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[In-depth] Where does the value capture come from?

2022-07-07 22:00

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Where does Web3's revenue go?

原文标题：《价值捕获 | Web3 公司的收入都去了哪？》

原文作者： FMResearchTeam， FutureMoney

TLDR; Conclusion:

(1) Total revenue: Web3 business model has greatly developed, among which the most powerful is still "selling block space", followed by NFT trading platform, DeFi, GameFi and infrastructure.

(2) Agreement income: most of the income still comes from the supply-side Revenue created by such roles as Liquidity Providers and Lenders, and the profitability of the agreement itself & NBSP; Protocol Revenue is still small, and even less of it flows to Token Holders. Although the user enjoyed pledge income and management right, but the most core economic interests still can not be guaranteed now.

(3) There are audit loopholes in Protocol Revenue, which may cause risks to Token Holders: the risk drawing in Protocol Revenue is not reflected, the Protocol Revenue data and Token sales data are often confused, and some Protocol Revenue even hides Rug Pull risk.

1. An overview of Web3's income

1.1 These Web3 companies (agreements) have the highest revenue & NBSP;

Revenue is almost one of the most important metrics in any company. So are Web3 companies generating revenue at all? At present, the more reliable data in the market come from Token Terminal, in addition, the Block, Messari and Web3 Index also provide some data. Unfortunately, no one has complete market-wide data; We combined the data of the four for analysis and output the exclusive analysis report. Due to missing data on part of the chain, there may be deviations in some information. We will continue to improve in the future.

(Figure 1) Top 17 agreements in total revenue over the last 180 days

Source: Token Terminal, the Block,

Curated by FutureMoney Research 2022 Q2)

Since Web3 revenues are dependent on market fluctuations, we only count total revenues for 180 days (and non-linear annualized). The top 17 companies (agreements) generated over 10 billion USD in total revenue.

First gear: Ethereum and Opensea, Ethereum is far and away the top of the list with a half-year total revenue of 4.6 billion USD; Opensea's half-year total revenue is about 1.8 billion USD, which is also a crazy cash cow.

The second tier: most of them are Defi agreements. The highest total revenue is Convex and Uniswap, and their total revenue for six months is about 600 million USD.

The third tier: The most representative one is the king of tools -- Metamask, with a total revenue of 81 million USD in half a year.

1.2 Business model determines revenue ceiling?

We analyzed the composition of the total revenue above to see how influential the business model was.

(Figure 2) The percentage of track locations of the top 17 agreements in the total revenue rankings in the last 180 days

(Source: Token Terminal, curated by FutureMoney Research 2022 Q2)

As can be seen:

- Layer1's business model is "sell block space".

- NFT Trading platform revenue accounted for 22%, its business model is royalty commission;

- in Defi; Dex Its business model is transaction fees and liquidity market-making income;

- in Defi; Staking Category revenue accounts for 8%, and its business model is carry or spread of asset management;

- Gamefi Accounting for 5%, its business model is royalty commission, transfer commission, sales NFT, etc.;

- in Defi; Lending Revenue is about 1%, and its business model is spread;

- Tooling Its business model is service fees;

It's not hard to see how the most powerful revenue machine is Ethereum, whose business model is "sell block space." His income far exceeds that of other projects. Similarly, at L1 Blockchain, the bifurcation in revenue is very clear.

Second, the revenue-generating platform is NFT trading platform. In addition to the popularity of NFT itself, the platform's royalty rates are extremely high (2-2.5%) -- for comparison, the typical Dex (e.g. TraderJoe) is around 0.05%.

2. 协议收入（ Protocol Revenue ）大比拼

2.1 Value of the Protocol: Protocol Revenue

Generally speaking, the Revenue of Web3 Protocol consists of supply-side Revenue and Protocol Revenue, among which the orientation of Protocol Revenue is divided into Treasury and Token holders (as shown below).

(Figure 3) Distribution of Web 3 protocol revenue (Curated by FutureMoney Research)

Explain this picture:

Total Revenue = Supply-side Revenue + Protocol Revenue

Supply-side Revenue: generated by Suppliers of money, such as all the liquidity providers in Defi, all the borrowers in lending, all the fundgers in Staking, the return they get after deducting the principal. So this value is created by suppliers, so the revenue naturally belongs to them.

Protocol Revenue: refers to the Revenue collected by the Protocol after it provides services, which is generally distributed to Treasury and the rest to Token Holders.

According to our statistics, most of the top 17 companies/products/agreements in terms of total Revenue have a very low percentage of Protocl Revenue.

Supply-side revenue of Defi projects mostly accounts for more than 90% of Total revenue. What's more, Uniswap has no Protocol Revenue despite its cumulative total transaction volume of $1 trillion and total Revenue of $600 million (half a year).

For centralized projects such as Opensea and Metamask, because there is no Tokenomics, Protocol Revenue temporarily represents the value attributable to the company.

2.2 & have spent Protocol Top companies in Revenue: their own profitability

(Figure 4) Ranking of Companies (protocols) with Protocol Revenue exceeding 10 million USD in recent 180 days & NBSP;

(Source: Token Terminal, the Block, curated by FutureMoney Research)

We can see that if the Protocol Revenue is used to measure the profitability of the Protocol, the ranking is completely different from that measured by Total Revenue. Defi's share of the list has plummeted, while L1 Public Chain, NFT trading platform and Gamefi project remain unchanged.

Note: we have marked some of the above items in yellow

- Stepn is not covered by mainstream websites, but it does have a large amount of income. We have estimated it based on public information

- Axie Infinity's revenue has fluctuated too much, dropping below 10% of its peak

Decentral Games Decentral Games Decentral Games Decentral Games Decentral Games Decentral is included only by Token Terminal, so there may be inaccurate data on tokens

So let's be strict and leave Governance Rights out of the way, and keep looking for which of these agreements leave value to tokens.

