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What is the real profit in DeFi and how can it be achieved?

سود واقعی در دیفای

One of the most popular and trending concepts in the field of DeFi, the concept Real yield Is. This concept is constantly mentioned in crypto media such as Twitter and digital currency communities, and the opinion of investors and DeFi activists has been attracted to it. But Real profit in DiFi What is? How to get real profit? What protocols are capable of providing real profit? In this article, stay with the country of blockchain to the concept real profit and examine its importance in the field of DeFi.

What is the real profit in DiFi?

What is the real profit in DiFi?
Source: i2.wp

In traditional finance (TradFi), real interest is calculated by subtracting interest earned from inflation. For example, if a bond’s yield is 8% and inflation reaches 7% over the life of the bond, its real yield will be 1%.

In the field of DeFi, real profit refers to the profits obtained from economic activity and fees received for services. In addition, real profit is a type of investment model in DeFi, where the profit of users depends on protocols that share their returns and income with users in exchange for depositing (Stake) and locking tokens. Meanwhile, this return should be allocated to blue chip digital currencies (coins that have little price fluctuations) or stable coins that maintain their value over time. By this definition, real profit does not include tokens with high volatility, farm tokens and rebase tokens.

Why did real profit suddenly become important in DeFi?

Bloomberg headlines for real profit
Source: blog.hubbleprotocol

In short, real profits can help counter the “getting free money” mentality that has become common in DeFi. Those DeFi users who were once happy with the high annual percentage return (APY) are now at a loss, just like the users who were once caught in the bubble of initial coin offerings or ICOs.

As a result, the DeFi user community is wary of new profit opportunities, even if they are confident of their profits. Terra Network’s offer of 20% annual profit for UST stablecoin recently and before the collapse of this network was an instructive event for DeFi users.

This 20% profit seemed to be set to compete with other high-profit protocols, but with the help of marketing budgets, these profits continued to be paid. Calculations show that a large part of the annual profit Anchor protocol For UST, it is not financed by lending or economic activities.

Anchor capital request from Luna
Source: blog.hubbleprotocol

Due to the fact that there were no strong fundamental factors for the adoption of UST, Blockchain Terra and its users built a weak foundation for themselves, which quickly collapsed as people’s capital left. At the time of the crash when the stablecoin Terra lost its dependence on the dollar, a large portion of the UST supply was deposited into the Anchor protocol.

How can DeFi protocols provide real benefits?

A protocol must earn revenue and returns before it can claim to provide real profits to users. As Sam Beckman Fried (former CEO of the bankrupt exchange FTX) pointed out in the DeFiant podcast published in November 2020, DeFi protocols must provide services that the user is willing to pay for. “If there’s no incentive for users, what’s left to offer?” he said.

Of course, this doesn’t mean that it’s wrong to reward users with a project’s tokens in the early days of its launch. Encouraging users to contribute to the network with their own protocol token is the same way Bitcoin and Solana use it to force validators to honestly finalize new blocks.

The role of tokens in encouraging users to participate in the network
Source: blog.hubbleprotocol

Similarly, governance tokens have other uses for decentralized autonomous organizations (DAOs) in addition to providing financial benefits. Now in late 2022, the DeFi user community has realized the fact that most governance tokens are more suitable for voting in the development and improvements of a platform than for making a profit.

That being said, if a governance token can also act as a liquidity token, it has the potential to become a real source of profit. Also, the factor that makes liquidity tokens able to pay real interest to users is that capital enters the protocol in the form of fees. In this case, the protocol that collects transaction fees from its users can share this fee with users who have staked their assets in that protocol.

Which services attract users who are willing to pay a fee?

According to most of the recent published articles, posts and tweets, the DeFi protocols give real profits to users who deposit their liquidity tokens. Most of the projects mentioned in these articles and materials are either decentralized exchanges (DEX) or services that use the profits of a decentralized exchange.

Success GMX platform And its liquidity token model makes this platform a great resource Real profit in DiFi and this project has distributed about 60 million dollars of profit until today. Users who provide liquidity to the platform will receive 70% of GMX revenue in the form of GLP tokens, and the remaining 30% of the platform’s revenue will be distributed in Ethereum and Avalanche to users who deposit their GMX tokens.

To earn real profits, users need to deposit or lock their tokens for some time. An impressive 86% of GMX tokens have been deposited for real profit.

GMX platform statistics
Source: blog.hubbleprotocol

Curve and Convex platform can also be used as a resource Real profit in DiFi categorized Similar to depositing stablecoins, users will receive part of the rewards in the form of 3CRV by locking CRV tokens. However, a large portion of the interest paid for depositing CRV or CVX originates in CRV tokens.

According to the recent governance vote to change the Uniswap fee, Uniswap will probably enter this fee game in the future. No one knows how the fees will change, but UniSwap is one of the most used decentralized exchanges in DeFi and has a very high potential for returns.

Using the P/E ratio to calculate real earnings in DiFi

In calculating the actual profit provided by the DiFi protocols, several points should be taken into account. First, the fact that the profit of a project is real does not mean that the project is a very good investment opportunity.

For example, one should calculate the ratio of the investment value of a protocol token to its actual profit using the P/E ratio (price-to-earnings ratio). What is the return that a protocol offers relative to its token price?

Currently, GMX Platform’s P/E ratio is 20.8, which is obtained by dividing its market value by its one-year return. That is, if the price of the GMX token and its returns remain constant, it will take about 21 years to recoup the initial cost of buying GMX (it will take three times as long if we consider only the deposit of GMX).

P/E ratio of DiFi projects
Source: Token Terminal

On the other hand, Crowe’s P/E ratio is 380.0, which does not look very interesting. But the real profit of Crow is so enhanced by CRV tokens that it can be said that Crow’s profit is one of the important sources of returns in DeFi, even if 100% of the profit of this platform is not real.

Of course, the price of real interest tokens will not remain constant and it is always possible to withdraw from deposits before, after or at the time of maturity and recover the initial capital. Since tokens must be staked or locked to earn real profits, anything can happen during multi-year deposits.

Certainly no one can predict future events. But small projects that have profit-sharing schemes usually surprise users one day with a price increase and the ability to provide real profits. As a result, the current statistics do not have a great impact on the future results.

Does real profit make DeFi more sustainable?

Unfortunately, as soon as there is a big new feature in DeFi, opportunists will line up and claim that their platform also has those features. Currently, some members of the DeFi community have warned other users not to have too much faith in projects that promise real profits.

Either way, it’s not a bad thing to move the DeFi domain away from the unstable APYs generated by tokens that are doomed to crash. The future of DeFi depends on providing sustainable services and products with real applications, earning real fees and providing real benefits to the user community.

Conclusion

One of the concepts that is important in the field of DeFi and especially in the field of depositing and earning money is the concept of real profit. Currently, many projects and protocols claim to provide real benefits to users and the user community. But to what extent the benefit of these protocols is real, needs to be investigated. What protocols have the potential to deliver real profit? How to make real profit? Importance Real profit in DiFi And what is its future? These are the questions that we tried to answer in the above article. What do you think about this article? Share your opinion with us.

blog.hubbleprotocol

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