Original title: “Gold Rush in Shali: Looking for Long-term Investment Targets Through Bullbears”

Original authors: Alex Xu, Lawrence Lee, Mint Ventures

Introduction: In a copycat bear market, fundamental investment is still valid

There is no doubt that this bull market cycle is the worst performing round of altcoins.

Different from the historical rule that the prices of various altcoins have been active after the start of previous major bull markets, resulting in a rapid decline in BTC’s market share, since the market bottomed out in November 2022, BTC’s market share has continued to rise from around 38%. It is currently standing steadily above 61%. This is still against the background of the rapid expansion of the number of altcoins in this cycle. The weakness of the price of this round of altcoins can be seen.

BTC market share trend, source: Tradingview

The current round of the market has reached today, basically confirming the deduction made by Mint Ventures in the March 2024 article “Preparing for the Main Rise of the Bull Market: My Phased Thoughts on the Current Cycle”. In the original text, the author believes that:

Among the four major driving factors in this round of bull market, 3 are full and 1 are short:

·Halving of BTC (expectation of supply and demand adjustment), √

·Loose or loose expectations of monetary policy, √

·Loose regulatory policies, √

·Innovation in new asset models and business models, ×

Therefore, the price expectations for the last round of altcoins-including smart contract platforms (L1\L2), games, Depin, NFT, and Defi-should be lowered. Therefore, the recommended strategy for this round of bull market at that time was:

·Make a higher configuration ratio on BTC and ETH (and be more optimistic about BTC, with long-term BTC mainly)

·Control the allocation ratio on Altcoins such as Defi, Gamefi, Depin, and NFT

·Select new tracks and new projects to blog Alpha, including: Meme, AI and BTC Ecosystem

As of the publication of the article, the correctness of the above strategies has been basically verified (except for the unsatisfactory performance of the BTC ecosystem).

However, it is worth noting that despite the sluggish performance of most shanzhai projects in this round, there are still a few shanzhai projects whose price performance is significantly better than BTC and ETH in the past year. The most typical ones are the two projects Aave and Raydium mentioned in Mint Ventures ‘research report “Altcoins are falling, it’s time to pay attention to Defi again” published in early July 2024, when the shanzhai market was at its peak.

It was also since the beginning of July last year that Aave’s highest increase against BTC exceeded 215%, and its highest increase against ETH was 354%. Even after the current sharp decline in prices, Aave has increased by 77% relative to BTC and 251% relative to ETH.

Aave/BTC exchange rate trend, source: Tradingview

Since the beginning of July last year, Ray’s highest increase relative to BTC exceeded 200%, and its highest increase relative to ETH was 324%. However, due to the overall decline in Solana’s ecosystem and the major negative impact of Pump.fun’s self-developed Dex, Ray’s increase relative to BTC is still positive, and it also significantly outperformed ETH.

Ray/BTC exchange rate trend, source: Tradingview

Considering that BTC and ETH (especially BTC) have significantly outperformed most copycat projects this cycle, the price performance of Aave and Ray is even more outstanding among the copycat projects.

The reason for this is that compared with most copycat projects, Aave and Raydium have better fundamentals, which is reflected in the fact that their core business data has reached record highs in this cycle, and they have unique moats and market shares. Stable or rapid expansion.

Even in the “copycat bear market”, betting on projects with outstanding fundamentals can earn Alpha returns that exceed BTC and ETH. This is also the main purpose of our investment research work.

In this research report, Mint Ventures will identify high-quality projects with solid fundamentals from thousands of listed and circulated crypto projects, track their recent business performance and market share, analyze their competitive advantages, evaluate their challenges and potential risks, and provide some reference for its valuation.

What needs to be emphasized is:

·The projects mentioned in this article have advantages and attractions in some aspects, but they also have various problems and challenges. Different people may have completely different judgments on the same project after reading this article.

·Similarly, projects that have not been discussed in this article do not mean that they have “poor fundamentals” or “we are not optimistic”. Welcome to recommend projects and reasons you are optimistic about.

·This article is the phased thinking of the two authors as of publication. It may change in the future. The opinions are highly subjective, and there may also be errors in facts, data, and reasoning logic. All opinions in this article are not investment suggestions. Criticism and further discussion from colleagues and readers are welcome

We will analyze the project from several dimensions: the current business situation, competition situation, main challenges and risks, and the current valuation situation. The following is the main body.

I. Loan tracks: Aave, Morpho, Kamino, MakerDao

DeFi is still the largest track with the best PMF realization in the crypto business world, and lending is one of the most important sub-tracks. User needs are mature and business revenue is stable. This track gathers many high-quality new and old projects, They have their own advantages and disadvantages.

For lending projects, the most critical indicators are loan size (Active loans) and agreement revenue (Revenue). In addition, the agreement’s expenditure indicator-Token Incentives) must be evaluated.

1.1 Aave: King of Lending

Aave is one of the few projects whose business has developed steadily since gone through three rounds of encryption cycles. It completed financing through ICO in 2017 (the project was also called Lend at that time, and the model was point-to-point lending). In the last cycle, it surpassed Compound, the leading lending leader at that time, and its business volume has ranked among the top 1 lending levels so far. Aave currently provides services on most major EVMs L1 and L2.

business status

Aave’s main business model is to operate a point-to-pool lending platform, earning interest income from loans and liquidation penalties incurred when collateral is cleared. In addition, GHO, the stablecoin business operated by Aave, is also in its second year. GHO will generate direct interest income for Aave.

Loan size (Active loans)

Aave’s loan size, data source: Tokentemal

Aave’s loan scale has exceeded the previous round (November 2021) peak of 12.14 billion yuan since November last year. The current peak is at the end of January 2025, with a loan volume of 15.02 billion US dollars. Recently, as market transaction enthusiasm has cooled, the loan scale has also fallen back, currently about 11.4 billion US dollars.

Agreed revenue (Revenue)

Aave’s agreement revenue, data source: Tokentemal

Like the loan size, Aave’s agreement income has stabilized since November last year and exceeded its peak in October 2021. In most of the past three months, Aave’s weekly agreement income has been more than US$3 million (excluding interest income from GHO). However, as market popularity has dropped in the past two weeks and market interest rates have fallen, single-week agreement income has dropped back to US$2 million +.