2.3 How much of Protocol Revenue flows to Token Revenue?

(FIG. 5) Meme about UNI (Curated by FutureMoney Research)

Protocol Revenue can transfer value to Token Holders in the following three ways:

Direct Revenue Distribution: Direct money, which is rare due to compliance issues

Real-time Burn: Common at L1 Blockchain, implemented automatically in contracts

Buyback and Burn: more centralized, led by the project side

In the Protocol with Protocol Revenue mentioned above, we have adjusted it (hereby note: We added the BSC, whose documentation discloses detailed real-time destruction and repurchase programs but is not captured by Token Terminal), and found a total of eight protocols that meet the condition that tokens can capture revenue value.

(FIG. 6) Curated by FutureMoney Research

In terms of categories, the most popular type is real-time burn; Ethereum burned the most, burning nearly 2.38 million ETH. BSCS followed, buying back and burning a total of 37 million. In addition to these 8 protocols, the remaining 12 protocols in the top 20 in Protocol Revenue have not returned value to Token Holders.

In addition, there are some common audit loopholes in Protocol Revenue, which may mislead us to judge the value of the Protocol if we are not careful.

3. Protocol Revenue 常见审计漏洞：我们的观点

3.1 There is no risk provision for some income

Much Staking is supposed to attract users by describing their core function as providing "high yield" or "high liquidity." Understand that the core competency of such a business is not technology, but the clever use of financial leverage.

In Lido, for example, an average user Staking an Ethereum stake typically faces a long lock-up time. But if she pleads with Lido, she gets stETH and can take it away immediately, while enjoying Staking. The cost of a Lido agreement is to publish stETH next to 1:1 acceptance of Staking ETH, and revenue is taken from the user's ETH Staking at a 10% margin.

(Figure 7) Lido protocol mode (Source: Lido, curated by FutureMoney Research) Of course, there is no free lunch in the world. Lido holds a large amount of lock-up ETH, but it has issued liquid stETH and promised 1:1 exchange, so it needs to prepare a large amount of funds to deal with the withdrawal risk of stETH. Normally these businesses perform very well in credit expansion cycles, but are at great risk in credit contraction cycles when profits fall. Although Lido has an income of USD 16.6 million (within 180 days), this income will be greatly reduced once the risk it takes breaks out. The primary target of the agreement must be stETH holders, not LDO token holders.

3.2 Some income, essentially Token Sale, is very unstable

According to the definition of Web3 Index, revenue can be divided into internal and external, which we extend as follows:

Explicit Revenue: payment made by a user for the use of a service, utility property;

Implicit Revenue: speculative and arbitrage properties of users' payments to get tokens.

This part of Implicit Revenue is common in X-2-earn and Web3 Infra. It is similar to supply-side Revenue in Defi, but more similar to Token Sale. Participants use this protocol to obtain speculative gains from tokens, contributing "income" in the form of ETH or SOL, etc. Get the Token and sell it at a profit in the future.

(Figure 8) Suspicious transaction statistics of LooksRare

(Source: Hildobby, created&NBsp; By FutureMoney Research)

In the case of LooksRare, Washtraders are the platform's largest Implicit Revenue Generator. They pay a large transaction fee (ETH) to the platform to get LOOKS and sell them and continue to make profits in this way of arbitrage trading. This is more like Token Sale driven financing revenue than business driven revenue.

此外，LooksRare 虽然将 Protocol Revenue 分配给 LOOKS token 的质押者，但是这部分 ETH 的收入全部自动卖成 LOOKS，并以 LOOKS 支付质押者。这也类似于一种默认的 Token 销售。

In the end, LooksRare made a stunning profit in this economy ($580 million in 180 days), but other players -- be they Washtrader or Token Holders -- ended up paying ETH for a bunch of LOOKS tokens. Who captures the value? Is it Treasury or LOOKS holder?

3.3 & have spent Some revenues are never disclosed, such as proceeds from secondary offerings in dual-currency systems

In Gamefi2.0, there are many dual-currency modes:

Governance Token: awarded to VC/ investor, capped and with repo destruction;

Utility Token: Rewards game players with no upper limit and no repurchase. The purpose is to maintain the stability of the game economy and not be influenced by investors. The design is well-intentioned, but if not done properly, it has the potential to hollow out the value of the entire economy.

(Figure 9) The exaggerated drop in SLP (Source: Hildobby, curated by FutureMoney Research)

On-chain analysts are prone to make a mistake when we are working for a growing game. While "Inbound/ Outbound" data has been cheering, Utility Tokens have been growing. The project side may trade these Utility tokens repeatedly through multiple addresses, making huge profits without disclosing them to the community. Because according to the white paper, they only have to disclose the rules for releasing Governance's Token.

While Governance Tokens are deflating and accumulating value, Utility Tokens are profiting by increasing the value of the game economy to the detriment of investors, much like rug pulling the entire project. At present, we do not have data to prove this potential revenue, just speculation.

4. Conclusion

By 2022, we can see that Web3 companies have a business model and the ability to generate significant revenue.

Finding ways to distribute income that are more valuable to the community, and even to society, is a difficult task. Some keep the revenue for themselves, some keep it in the Treasury and choose to wait and see, and some choose to give it back to the community. Of course, there are also projects that choose to avoid disclosure, cover up their interests in various ways, and let Token Holder bear huge risks.

We expect to see more audit, financial, and regulatory features focused on Web3 emerge to improve the industry. If you are doing, or are interested in doing, please feel free to contact us by email.