Analyzing Leading Protocol Fundamentals

Key Insights

• Uniswap and OpenSea continue to be the kingmakers of crypto fees while Lido has slowly increased its relative fee share in recent months.
• Many protocols with high fees do not convert these fees to protocol revenue.
• High emission token incentive programs have a significant negative impact on token holder profitability.

As the crypto industry and on-chain data sources continue to mature, we can begin evaluating crypto protocols based on traditional business fundamentals. Total fees provide a way to gauge the economic value generated by a protocol while protocol revenue measures how much of this total value the protocol ultimately captures. Token incentives imply a cost to existing token holders via dilution and can be combined with protocol revenue to arrive at a rough estimate for token holder profitability. For the purposes of this report, we will evaluate protocols based on data sets from Token Terminal and the Web3 Index. Additionally, generalized Layer-1 networks and Layer-2 scaling solutions are excluded to focus solely on application-specific protocols and networks.

Fees and Revenues

It’s crucial to understand the difference between protocol fees and protocol revenue when analyzing crypto protocols. Since many protocols are two-sided marketplaces that match supply and demand, the total fees generated from a protocol’s economic activity often greatly differ from the revenue that the protocol ultimately extracts from the market. For example, in the last 30 days Uniswap produced ~$45 million in fees for its liquidity providers but captured a grand total of $0 for its treasury and token holders. As such, protocol fees and revenue are unique data points that can be used to analyze different aspects of protocol performance.