Token Incentives

Aave token incentive spending, data source: Aave Analytics

Aave still has a huge scale of token incentives. The number of token incentives paid out per day is 822 Aave. Based on the market price of Aave of US$245, the corresponding value is approximately US$200,000. This higher incentive value stems from the sharp rise in Aave tokens in the past six months.

However, it should be noted that unlike most practices that directly stimulate business indicators through token incentives, Aave’s token incentives do not directly target the core behavior of users to deposit and borrow, but instead encourage deposit protection funds. Therefore, Aave’s deposit and debit business data is still generated based on organic demand.

However, in my opinion, Aave’s incentive scale in the vault is still too high, and the current incentive scale can be reduced by at least half. However, with a series of functions of Aave’s new economic model, especially the launch of the new insurance module Umbrella, Aave will no longer be used for incentives.

For the content of Aave’s new economic model, you can read the article “Opening repurchase dividends, upgrading the security module: An in-depth interpretation of Aave’s new economic model” published by Mint Ventures last year.

competition

In terms of loan scale (EVM chain), Aave’s market share has been relatively stable, ranking first in the market since June 2021. In the second half of 2023, its market share once fell below 50%, but it has resumed its upward trend since 24 years ago and is currently basically stable at around 65%.

Data source: Tokenomic

Aave’s competitive advantage

As of the author’s analysis of Aave in July last year, Aave’s core competitive advantages have not changed much, mainly from four aspects:

1. Continued accumulation of safety credit:Most new loan agreements will have security incidents within one year of being launched. Since Aave has been operating, there has not been a security incident at the smart contract level. The safety credit accumulated by a platform’s risk-free and smooth operation is often the top priority factor for Defi users when choosing a lending platform, especially for giant whale users with large funds. For example, Sun Yuchen is a long-term user of Aave.

2. Bilateral network effects:Like many Internet platforms, Defi lending is a typical two-sided market. Deposits and borrowing users are both ends of supply and demand. The unilateral growth in the scale of deposits and loans will stimulate the growth of business volume on the other side and make it more difficult for subsequent competitors to catch up. In addition, the more abundant the overall liquidity of the platform, the smoother the liquidity flows and flows of deposits and loans, and the easier it will be favored by users with large funds, who in turn stimulate the growth of the platform’s business.

3. Excellent DAO management level:The Aave protocol has fully implemented DAO-based management. Compared with the team-centered management model, DAO-based management has more adequate information disclosure and more adequate community discussion of important decisions. In addition, a number of professional institutions with high governance levels are active in the community of Aave DAO, including head VCs, university blockchain clubs, market makers, risk management service providers, third-party development teams, financial consulting teams, etc., with rich sources and diverse, and active governance participation. Judging from the operating results of the project, Aave, as a latecomer to point-to-pool lending services, has better balanced growth and security in product development and asset expansion, and has surpassed Big Brother Compound. In this process, the governance of the DAO plays a key role.

4. Multi-chain ecological occupancy:Aave is deployed on almost all EVMs L1\L2, and TVL is basically at the head position in each chain. In the V4 version under development by Aave, multi-chain liquidity will be connected in series and cross-chain liquidity. The advantages will be more obvious. Subsequently, Aave will expand to Aptos (the first non-EVM chain), Linea, and return to Sonic (former Fantom).

Main challenges and risks

Although Aave’s market share has been increasing steadily for more than a year, the development speed of new competitor Morpho cannot be underestimated.

Compared with Aave’s mortgage asset categories, various risk parameters, and oracle machines that are centrally managed by Aave Dao, Morpho follows a more open model:

It provides an open basic lending agreement that allows an independent lending market to be constructed without permission, and freely selects mortgage assets, risk parameters and oracle machines; in addition, it also introduces a vault (Vault, similar to a financial fund) built by a third professional third-party institution such as Gaunlet. Users directly deposit funds in the vault, and then the managed institution weighs the risks and determines which lending markets to lend funds to obtain income.

This open combination approach is more conducive to the Morpho ecosystem quickly entering those relatively new or niche lending markets. For example, the new stablecoin projects Usual and Resolv have built a lending market on Morpho, making it convenient for users to obtain project benefits or points through revolving loans.

For more information about Morpho, I will analyze it in detail later.

In addition to competition from the Ethereum ecosystem, Aave’s development is also affected by the competition between the Ethereum ecosystem and other high-performance L1s. If the ecosystem represented by Solana continues to corrode Ethereum’s territory, Aave, which has a heavy military force on the Ethereum ecosystem, will undoubtedly have its business ceiling restricted.

In addition, the highly cyclical nature of the crypto market will also directly affect Aave’s user needs. When the market enters a bear market cycle, the speculation and arbitrage space in the market shrinks rapidly, and Aave’s loan scale and agreement income will also drop significantly. This is also a common feature of various lending agreements and will not be repeated in the future.

valuation reference

From the perspective of vertical valuation reference, Aave’s current PS (ratio of fully outstanding market capitalization to negotiated revenue) is 28.23, which is in the median range of the past year. It is still a long way from the PS value of hundreds during the peak period of 21-23.

PS of mainstream lending agreements (based on FDV), data source: Tokentemal

In horizontal comparison, Aave’s PS indicator is much lower than Compound, Silo, Benqi and other agreements, and higher than Venus.

However, what needs to be considered is that Defi is similar to traditional financial companies. Its return multiple is extremely cyclical, often showing a situation where PS falls rapidly in bull markets, but the bear market is high.

1.2 Morpho: A rising star

Morpho started out as a revenue optimization agreement based on Compound and Aave. It was originally a project parasitic on the first two, but in 2024, it officially launched the unlicensed lending base agreement Morpho Blue, becoming a direct competitor to head lending projects such as Aave. After its launch, Morpho Blue’s business has grown rapidly and is favored by new projects and new assets. Morpho currently offers services on Ethereum and Base.

business status

Morpho owns multiple products, specifically including:

1.Morpho Optimizers

Morpho’s initial product aims to improve the capital efficiency of existing DeFi lending agreements such as Aave and Compound. Optimize the efficiency of fund use by depositing user funds on these platforms and earning basic income, while conducting point-to-point fund matching based on lending needs.

