Rapture #196: The Rise of DeFi Revenue Splits

Rapture #196: The Rise of DeFi Revenue Splits

While the crypto market overall has been in a serious slump, DeFi tokens in particular have been decimated. DPI, an index product that roughly tracks a compilation of the top DeFi projects, has drawn down nearly 80% from its all time high a year ago.

All of the major DeFi projects, from UniSwap to Aave to Compound to MakerDAO, have seen their tokens dramatically underperform BTC in the past year. With a worsening market environment, more downside still might be on the horizon.

So, what can DeFi projects do to change the tide?

Yesterday, Ribbon Finance, a DeFi protocol focused on creating markets for covered calls/puts, announced that their protocol revenue split is now live. Allowing users to participate in a protocols revenue generation could be a catalyst if adopted sector wide to reignite investor interest in DeFi tokens. While SushiSwap with xSushi popularized the modal of users locking their tokens in order to earn revenue fees, most major DeFi projects failed to adopt the modal.

Ribbon's shift to this modal could be indicative of trend shift within DeFi. Of course, enabling users to earn the revenue generated from the protocol increasingly looks like a dividend, meaning that the token could have a higher chance of being viewed as a security by the SEC. Still, many DeFi projects are worried about the long-term survival of their token, and thus Ribbon's move might cause a shift to this modal if it proves to lead to reignited interest in RBN, a token I am considering buying for the next bull market.

How the revenue split works

Currently, Ribbon charges a 10% performance fee and a 2% management fee on the platform. This fees comprise the revenue Ribbon generates.

With the launch veRBN, which is just locked RBN, holders of veRBN will now receive 50% of the revenue generated on the protocol. Currently, the revenue generated gives holders of veRBN on average an APY of 65.8%, which is definitely material. This revenue will be distributed on a weekly basis to veRBN holders on a weekly basis every Friday. The APY changes based on how long a user has locked up their RBN, which is inspired by the veCRV modal.

Note that this APY does not include gauge emissions boosts, gauge voting, and bribing income. Gauge emissions boosts and gauge voting come from voting on enabling liquidity mining rewards to be directed to certain RBN vaults, which is where they deploy their covered call/put strategies. The more veRBN one holds, the more likely they can influence the vote to route the yield farming rewards to the vaults one participates in. You can read more about the details here.

Furthermore, veRBN holders can accept bribes from others to influence the vote for which vaults the yield farming rewards should be distributed to, which would also increases the holders earn rate.

In this way, users who lock up their RBN for long periods of time can earn more RBN based APY over time.

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