Fees, real yields and the leading projects

Introduction

Real Yield in the context of cryptocurrency and decentralized finance (DeFi) is an emerging trend that aims to provide a more sustainable and reliable yield model. It is a share of a protocol's revenue, denominated in a mainstream asset like ETH or USDC, which holders of a protocol's governance tokens can access by staking or locking them. In essence, it is the yield accrued by generating actual protocol revenue, such as trading fees, instead of aggressive token emissions.

The concept of Real Yield is akin to a stock dividend. When you invest money in a DeFi protocol, the protocol is able to generate revenue from which it provides you a small share. Instead of relying on gimmicky incentives, investors earn on the income their funds actually generate, whether that's on-chain borrowing, lending protocols, or liquidity provision.

Real Yield is designed to create a more reliable passive-income market and demonstrate the growing maturity of crypto. It provides a more realistic and practical yield model compared to the unsustainable token emissions and other manipulative strategies that were prevalent in the past. Real Yield protocols don't require inflationary emissions to remain relevant over time, and their growth depends on their ability to accrue new users and increase revenue generation over time to reward token holders.

The Real Yield Projects

Why does Real Yield matter? It is an important metric for evaluating a project's long-term yield-bearing prospects. It is a useful tool for gaiving a project's ability to generate revenue and retain users and volume over time. Real Yield investments offer investors a way to make money without worrying about market volatility or other risks associated with traditional investments.

In the past, many DeFi projects offered inflated, unsustainable yields, often funded by minting new tokens. This led to hyperinflation and a drop in the value of these tokens when the demand for them decreased. Real Yield, on the other hand, is based on actual activity and revenue generation, making it a more sustainable and reliable investment strategy. It's tied to the demand for the token you've invested in, rather than the project itself, making it more akin to traditional investment dividends.

Real Yield is a significant development in the crypto space, offering a more sustainable and reliable form of yield that is tied to actual revenue generation rather than token emissions. It represents a maturing of the crypto market, moving away from unsustainable gimmicks towards models that can provide long-term, reliable returns for investors. In this article, we delve into the intricacies of Real Yield, its significance, and the top 10 projects generating Real Yield in the crypto space.

1.Ethereum

Ethereum is a decentralized, open-source blockchain platform founded by Vitalik Buterin. Ethereum serves as the foundation for decentralized applications (dApps), allowing developers to build and deploy a wide variety of applications on its platform.

Ethereum operates through a network of nodes, each storing a copy of the entire blockchain. These nodes are maintained by validators who process transactions and smart contract interactions. Validators are essential to the Ethereum network as they confirm the validity of transactions and add them to the blockchain. For their services, validators receive fees from users, also known as supply-side fees.

The fees serve two main purposes: they incentivize validators to process transactions, and they prevent spam and abuse on the network by attaching a cost to every operation that requires computational resources. The total fee for a transaction is determined by the amount of computational work it requires (measured in "gas") and the price per unit of gas set by the user.

In 2023, Ethereum generated over $1.3 billion in fees for its validators and stakers. This significant revenue generation is largely due to Ethereum's position as the largest blockchain in terms of Total Value Locked (TVL). The high TVL indicates the substantial amount of assets being staked or locked in Ethereum's DeFi protocols, which in turn leads to a high volume of transactions and, consequently, substantial transaction fees. This demonstrates the immense value and utility that Ethereum provides to its users and the broader blockchain ecosystem.

2.Tron

Tron is a decentralized, multi-purpose blockchain platform founded by Justin Sun in 2014. It was initially an ERC-20 token on the Ethereum network but migrated to its own network in 2018. Tron's primary aim is to create a scalable, fast, and low-cost operating system for executing smart contracts, making it an attractive platform for developers and users alike.

Transaction fees on the Tron network are unique in that they are calculated based on energy, bandwidth, and the type of transaction. For standard transactions, costs are covered by bandwidth points. Users have access to free daily bandwidth points (5000) or can freeze their TRX tokens to gain additional bandwidth. If the bandwidth points are insufficient, TRX is deducted directly from the sender's account, with the required TRX being the number of bytes multiplied by 10 SUN (1 TRX = 1,000,000 SUN).