As the first generation product of Morpho, Morpho Optimizers has accumulated a large number of users and funds for it, allowing it to avoid a cold start from scratch after the subsequent launch of Morpho Blue. However, although Morpho Optimizers still has a lot of funds, the interest rate optimization brought by its matching function is so low that it can be ignored. This product is no longer the focus of Morpho’s development, and since December last year, it has been banned from making further funds. Deposits and lending.

Due to the extremely low matching rate, Optimizers currently optimizes interest rates by only 0.07%. Source: optimizers.morpho.org/

2. Morpho Blue (or Morpho for short)

Morpho Blue is a permissionless lending infrastructure that allows users to create custom lending markets. Users can freely select parameters such as mortgage assets, loan assets, liquidation ratios (LLTV), oracle machines and interest rate models to create an independent market. The protocol is designed to ensure that market creators can manage risks and benefits based on their own assessments without external governance intervention to meet different market needs.

After the launch of Morpho Blue, its rapid business growth quickly put pressure on lending leader Aave. Aave then launched a Merit incentive plan for users. In addition to rewards for users who use Aave according to the incentive rules, addresses that also use Morpho will face incentive cuts.

Before the launch of Morpho Blue, most segregated lending market projects focusing on niche and new assets were basically unsuccessful, such as Euler, Silo, etc. Most of the funds still occurred in Aave, Compound, and Spark that used mainstream blue-chip assets as collateral. Centrally managed lending platform.

But Morpho Blue has now basically followed this path, and its success comes from many aspects:

Have a long-term and good safety record. Before the launch of Morpho Blue, Morpho Optimizers also carried a large amount of money for a long time and never had a problem, which gave Defi users a good brand trust in Morpho.

It only makes the underlying agreement in the lending market, and opens up the supported assets, the design of asset parameters, the selection of oracle machines, and the management authority of financial funds. This brings the following benefits:

·Further opening up the market freedom for lending, allowing it to respond more quickly to the needs of the lending market. New treaty asset issuers will take the initiative to come to Morpho to build markets and provide leveraged services around their assets. Professional risk services institutions such as Gaunlet can launch Vaults that they evaluate and manage, and directly make profits through the vault’s performance fees, getting rid of the previous single model of charging for services provided to large lending agreements (Aave, Compound, Venus)

·Make it possible to further professional division of labor in lending services. Participants in each link perform their duties and fully compete in the free market based on Morpho Blue, enriching the range of products to choose from. More importantly, through “free outsourcing” in each link, eliminating the costs caused by the team’s own business, such as frequent agreement upgrades and Code Audit, and specialized risk service provider fees

3.MetaMorpho Vaults

MetaMorpho Vaults is an asset management tool designed to simplify the lending process, providing liquidity and revenue opportunities. Users can earn revenue by depositing assets in vaults managed by a professional team that are optimized based on unique risk allocation and strategies. At present, the main destination of funds attracted by various Vaults is various lending markets built on Morpho Blue.

Morpho’s product structure chart

After learning about Morpho’s products, let’s take a look at Morpho’s main business data.

Loan size (Active loans)

Morpho’s loan size, data source: Tokentemal

Morphp’s highest total loan size is similar to Aave, reaching $2.35 billion in late January and currently stands at $1.9 billion.

Morpho has not officially started agreement fees yet, so it has not generated agreement revenue yet. However, we can observe the amount of its Fee (the total income received by depositors from the agreement) and use this to calculate the agreement revenue that Morpho can earn if it turns on the agreement fee switch in the future.

Comparison of Morpho and Aave’s Fee, data source: Tokentemal

In February 2025, Aave generated a total of $67.12 million in fees, while Morpho generated $15.59 million.

In the same period in February 2025, Aave generated US$8.57 million in negotiated revenue from US$67.12 million in Fee, which means that its approximate expense Retention rate was 857/6712=12.8%(just a rough calculation).

Considering that Aave is a loan agreement operated by Aave Dao, while it bears various operating expenses of the agreement, all income from its loan market can go into the project treasury.

Morpho is a basic agreement that serves the lending market, and many third-party participants are also active on this basis, such as market creators, vault operators, etc. Therefore, even if Morpho turns on the protocol fee switch in the future, the rate of agreement revenue it can extract from the fees generated will definitely be significantly lower than that of Aave (because it needs to be shared with other service providers), I expect that the actual Morpho fee Retention rate should be 30%-50% based on Aave, that is, 12.812.8 * 0.3%*(30%-50%)= 3.84%-6.4%.

We take (3.84%~6.4%)*1559, and we can conclude that assuming Morpho opens the agreement fee, the agreement revenue it can obtain from the total fee of US$15.59 million created in February is roughly between US$598,700 and US$997,800, which is 7% to 11.6% of Aave’s agreement revenue.

Token Incentives

Morpho is also currently using its own token, Morpho, to provide incentives, but unlike Aave, Morpho directly encourages users ‘deposit and borrowing behavior, while Aave provides incentives for deposit insurance. As a result, Morpho’s core business data is not as organic as Aave.

Morpho’s token incentive board, source: rewards.morpho.org/

According to Morpho’s token incentive board, in the Ethereum market, Morpho’s current comprehensive subsidy rate for borrowing is approximately 0.2%, and the comprehensive subsidy rate for deposits is approximately 2%; in the Base market, Morpho’s current comprehensive subsidy rate for borrowing is approximately 0.29%, and the comprehensive subsidy rate for deposits is approximately 3%.

However, in terms of token incentives, Morpho has been making fine adjustments with a high frequency. Since December last year, the Morpho community has launched three proposals to continue to reduce the subsidy of Morpho tokens for users ‘deposit and borrowing.

The most recent Morpho incentive adjustment occurred on February 21, reducing the number of reward tokens that Morpho has on ETH and BASE by 25%. After the adjustment, Morpho’s annual incentive spending will become:

· Ethereum: 11,730,934.98 MORPHO/year

· Base: 3,185,016.06 MORPHO/year

Total: 14,915,951.04 MORPHO/year

Based on Moro’s market price today (2024.3.3), the corresponding annual incentive budget is US$31.92 million. In terms of Moro’s current agreement size and expenses incurred, this incentive amount seems quite large.

