As 2022 comes to an end, it’s become clear that the overall volume and fees accrued by DeFi protocols are lower than in 2021. There are a number of reasons for this, but one of the primary factors was the sharp fall in the prices of many DeFi tokens as well as the lower user engagement. Welcome to a bear market.
Despite this, DeFi remains a popular and influential sector of the cryptocurrency market, and it is likely that we will see a resurgence in activity as the market recovers and evolves.
One key source of revenue for decentralized finance (DeFi) protocols, also called “Real Yield” is fees generated from transactions and other activities on the platform. In order to compare the efficiency of different DeFi protocols, it is useful to examine their cash flows and fees in relation to their volume and total value locked (TVL).
By analyzing the fee structure and revenue generation of protocols such as Curve and Balancer, we can gain a better understanding of how effective they are at monetizing their platforms and generating value for their users and token holders.
Weekly Accrued Fees (Curve Mainnet)
Curve 1Y fees (mainnet)
Balancer 1Y fees (mainnet)
In terms of annual accrued fees, Curve experienced a significant decrease from 2021 to 2022, with a difference of ($15,763,152). This can be attributed to various factors such as market conditions and the overall growth of the DeFi space. Moreover, the delta would have been greater without the various black swan events such as TerraLuna crash or wstETH depeg.
It is interesting to note that Curve has a strong feedback mechanism where black swan events feed the machine more than they hurt it, due to panic volume.
On the other hand, Balancer saw a slight increase in annual accrued fees from 2021 to 2022, with a difference of $454,457. This increase can be attributed to the transition of the protocol to the Gauge Framework for its incentive distribution as well as its transition to a Yield Bearing Asset AMM with Balancer v2. Making Curve more competitive with their average 0.04% trading fees, Balancer's 0.08% might have an impact on traders' behavior.
The main difference between the Curve and Balancer implementations of the gauge framework is their focus and objectives. Curve is focused on offering the best performance for mainnet swaps in terms of slippage and price impact. It still offers the best rates on numerous markets, especially stablecoins.
In contrast, Balancer is more focused on attracting yield bearing assets to the platform as a medium to enhance the revenue stream of the protocol through farms and fees generated. As a result, it would become the reference AMM for yield bearing token, thus, the two implementations are aligned with their respective objectives and offer different benefits depending on the specific use case.
When comparing their performances it is important to consider not only the annual accrued fees but to analyze it according to other factors such as market capitalization and lock rate. Considering that Balancer cap is 61.5% of Curve’s cap and lock rate of BAL is 10% lower than CRV, we can affirm that Balancer reaching 53.4% of Curve’s performance is pretty much aligned with the other metrics.
We hope that our coverage during the last 6 months provided valuable insights and analysis on gauges frameworks. We will be taking a break over the holiday season, but we look forward to continuing our weekly articles and providing even more in-depth analysis on the DeFi space in the new year. Until then, we wish you a happy and safe holiday season and look forward to seeing you again in January.