Smart contract transactions on Tron cost energy and also require bandwidth points for broadcasting and confirming the transaction. The bandwidth cost is the same as for standard transactions. However, the overall cost may be higher depending on the complexity and size of the smart contract. Query transactions, which don't alter the blockchain state, are free as they don't cost energy or bandwidth. Despite these costs, standard TRX transactions typically have very low fees compared to other networks and cryptocurrencies. These fees exist but are usually nominal. However, the fees for Tron smart contracts can be higher, depending on the contract's overall bandwidth.

In 2023, Tron generated over $400 million in fees. A significant contributing factor to this revenue is Tron's attractive interest rates on USDT (Tether). By offering competitive interest rates, Tron has incentivized a large volume of USDT transactions on its network, leading to increased transaction fees and revenue for the platform. This demonstrates the potential of Tron's low-cost, high-performance network for generating substantial revenue while providing valuable services to its users.

3.Uniswap V3

Uniswap v3, a decentralized exchange protocol, generates fees through a mechanism known as swap fees. These fees are distributed pro-rata to all in-range liquidity at the time of the swap. If the spot price moves out of a position’s range, the given liquidity is no longer active and does not generate any fees. However, if the spot price reverses and reenters the position’s range, the position’s liquidity becomes active again and will generate fees.

Unlike previous versions of Uniswap, swap fees in v3 are not automatically reinvested. Instead, they are collected separately from the pool and must be manually redeemed when the owner wishes to collect their fees. Uniswap v3 introduces multiple pools for each token pair, each with a different swapping fee. Liquidity providers may initially create pools at three fee levels: 0.05%, 0.30%, and 1%. More fee levels may be added by UNI governance.

The introduction of concentrated liquidity decouples total liquidity from price impact, allowing for multiple pools and improving the functionality of a pool for assets previously underserved by the 0.30% swap fee. Uniswap v3 also has a protocol fee that can be turned on by UNI governance. This gives UNI governance more flexibility in choosing the fraction of swap fees that go to the protocol.

In 2023, Uniswap generated over $300 million in fees. This significant revenue generation is largely due to the unique fee structure of Uniswap v3 and its ability to attract a large volume of trades. The high volume of trades, combined with the fees generated from each swap, has led to substantial revenue for the platform.

4.Lido Finance

Lido is a decentralized finance protocol that allows users to stake their Ethereum and receive stETH, a token that represents staked ether on Ethereum. Lido enables users to participate in Ethereum's Proof-of-Stake consensus mechanism, earning staking rewards while maintaining liquidity. Lido applies a 10% fee on staking rewards. This fee is split between Lido node operators and the DAO treasury. Node operators are entities that run the infrastructure required to validate transactions on the Ethereum network. The DAO treasury is a fund managed by the Lido DAO, a decentralized autonomous organization that governs the Lido protocol. The treasury funds are used to cover operational expenses and fund initiatives that benefit the Lido ecosystem.

The fee level is designed to make Lido staking more performance-oriented compared to most available exchange staking alternatives. It's worth noting that the fee can be changed by the DAO pending a successful vote, providing flexibility and community governance over the protocol's fee structure.

In 2023, Lido has generated over $295 million in fees. This substantial revenue is a testament to the protocol's popularity and the value it provides to its users. By offering a simple and efficient staking solution for Ethereum, Lido has attracted a significant amount of staked assets, leading to high fee generation. The fees not only support the ongoing operation and development of the Lido protocol but also contribute to the sustainability and growth of the wider Lido ecosystem.

5.Bitcoin

Bitcoin, the first and most well-known cryptocurrency, operates on a decentralized network where transaction fees play a crucial role. These fees are an essential component of the blockchain network. Transaction fees incentivize miners to validate transactions and subsidize the diminishing block subsidy, thereby supporting network security by keeping miners profitable.

Bitcoin transaction fees are determined by two main factors: the data volume of the transaction and user demand for block space. The more data a transaction includes, and the faster a user wants their transaction confirmed, the higher the fee they will likely pay. This is because there is a limit to how many transactions can be processed in one block, and miners prioritize transactions with higher fees.

When a miner validates a new block, they receive the transaction fees and block subsidy associated with that block. The sum of these is known as the block reward. As the block subsidy decreases with each Bitcoin halving, transaction fees play an increasingly significant role in maintaining network security.

In 2023, Bitcoin generated over $230 million in fees. This substantial revenue generation is due to the high demand for Bitcoin transactions and the associated fees. The fees not only support the miners who validate transactions but also contribute to the overall security and robustness of the Bitcoin network.