However, it is expected that Morpho will continue to reduce Morpho’s incentive spending in the future and eventually stop subsidies.

competition

Data source: Tokenomic

Judging from the market share of the total loan amount, Morpho accounted for 10.55%, slightly higher than Spark, but there is still a big gap from Aave. It is in the second tier of the lending market.

Morpho’s competitive advantage

Morpho’s moat mainly comes from the following two aspects:

1. Good safety history. The Morpho protocol was not born too late. It has been operating for nearly three years since its launch of revenue optimization product calculation. So far, no major protocol security incidents have occurred, and a good security reputation has been accumulated. Its increasingly large capital absorption data also confirms the trust of users in it.

2. Focus on basic loan agreements. The benefits of this approach have been analyzed above, which will help attract more participants into the ecosystem, provide richer and faster lending market options, improve the specialization of the division of labor, and reduce the operating costs of the agreement.

Main challenges and risks

In addition to facing competition from other lending agreements and the ecological impact of competition from L1 such as Ethereum and Solana, Morpho’s main challenge will face relatively large unlocking selling pressure in the coming year.

According to tokenomist data, Morpho’s new token unlocks in the next year will be equivalent to 98.43% of the total number of tokens currently in circulation, which means that the token inflation rate in the next year will be close to 100%, most of which will be attributed to early strategic investors, early contributors and Morpho Dao. This huge amount of token cashing may put greater pressure on the token price.

valuation reference

Although Morpho has not yet turned on the agreement fee switch, we have previously estimated its revenue after charging based on the agreement fee it created. Based on its agreement Fee in February, its estimated agreement revenue may be between US$598,700 and US$997,800.

Based on today’s (3.3) FDV of US$2,138,047,873 (Coingecko data) combined with the above revenue data, its PS is: 178 – 297. Compared with other mainstream lending agreements, the valuation level is significantly higher.

PS of mainstream lending agreements (based on FDV), data source: Tokentemal

However, if calculated based on the current market value, Morpho’s current market value (3.3) is US$481,361,461 (Coingecko data), and its PS is: 40.2 – 67, which is not too expensive compared with other loan agreements.

PS of mainstream lending agreements (based on MC), data source: Tokentemal

Of course, using FDV as a market value reference is a more conservative way to compare valuation.

1.3 Kamino: Solana’s number one player

Kamino Finance is a comprehensive DeFi protocol based on Solana. It was established in 2022. The product initially launched was an automated management tool for centralized liquidity. It currently integrates lending, liquidity, leverage and trading functions. However, lending is its core business, and most of the income from the agreement is also contributed by the lending business. Kamino has a wide variety of fees. The fees for the lending business include: a percentage of interest income, a one-time initial fee charged when borrowing, and clearing fees. The fees for the liquidity management business include: deposit fees, withdrawal fees and performance fees.

business status

Loan size (Active loans)

Main data indicators of Kamino, data source: risk.kamino.finance/

Kamino’s current loan size is US$1.27 billion, with the peak loan volume reaching US$1.538 billion, also occurring in late January this year.

Kamino’s borrowing scale trend, data source: allez.xyz/kamino

Agreed revenue (Revenue)

Total Kamino Agreement revenue, source: DefiLlama

January was the highest month for Kamino agreement revenue, reaching $3.99 million. However, the income in February was also good, at US$3.43 million.

The Kamino Agreement comes from income from borrowing, source: DefiLlama

Loans accounted for most of Kamino’s agreement income. In January, for example, agreement income from loans accounted for 89.5%.

Token Incentives

Unlike other loan agreements that directly use tokens to encourage users, Kamino adopts a new incentive method that appears in this cycle, namely the “season points system”. Users earn project points by completing officially designated incentive behaviors, wait until the end of the season, and then allocate the total amount of tokens awarded in each season based on the proportion of points.

Kamino’s points competition season event in the first quarter lasted for three months, with a total of 7.5% of the total number of tokens distributed as a Creation Airdrop. The second quarter points competition event also lasted for three months, with a total of 3.5% of the total number of tokens distributed.

Based on the current token price, the value of KMNO tokens, which account for 11% of the total amount of KMNO tokens sent out in the above two quarters, is US$105 million. The high token rewards are also the main driving force for Kamino’s rapid growth in business data in the past year.

Currently, Kamino’s third points season is still in progress. Unlike the past two points competitions, the third season started on August 1 last year and has not ended for more than 6 months. However, this has not delayed Kamino’s agreement. Growth, if the third quarter airdrop remains similar to the second quarter, the airdrop incentive value is expected to be between US$30 million and US$40 million.

It is worth noting that one of the main functions of Kamino’s token KMNO is to accelerate users ‘points acquisition during the season through pledge. This model increases users’ stickiness in product and token holding.

competition

On the Solana chain, loan agreements mainly include Kamino、Solend、MarginFi Wait.

· Kamino：Currently, it has a market share of 70% to 75%(based on loan size), and its market share in Solana is even stronger than Aave’s position in Ethereum.

· Solend：It led from 2022 to 2023, but growth will slow down in 2024 and its market share will fall to less than 20%.

· MarginFi：After the management crisis in April 2024, a large number of user assets were evacuated, and the project’s share fell to single digits.

Kamino’s total locked positions have ranked among the top two in Solana, second only to Jito, who focuses on pledges. The TVL part of its loan has also significantly surpassed its former rivals such as Solend and MarginFi.

Kamino’s competitive advantage

1. Rapid product iteration and good delivery capabilities:Kamino was founded in 2022 by members of the Hubble team and was initially positioned as the first centralized liquidity market-making optimizer on the Solana chain. This first-mover product allows Kamino to meet users ‘needs in centralized liquidity market-making and provide a liquidity vault solution that automates and optimizes revenue. On this basis, Kamino further expanded its product modules such as lending, leverage, and trading to form a full-stack DeFi product matrix. This kind of integrated Defi project that spans multiple scenarios is rare. Until now, the Kamino team is still trying new businesses.

2. Positive ecological integration capabilities:Kamino has been actively building a network of cooperation inside and outside the Solana ecosystem. A notable example is the integration with PayPal stablecoin-Kamino was the first Solana protocol to go online and support PYUSD lending and dominated the asset’s expansion. Another example is the cooperation with Solana pledge project Jito launch JitoSOL-related leveraged products, attracting a large number of SOL pledge users to enter the Kamino ecosystem. When Kamino Lend announced subsequent upgrades to V2 in 2024, it also planned to introduce new functions such as order book lending, support for real-world assets (RWA), and open modular interfaces for access by other protocols. These measures will further embed Kamino into the underlying financial infrastructure of the Solana ecosystem. The more other projects are built based on Kamino, the more new capital prefers to flow into Kamino, making it more difficult for competitors to shake its position.

