    One of the flag bearers of the DeFi movement due to its successful business model and innovative tokenomics, which have been extensively emulated by a lot of protocols recently (i.e. veCRV)

    It is consistently one of the protocols distributing the biggest amount of fees and I believe they will continue being an important piece in the space even though they will probably have to face some challenges (i.e. consolidation of stablecoins)

    To receive a part of the protocol fees, holders need to lock their CRV tokens for a certain period of time to obtain veCRV and be eligible to the rewards

    https://twitter.com/CurveFinance

  8. Beefy Finance

    Top 3 protocol in the yield aggregation space, presented in 16 chains and market leader in a lot of them. Simple and effective design, makes farming way easier and less time consuming.

    It was one of the first protocols to distribute fees among holders and 97,5% of its supply is already in circulation

    Stakers of BIFI in each chain accrue the fees produced in that chain by the protocol.

    There are two options, stake in the BIFI maxi pool to autocompound BIFI or stake in the BIFI earnings pool where payout will be in the native token of each chain.

    https://twitter.com/beefyfinance

  9. TraderJoe

    Main AMM in Avalanche offering swaps, farms, lending and are recently very involved in the launch of NFTs in AVAX.

    They are constantly shipping and distribute earnings to sJOE (staked JOE) in USDC.

    The amount of fees was huge at the start of the year and has decreased significantly mostly due to the hit the market overall suffered (AVAX TVL was hitted even heavier than other chains like ETH Mainnet)

    https://twitter.com/traderjoe_xyz

  10. Umami

    Innovative project that pivoted from being an OHM fork to deploying delta neutral strategies that yield around 20% ETH APR based on GMX & TracerDAO perps.

    If they establish a successful track record, I feel this is a product that could have a lot of demand. They are in the middle of developing new strategies and could be a serious competitor to the options vaults like Ribbon or StakeDao.

    Converting UMAMI into mUMAMI is enough to receive the rewards of the strategy.

    https://twitter.com/UmamiFinance

  11. Trisolaris

    1st DEX on Aurora offering the expected functionalities of a protocol of this kind (swaps, farms..) that pays rewards to stakers in stables (USDT, USDC)

    As every native protocol, their success is intrinsically tied to the success of the chain there are deployed in, so I have no doubt they will do good if Aurora gains adoption.

    Market cap is under 1 million, so even though current APR is high (25%) it will lower drastically with some size. Conversion to pTRI and staking in the protocol is all needed.

    https://twitter.com/trisolarislabs

  12. Lifinity

    Innovative DEX based on Solana that implements oracle pricing & concentrated liquidity to reduce impermanent loss and achieve greater capital efficiency.

    50% of protocol revenue is shared with veLFNTY (SOL, USDC, ETH…) and the other 50% is used to buy back LFNTY to keep a constant demand on the token so they have quite based tokenomics in that regard.

    Worst thing would be that tokens need to be time locked to receive protocol fees, like some other projects in this list.

    https://twitter.com/Lifinity_io

  13. Gains Network

    Decentralized perpetual protocol that allows up to 125x leverage and is deployed on MATIC. They use a customized chainlink oracle to use an AMM model rather than an orderbook one.

    GNS serves three purposes, be the traders counterparty, accrue all the fees and serve as a governance token.

    Their FDV is unknown as it will depend on traders winning or losing, so atm it is modeled as if FDV = current market cap.

    Rewards are distributed in DAI.

    https://twitter.com/GainsNetwork_io

  14. Balancer Labs

    First AMM to deploy imbalanced pools instead of the 50% / 50% we are so used in the Uniswap/Sushiswap model. It has manage to maintain their market share even though it is not close to be the leader in their segment.

    They implemented new tokenomics recently emulating Curve with vemodel & gauges and decided that 75% of the protocol fees are to be accrued by veBAL stakers in USDC.

    As the rest of the tokens we are seeing following the vemodel, timelocking is mandatory to accrue protocol rewards.

    https://twitter.com/BalancerLabs

  15. Ribbon Finance

    First player in the option vaults space & the biggest one by TVL. It offers several options ranging from 20-85% APY.

    They implemented recently their “ribbonomics” based on Curve model and 50% of the protocol fees is being redirected to veRBN holders.

    Rewards are being paid in ETH.

    https://twitter.com/ribbonfinance

  16. Hegic

    First option market that was implemented on-chain. It has struggled to gain mass adoption due to options not being easy to understand and costly gas fees on mainnet. I believe they will have a shot at gaining more traction if some option volumes are transferred from off-chain to on-chain.

    There are two options to stake and be eligible for rewards in ETH, BTC & USDC, best one would be to “stake a lot” which requires to stake 888000 HEGIC (around 5200$ atm) to receive 80% of the protocol fees. The remaining 20% protocol fees are distributed to the users staking less than 888000 HEGIC.

    https://twitter.com/HegicOptions

  17. Metavault Trade

    New protocol which is mainly a GMX fork in MATIC with some little changes (as the total supply)

    Currently they are bootstrapping liquidity & gaining adoption so its understandable their high ratio. GNS is already a established player in MATIC so it is not going to be easy to gain significant traction.

    They distribute rewards in MATIC & with the same structure as GMX (70% to LPs and 30% to MVLP stakers

    https://twitter.com/MetavaultTRADE

  18. BlackPool HQ

    Decentralized investment fund specialized in gaming & NFTs that distributes weekly rewards to veBPT holders.

    It is a really interesting concept even though their results are not too impressive at the moment due to the collapse that some of the collections in their portfolio suffered (Axie, Curio Cards, Hashmasks…)

    They changed their model recently and currently it is mandatory to timelock BPT to be eligible for rewards in ETH at a maximum of 4 years

    https://twitter.com/BlackpoolHQ

  19. Cap Finance

Decentralized perpetual market deployed in Arbitrum that allows up to x50 leverage with 0% fees and oracle pricing.

Liquidity is provided by ETH & USDC pools that serve as the trader counterparty similarly to GMX model (if traders earn money LPs lose it, if traders lose LPs gucci)

1% of protocol fees are distributed to CAP stakers, but this figure is susceptible to be changed down the road so they could improve significantly their ratio rather easily to be more attractive to cashflow investors.

They are paid in ETH & USDC

3. Which projects plan to distribute cashflows soon?

  1. Redacted Cartel

2. Perpetual Protocol

3. Jones Dao

4. Final remarks

  • Fee distribution to holders + low float = gud tokenomics
  • Gud tokenomics + demand for the product + pricing power = successful token
  • Every thing else ceteris paribus (i.e. Price / DisFees) , protocols without vemodel will give stronger APRs to the average Joe that does not max lock
  • NFA & DYOR
  • Thanks for reading & hope it was useful
Arweave TX
TnOSsztmUsRlK3Tm6YvIdaezc8z8OAJylOb-qtf2nP4
Ethereum Address
0x6D2BcfEFb7CFa52c2F7526823aA97f593F3683f4
Content Digest
BnXt4W0w72iKiSRhu13vwriMSWicADIIQSpYsdda8oM