6.Binance Smart Chain

Binance Smart Chain (BNB Chain), the in-house blockchain of Binance, the world's largest cryptocurrency exchange, generates revenue in several ways. Binance, as the creator of BNB Chain, earns revenues from trading fees, withdrawal fees, deposit fees, and other trading fees. Users pay fees for each trade on the Binance platform, ranging from 0.1% to 0.5%. BNB holders get discounted trades, providing a significant financial incentive. The platform also charges a fee for moving your crypto balance out of your Binance account, and a flat 4% deposit fee to users funding their accounts with USD from a credit/debit card.

On the investor side, Binance offers several ways to earn a constant stream of revenue. These include DeFi Yield Farming, where by lending your crypto holdings on the Binance Earn platform, you can earn interest with yields ranging from 0.5% to 100% or more. Locked Staking is another option, where staked coins are used to provide security for the entire blockchain in a Proof of Stake system. Apart from interest, BNB staking also gives you a chance to earn BNB tokens as a reward. DeFi Staking is another method, where your stake is used to finance loans and other credit services using smart contracts and decentralized finance (DeFi) apps on BNB Chain.

To counter the inflationary effect on the price of the BNB token, Binance undertakes regular burning of BNB, where tokens are removed from the supply. The aim is to limit the overall supply to 100 million. This burning process is beneficial for investors as it reduces the size of the pie, making your BNB holdings worth proportionally more.

In 2023, BNB Chain has generated over $112 million in fees. This significant revenue generation is due to the unique fee structure of BNB Chain and its ability to attract a large volume of trades. The high volume of trades, combined with the fees generated from each swap, has led to substantial revenue for the platform.

7.Convex Finance

Convex Finance is a protocol built on the Ethereum network that optimizes yield farming on Curve Finance. It provides an innovative platform for liquidity providers to earn trading fees and rewards with less hassle and higher yield.

Convex Finance generates fees from the revenue earned by liquidity providers (LPs) on the platform. For Curve LPs, there is a 17% total fee on all CRV revenue generated. This fee is distributed as follows:

• 10% goes to cvxCRV stakers, paid out as CRV.
• 4.5% goes to CVX stakers, which includes vote-locked CVX. This is paid out as cvxCRV.
• 2% goes to the treasury, which is used to obtain cvxCRV.
• 0.5% goes to the harvest caller, paid out as CRV.

For Frax LPs, there is also a 17% total fee on all FXS revenue generated. This fee is distributed as follows:

• 10% of all FXS earnings are distributed to cvxFXS LPs as FXS.
• 7% of all FXS earnings are distributed to vlCVX holders, as cvxFXS.
• 1% of the combined 17% fee is then taken for the harvest caller.

It's important to note that fees are taken only from CRV and FXS revenue; no fees are taken from tokens from incentivized Curve pools, nor from veCRV admin fees. Fees paid as cvxCRV or cvxFXS remain as CRV or FXS tokens while sitting in the rewards contract, until users claim their rewards individually. At the moment the user claims, the tokens are locked in Convex Finance as veCRV or veFXS; cvxCRV or cvxFXS is minted 1:1, and then paid out to the user.

In 2023, Convex Finance generated over $92 million in fees. This significant revenue generation is due to the unique fee structure of Convex Finance and its ability to attract a large volume of liquidity providers. The high volume of liquidity provision, combined with the fees generated from each reward claim, has led to substantial revenue for the platform.

8.GMX

GMX, a decentralized crypto exchange, allows users to trade various cryptocurrencies with up to 50x leverage directly from their wallets. The platform supports multiple blockchains, including Arbitrum and Avalanche, and is compatible with various web3 wallets such as MetaMask and Coinbase Wallet.

Trading on GMX involves long and short positions, which can be opened through market orders or limit orders. Users can also place take profit and stop loss orders. GMX charges a 0.10% fee for both long and short positions, which is paid when a position is opened or closed. If a user uses a different token as collateral than the one they want to go long with, or tokens other than supported stablecoins when going short, a swap fee is also charged. The swap fee varies from 0.2% to 0.8% and is calculated based on the collateral size.