3. Scale effects and network effects:There is an obvious “strong always strong” effect in the DeFi lending field, and Kamino’s rapid expansion in 2024 reflects this network effect. Higher TVL and liquidity mean that users are safer and have a lower slip point to borrow money on the platform, and it also enhances the confidence of large households to enter the market. Higher funding is itself a barrier to competition: funds tend to flow to the most liquid platforms, which in turn further increases the scale of the platform. Kamino enjoys positive feedback from this network effect through the liquidity and users accumulated first.

4. Good record in risk management:As of now, Kamino has not had a major security incident or large-scale liquidation of bad debts. In contrast, the turmoil in competing products such as MarginFi has pushed ecological users to Kamino.

Main challenges and risks

In addition to common risks faced by newer lending agreements such as contract security and asset parameter design, Kamino’s potential issues include:

Token economy, inflationary pressures and benefit distribution

Kamino’s points season model is slightly Ponzi. Similar to Ethena, if the value of subsequent airdrops of tokens falls short of expectations, it may lead to the loss of some users (of course, at the current scale, the purpose of the project has been achieved). In addition, according to Tokenomist data, KMNO will be unlocked in the next year. Based on the current tokens in circulation, the inflation rate will be as high as 170%. Finally, it seems that all of Kamino’s current agreement revenue has gone into the team’s pockets, not only not distributed to token holders, but not even into the treasury. The decentralized governance of the project has no sign of starting in the short term. This is normal in the early stages of project start-up. However, if the agreement revenue is not included in the treasury controlled by the project’s DAO, there is no transparent governance and financial planning, and it is all monopolized by the core team, the expected value of the agreement token may fall further.

Ecological development of Solana

Although the development of the Solana ecosystem in this cycle is significantly better than that of Ethereum, Solana currently has no track type with obvious PMF other than Meme. Defi is still the strength of the Ethereum series. Whether Solana can continue to expand its asset classes and capacity and introduce more funds in the future will be very important to Kamino’s ceiling.

valuation reference

Kamino’s 30-day agreement revenue, data source: allez.xyz/kamino/revenue

We used Kamino’s negotiated revenue in the past 30 days and its FDV as a benchmark to conduct a PS calculation of its FDV and MC market value (based on Coingeko market value data), and obtained:

FDV PS=34, MC PS=4.7, which is not high compared to other mainstream lending agreements.

1.4. MakerDAO: Old trees and new flowers?

MakerDAO is the earliest DeFi protocol on the Ethereum chain. It was created in 2015, ten years ago. With its first-mover advantage, its stablecoin DAI (including the upgraded USDS) has long been the largest decentralized stablecoin on the market.

In terms of business model, MakerDAO’s main income comes from the stability fee paid to generate the DAI and the difference between the DAI. This model is also very similar to the interest margin on the borrowing agreement: a fee is paid to borrow the DAI from the agreement; interest is earned by providing excess liquidity (sUSDS&sDAI) to the agreement.

Moreover, from the perspective of business processes, the process of depositing CDP (Collateralized Debt Position) type stablecoins such as DAI into ETH to obtain DAI is not much different from depositing ETH into AAVE and borrowing USDC. Therefore, in early DeFi analysis, many people also regarded CDP agreements such as MakerDAO as a type of loan agreement. And after the brand was upgraded to Sky, MakerDAO also independently issued a separate loan agreement, Spark. Therefore, we also regard MakerDAO as a loan agreement, and we will analyze it in this section.

business status

Loan size (Active loans)

For a stablecoin agreement, the most important indicator is its stablecoin size, and this concept also corresponds to the loan size of the loan agreement.

Source: Sky official website

MakerDAO’s borrowing scale is currently close to US$8 billion, which is still far from the previous cycle’s high of US$10.3 billion.

Spark’s loan size is about US$1.6 billion, which is higher than the old loan agreement Compound and slightly lower than the Mophro mentioned above.

Data source: Tokenomic

Agreed revenue (Revenue)

The concept of MakerDAO corresponding to the agreement revenue from a loan agreement should be the sum of the income from the agreement, minus the interest cost paid to sDAI and sUSDS. From the figure below, we can see that among the current agreement revenue of MakerDAO, stabilization fee income is US$421 million, accounting for the vast majority of its revenue. Other fees such as clearing fees and price stabilization module fees contribute very little to revenue.

MakerDAO’s historical income source: Sky’s official website

Among the stabilization fees, the DAI released through the agreement is expected to generate an annualized stabilization fee of US$140 million, and the DAI directly generated by the USDC will also receive an annualized stabilization fee of US$125 million. These two parts account for 2/3 of the stabilization fee. The rest of the stabilization fee comes from the DAI generated by RWA (US$71.83 million) and the DAI generated by mortgage of crypto assets (US$78.61 million).

MakerDAO’s liability composition and annual income source: sky official website

In order to incentivize stabilization fees of these sizes, MakerDAO expects to pay a saving expense of US$246 million a year. Subjecting the two, MakerDAO’s annual agreement revenue is approximately US$175 million, with an average weekly agreement revenue of US$3.36 million.

Of course, MakerDAO also announced their agreed operating expenses, which reached US$96.6 million for one year of the agreement. After deducting operating expenses from the agreement income, a “net profit” of approximately US$78.4 million can be obtained, which is also the main source of repurchase funds for MKR and SKY.

Token Incentives

One of the reasons why MakerDAO had previously upgraded its brand was that it no longer had excess MKR reserves to encourage new business. Currently, MakerDAO’s token incentives are mainly used to stimulate USDS deposits. In the five months since the incentive plan was launched at the end of September 2024, a total of 274 million SKY incentives have been released, or approximately US$17.4 million, an annualized amount. The incentive amount is about US$42 million.