In addition to trading, GMX offers staking opportunities. GMX, the platform's utility and governance token, can be staked to earn rewards in the form of ETH or AVAX, depending on the network used, as well as escrowed GMX and multiplier points. The rewards come from platform fees and GMX supply. GLP, GMX's liquidity provider token, can also be staked on GMX to earn rewards, with 70% of the platform's generated fees and escrowed GMX rewards going to GLP stakers.

In 2023, GMX generated over $90 million in fees. This significant revenue generation is due to the unique fee structure of GMX and its ability to attract a large volume of trades. The high volume of trades, combined with the fees generated from each swap, has led to substantial revenue for the platform.

9.OpenSea

OpenSea is a leading marketplace for trading non-fungible tokens (NFTs), offering a platform for users to buy, sell, and trade digital assets. Founded in 2017 by Devin Finzer and Alex Atallah, OpenSea has grown to become a significant player in the NFT space, with a diverse range of assets available for trade.

OpenSea generates revenue primarily through service fees, which are applied to every transaction on the platform. For each transaction, OpenSea charges a 2.5% service fee. This means that for a transaction of $1000, OpenSea would generate a revenue of $25. In addition to this, OpenSea charges a one-time registration fee ranging between $70 and $300 to initialize a user's account. There are also contract approval fees for users who use OpenSea's custom NFT contract, which are paid for authorizing transactions.

To encourage more users to use the platform, OpenSea covers all Ethereum gas fees for all transactions on the platform. This is a significant advantage for users, as Ethereum gas fees can often be a significant cost when trading NFTs.

In 2023, OpenSea has generated over $90 million in fees. This substantial revenue generation is a testament to the platform's popularity and the high volume of transactions it facilitates. The unique fee structure and the decision to cover Ethereum gas fees have made OpenSea an attractive platform for NFT traders, contributing to its significant revenue generation.

10. PancakeSwap

PancakeSwap is a decentralized exchange built on the Binance Smart Chain. It allows users to swap between cryptocurrency assets by tapping into user-generated liquidity pools.

PancakeSwap V3 introduced non-fungible positions, giving liquidity providers more control over the price range in which they want to deploy their liquidity. When a user adds their token to a liquidity pool in V3, they create a new non-fungible liquidity position with its unique settings. These positions are represented as NFTs, which are transferable and represent the ownership of the underlying assets and the trading fees they have earned.

Trading fees on PancakeSwap V3 are not automatically compounded in the position. Instead, users can manually claim them on each of the position detail pages. The platform charges a fee ranging from 0.01% to 1% for each trade, depending on the liquidity pool fee tier. The fee breakdown is as follows:

• Liquidity Provider: 66% - 68%
• CAKE Burn: 10% - 23%
• Treasury: 9% - 24%

For example, in a 0.25% fee tier pool, among all the active (in-range) liquidity positions, if there are a total of 10 CAKE and 10 BNB tokens, and someone trades 1 CAKE for 1 BNB, then the liquidity providers who are in the range providing active liquidity would earn a total of 0.0017 CAKE and 0.0017 BNB from the trades.

In addition to earning trading fees, liquidity providers can also stake their liquidity positions in CAKE Farms to earn yield, while still earning trading fee rewards.

In 2023, PancakeSwap generated over $50 million in fees. This significant revenue generation is due to the unique fee structure of PancakeSwap and its ability to attract a large volume of trades. The high volume of trades, combined with the fees generated from each swap, has led to substantial revenue for the platform.

Final thoughts

It's clear that Real Yield represents a significant shift in the way investors can generate returns from their crypto assets. Rather than relying on token emissions or other less sustainable strategies, Real Yield offers a more reliable and sustainable yield model, akin to traditional stock dividends. The top 10 projects we've examined demonstrate the diverse ways in which platforms can generate fees and, consequently, Real Yield for their users. From transaction fees to staking rewards, these platforms have innovated various mechanisms to generate substantial revenue, contributing to their growth and the overall maturation of the crypto market.

In 2023, these platforms generated impressive revenues, ranging from $50 million to over $1 billion, underscoring the potential of Real Yield as a viable and profitable investment strategy. As the crypto and DeFi landscapes continue to evolve, we can expect Real Yield to play an increasingly important role in shaping sustainable and profitable investment strategies. In the end, the emergence of Real Yield signifies the maturing of the crypto market, moving away from unsustainable gimmicks towards models that can provide long-term, reliable returns for investors.