Source: Sky official website

competition

Currently, MakerDAO’s stablecoin market share is 4.57%. Stable coins are one of the tracks with the clearest demand for cryptocurrencies. As an old stable coin, MakerDAO has formed a certain moat, including brand effect and first-mover advantage. This was demonstrated in the previous round of Curve liquidity competition. Obviously, DAI, one of the 3CRVs, can obtain a large number of incentives released by other stable coin projects to establish popularity without any operation.

However, in the competition at the stablecoin track, MakerDAO’s situation is not optimistic. We can also see from the market share in the figure below that MakerDAO’s market share (pink block) did not increase but declined during this cycle.

Market share of the top ten stablecoins Source: Tokentemal

The author believes that the core factor causing this phenomenon is that DAI, the third largest stablecoin, has lost (or never really had) its function as a settlement tool. At present, users hold USDT and hold DAI for completely different purposes: holding USDT is mainly used as a settlement tool, while the purpose of holding DAI is to increase leverage and gain income. From this perspective, Except that both anchor the US dollar, they do not seem to have much in common.

Stable coins with settlement functions have good network effects. Unfortunately, DAI no longer has the function of settlement functions, making it difficult to form network effects.

Reflected in the issuance scale, the market share of DAI has gradually declined. DAI has not yet returned to its highest issuance scale in 2021, while the issuance scale of USDT has continued to rise, and has now doubled compared with the end of 21.

The ceiling of stablecoins as mere income instruments is limited. Scale growth depends on the continued stimulation of income and relies on many external conditions (such as relatively high U.S. Treasury interest rates). How to form long-term organic growth is the key to whether MakerDAO can make new flowers in the old trees of the stablecoin market.

Main challenges and risks

In addition to the challenges we have analyzed above, MakerDAO faces, there is competition from newcomers.

Ethena, a new player in stablecoins, is developing rapidly. It has been launched less than a year ago, and its current market size has reached 60% of MakerDAO. Ethena, whose core product also focuses on income-based stablecoins, has a major advantage over MakerDAO, that is, its income base-“cryptocurrency perpetual contract arbitrage yield” is much higher than MakerDAO’s “national debt RWA yield”. In the medium and long term, if treasury bond interest rates continue to decline, USDE will reflect DAI’s greater competitive advantage.

In addition, the governance capabilities demonstrated by MakerDAO are also worrying. The MakerDAO team, which spends US$97 million a year, has very inefficient and opaque governance results. The most typical example is that after upgrading the MakerDAO brand to SKY, it is rediscussing changing the brand back to Maker. The whole process is like a child’s play.

valuation reference

Based on negotiated revenue of US$175 million, MKR’s current PS is approximately 7.54, which is still relatively cheap compared to its main competitor Ethena (22). Historically, MKR’s PS has also been low.

Source of PS for stablecoin projects other than MakerDAO: Tokentemal

2: Liquidity pledge tracks Lido and Jito

Liquidity pledge is one of the tracks where encryption is native. Compared with native pledge, liquidity pledge provides better liquidity and composability, so it has solid demand and plays a decisive role in the ecosystem of the PoS chain. role. At present, the largest TVL agreements on the two most important PoS chains, Ethereum and Solana, are liquidity pledge agreements. These two agreements are also the two agreements we will introduce next-Lido and Jito.

For liquidity pledge projects, the most critical indicator for evaluation is the size of assets staked (for liquidity pledge projects, the value is consistent with TVL). Since there are also third parties other than users in its operating model-node operators, and the agreement revenue they collect needs to be distributed to the node operators, Gross Profit may be more suitable for evaluating liquidity pledge agreements than agreement revenue. In addition, token incentives, the spending indicator of the agreement, should also be evaluated.

2.1 Lido: Be careful at Ethereum

business status

Lido’s business was launched at the end of 2020 with the opening of ETH pledge. Lido spent half a year occupying the leading position in Ethereum network liquidity pledge. Lido was previously the largest liquidity pledge service provider in Luna Network and the second largest in Solana Network. Its business expanded to almost all mainstream PoS networks. However, starting in 2023, Lido began to contract its strategy. Currently, ETH’s mobile pledge is Lido’s only business. Its business model is relatively simple. Lido puts the ETH pledged by users into the pledge of Ethereum through different node operators, and collects 10% of the pledge proceeds as agreement income.

Size of pledged assets (Assets staked)

Currently, more than 9.4 million ETH items have been deposited in Lido, accounting for about 8% of the ETH in circulation. This also makes Lido have a pledged asset size (TVL) of more than US$20 billion, making it the largest TVL among all current agreements. At its peak, Lido’s TVL was close to $40 billion.

Data source: Tokenomic

The fluctuations in the size of pledged assets calculated in terms of ETH are much smaller. Since 2024, the overall ETH scale pledged by Lido has not changed much, and the fluctuations in the size of Lido’s pledged assets are more due to fluctuations in ETH prices.

Size of Lido pledged assets calculated based on ETH Source: DeFillama

The scale of Lido’s pledged assets continues to grow, mainly due to the gradual increase in the Ethereum network pledge rate (from 0 to 27%). As a leading liquidity pledge service provider, Lido has enjoyed the dividends of the overall market size growth.

Gross profit (Gross Profit)

Lido extracts 10% of the pledge proceeds as protocol revenue. Currently, 50% of the protocol revenue is distributed to node operators, and 50% belongs to DAO, which means 5% is gross profit. From the figure below, we can see that the gross profit of the Lido Agreement has generally increased steadily. In the past more than a year, the gross profit of the Lido Agreement in a single week has fluctuated between US$750,000 and US$1.5 million.

Data source: Tokenomic

It can be seen that Lido’s agreement income is strongly related to the size of pledged assets, which is determined by their charging structure. The change in Lido’s weekly agreed income is mainly due to fluctuations in ETH prices.

Token Incentives

Lido was in the first two years (2021-2022), it spent a huge amount of LDO token incentives to stimulate the liquidity of its stETH and ETH, and spent a total of more than US$200 million in token incentives in two years, which also enabled Lido to In May 2021, China banned BTC mining, ETH’s liquidity was still guaranteed in severe market liquidity crises such as the LUNA crash in May 2022 and the FTX crash in November 2022, and it gained the current leading position in Ethereum network liquidity pledge.

Since then, Lido’s spending on token incentives has dropped sharply, with spending less than US$10 million on currency incentives in the recent 1st century. And the main destination of token incentives is the direction of the ecosystem. Lido requires little token incentives to maintain its current market share.

Data source: Tokenomic

competition

Among the liquidity pledge projects of the Ethereum network, few projects can compete with Lido. The current second-ranked liquidity pledge project RocketPool has pledged assets less than 10% of Lido’s.

Among the newer projects, the one that poses certain competitive pressure on Lido is the Liquid Restaking project ether.fi. However, the current pledged assets of ether.fi are only close to 20% of Lido’s. With the issuance of coins by Eigenlayer, the growth rate of ether.fi’s pledged assets has also slowed down rapidly, making it unlikely that Lido’s position in Ethereum pledge.

Source: Dune

In the long-term development process, Lido has formed a certain moat:

stETH（wstETH）Network effects caused by good liquidity and composability.

In addition to the liquidity advantages mentioned above, stETH is accepted as a pledged asset by all head loans or stablecoin agreements. It has unparalleled combinability advantages in LST, which will influence the choices of new pledgers to a certain extent.

Safety credit accumulation and brand awareness:Since Lido was launched, there have been no major security flaws. Coupled with its long-term market leading position, it has also become an important consideration for Giant Whale users and institutions when choosing pledge service providers. For example, Sun Yuchen and Mantle, who used Lido before developing mETH, are typical representatives of services.

Main challenges and risks

The main challenges Lido currently faces come fromEthereum network decentralization needs.

For the PoS chain, the pledgers determine the formation of consensus, and the Ethereum ecosystem currently has the most persistent pursuit of decentralization in the mainstream PoS public chain, so it inevitably seems a bit “harsh” on the issue of Lido’s scale: When Lido’s pledged assets reached 30% of the Ethereum network pledge scale, there were constant voices to limit Lido’s scale growth. The Ethereum Foundation is also constantly adjusting its pledge mechanism to prevent the emergence of “too large a single pledge entity.”

For dapp, its only public chain that develops its business does not support or even restricts the development of its business, which is Lido’s biggest challenge in the medium and long term. Although Lido has long realized this and started cutting off all other chain businesses in 23 years, making it an important work goal with Ethereum, the results are not obvious at present.

On the other hand, although the current pledge rate of ETH is less than 30%(28%), there is still a big gap compared with other PoS chains with the highest market value, Solana (65%), ADA(60%), and SUI (77%). However, the Ethereum team has never wanted too much ETH to be pledged and once mentioned limiting the pledge rate to a maximum of 30%, which also makes Lido’s incremental space in the future market appear relatively limited.

In addition, ETH itself performed poorly in this cycle. Lido, as a project that is strongly related to ETH prices in terms of concept and business data, naturally struggled in this cycle.

valuation reference

In the past year, the PS of LDO has been at a historically low range, especially in the past six months, where its PS has been below 20.

It is also worth pointing out that within this year, there is the possibility of agreement revenue turning into $LDO revenue. Starting from 2024, the community has repeatedly proposed to allocate the agreement revenue (5% of the DAO) to $LDO holders. However, the core team has clearly opposed it from a prudent perspective, and many governance process votes have not been passed. However, with the significant easing of the regulatory environment and the agreement officially generating “profits” in the accounting sense from 2024 (the agreement income after deducting all expenses including team salaries will still have a surplus), the core team will also formally discuss “directly linking the agreement income to the LDO” in 2025. In 2025, we are expected to see $LDO begin to obtain pledge income from the agreement.

Lido Agreement Economy (the blue-purple dotted line in the figure is the agreement’s “net profit”) Source: Dune

2.2 Jito: Making a fortune in Solana

business status

Jito is Solana Networks ‘leading liquidity pledge service provider and Solana Networks’ MEV infrastructure, and they will also start providing retaking services in 2024. However, the current scale of Retaking is still relatively small, with TVL just exceeding US$100 million, and the source of revenue for Retaking is unclear. Jito’s main businesses are still the first two: liquidity pledge services and MEV service providers.

Jito’s liquidity pledge service on Solana is similar to Lido’s on the Ethereum network. The SOL deposited by the user participates in Solana’s pledge through the node operator, and extracts 10% of the user’s revenue as agreement revenue.

In terms of MEV, the Jito labs team previously extracted 5% of all revenue. However, after the launch of NCN (Node Consensus Networks) at the end of January this year and the official launch of JIP-8 and other proposals, the Jito agreement began to collect 3% of MEV revenue. The specific divisions are as follows: Jito DAO received 2.7%, pledge JTO Vault received 0.15%, and jitoSOL and other LST pledgers received 0.15%.

When users transact in Solana, the gas fee they pay can be divided into three categories: base fees, priority fees, and mev tips. Among them, the basic fee must be paid, and the priority fee and mev tip are optional. The main purpose is to increase the priority of the transaction. The difference is that the purpose of the priority fee is to increase the priority of the transaction in the uplink stage. It is a unified setting at the Solana protocol layer and belongs to the verifier (i.e. the pledger); The MEV tip is a separate agreement between the user and the MEV service provider. The purpose is to obtain a higher transaction priority from the MEV service provider so that its transaction can be preferentially constructed (before it can be linked). The specific allocation is up to the MEV service provider. Decide at its own discretion.

Currently, Jito’s MEV service returns 94% of the fees charged to the verifier, 3% is extracted from Jito labs, and 3% is allocated to Jito protocol. In the previous solana network’s gas fee, the basic fee was relatively small and negligible, and the priority fee and MEV tip were of the same size.

Solana Network’s REV (i.e. all fees paid by users) Source: Blockworks

Compared with Lido’s situation in Ethereum, Jito can obtain more value from MEV revenue because the MEV in the Solana Ecosystem has a near-monopoly say (Jito MEV’s position in the Solana Ecosystem is similar to the Flashbots in the Ethereum Ecosystem).

Next, let’s take a look at Jito’s specific data:

Size of pledged assets (Assets staked)

At present, Jito’s pledged assets (liquid pledge) exceeds US$2.5 billion

Data source: Tokenomic

Calculated in terms of SOL, Jito’s pledged SOL is 15.82 million, accounting for about 3% of the total SOL circulation. In the past year, the pledged SOL has shown a steady trend of linear increase.

Source: Jito official website

In the MEV field, Jito has a near monopoly position in Solana. More than 94% of the 394 million SOLs currently pledged use Jito’s MEV services.

Source: Jito official website

Gross profit (Gross Profit)

Jito’s current agreement income has two components. They charge 10% of the income generated by liquidity pledges and 3% of the income generated by MEV. At present, Jito distributes 4% of its liquidity pledge income to node operators, so the gross profit of its liquidity pledge part is 60% of revenue. Since the author has not found a separate data source for calculating Jito’s gross profit, we use Jito’s income to analyze, as shown in the following figure:

Data source: Tokenomic

It can be seen that Jito’s income is completely related to Solana’s Internet popularity. Since October 2024, its income has increased by orders of magnitude compared with before. Its weekly income exceeds 1 million US dollars, and this part of income has two significant highs: On November 20 and January 20, Jito’s negotiated income during the week was as high as US$4 million and US$5.4 million respectively, corresponding to two major speculative crazes in the chain. However, Solana’s revenue has also dropped rapidly after the recent chill in the chain.

As for the part about MEV, it may be because the mev revenue share has just been launched. The author has not found statistics on this part on the current mainstream data statistics websites and Dune, but we can make a conversion based on the total revenue of Jiwww.gushiio.comV.

The following figure shows Jito’s total MEV revenue:

Jito’s total MEV revenue source: Jito’s official website

Jito’s total MEV income is consistent with the income trend of Jito’s liquidity pledge part. At its peak on January 20 this year, the total MEV income was 100,000 SOLs. After October 2024, the average daily MEV income will be around 30,000 SOLs, and the lowest value is also 10,000 SOLs.

We measured the revenue back and forth during this period based on an agreed revenue rate of 3%. The highest single-day revenue was 3000 SOLs, which was approximately US$840,000 based on the price at the time. The highest weekly revenue was 14400 SOLs, approximately 3.7 million U. The average daily MEV revenue was 1000 SOLs (About 170,000 U. A detailed forecast of this revenue was once forecast in the JIP-8 proposal and interested readers can read it themselves).

Overall, in addition to the current liquidity pledge income, income from MEV can roughly increase Jito’s income by another 50%;

Judging from the scale of gross profit, the average gross profit of the income from the liquidity pledge is about US$600,000 per week, while the gross profit of MEV income is as high as 95%(Only 0.15% allocated to jitoSOL is not counted as gross profit, and the part entered into DAO and JTO Vault can be counted as gross profit.) The corresponding gross profit is about US$1 million per week, which can increase Jito’s gross profit by about 150%, and the annualized gross profit is about US$85 million.

It should be pointed out that Jito’s revenue and gross profit are strongly related to the popularity of Solana’s network. After the recent Solana network meme trading boom subsided, its single-day revenue dropped to around 10% of its peak, and the data fluctuated greatly.

Token Incentives

Whether it is a liquidity pledge or a MEV, Jito has no token incentives for its business. The only thing that can be counted as a token incentive is a 10% one-time token airdrop when it is launched.

competition

Retaking has not yet produced real PMF, so we will mainly analyze Jito’s competition in terms of liquidity pledges and MEV.

In Solana’s liquidity pledge market, business will only be officially launched in 2023, but it has been in a leading position since then. The previous leaders Marinade and Lido once accounted for more than 90% of the entire Solana liquidity pledge market, but they were overtaken by Jito for their own reasons.

Solana liquidity pledge market share Source: Dune

Starting from the end of 2023, Solana’s liquidity pledge market has welcomed more players. More and more players such as Blazestake and Jupiter have joined the battlefield one after another, but Jito’s market share has not been affected. However, starting from October 2024, the exchange’s SOL liquidity pledge products (mainly Binance’s bnSOL, but also Bybit’s bbSOL) have caused Jito’s market share to decline. This is mainly due to the centralized exchange’s natural advantage of hosting assets. They have changed SOL wealth management products from original native pledges to liquidity pledges, providing users with a better experience, so their share has increased rapidly. We can also see from Figure 1 above that the incremental parts from bnSOL and bbSOL are relatively “independent” and do not encroach on the shares of certain LST protocols.

At present, more than 90% of Solana’s pledges are native pledges, and there is only a liquidity pledge rate of less than 10%. Compared with Ethereum’s about 38%. Of course, for ordinary users, it is much easier to participate in Solana’s native pledge than in Ethereum’s native pledge. The proportion of Solana’s liquidity pledge may not eventually reach the proportion of Ethereum, but liquidity pledge still brings Relatively better liquidity and composability. In the future, Jito will still benefit from the increase in the overall size of Solana’s liquidity pledge.

Solana pledge market share Source: Dune

In the MEV field, Jito, which accounts for more than 90% of the market, has few competitors. This part of the market space mainly depends on Solana’s future chain activity.

Overall, Jito has a relatively solid lead in the Solana Network’s liquidity pledge and MEV fields. Previously, when the SEC’s ETP working group consulted on ETF pledge issues, Jito was invited, which also shows this.

Main challenges and risks

Jito’s current business and revenue are highly dependent on the popularity of Solana’s network, so the main risks Jito faces also come from this. After TRUMP and LIBRA, the market’s enthusiasm for Meme quickly cooled, the price of SOL also fell rapidly, and Jito’s business income also decreased rapidly. Whether Jito’s business can regain its momentum in the future will mainly depend on the popularity of Solana’s network.

In the liquidity pledge space, competition from centralized exchanges may affect Jito’s market share.

From an investment perspective, another possible risk is that the circulation ratio of JTO tokens is only less than 40%. A large proportion of 15% was unlocked in December last year, and it will continue to be unlocked linearly in the next two years. In the next one year, the inflation rate reached 62%, and selling pressure from early investors is also a potential risk factor.

Source: Tokennomist

valuation reference

With the recent popularity of Solana, JTO’s full-circulation PS valuation has dropped rapidly, and has now dropped to around 33. This valuation has not taken into account the recent MEV revenue. If MEV revenue is taken into account, JTO’s full-circulation valuation will be reduced to around 22.

Data source: Tokenomic

In addition, JTO may also accelerate the dividend of income. Of the MEV income collected under the agreement, 0.15% has been allocated to JTO pledgers. In the future, as revenue continues to grow, more income may be allocated to JTO pledgers.

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