DeFi Has Gained Momentum, But Can Their Tokens Reflect Similar Success?
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DeFi Has Gained Momentum, But Can Their Tokens Reflect Similar Success?

February 15, 2020      Shailesh Panwar

Over the past year, DeFi platform of Ethereum blockchain has enabled itself to grab notable attention. According to a recent announcement, it was revealed that total value locked in DeFi had reached beyond a sum of $1 billion, further solidifying the importance of the sector in the ecosystem.

Although the reception went positive and lending platforms growth has been undeniable, the case of investment for these DeFi tokens might presently lack clarity for many.

Ryan Sean Adams issued a recent study which evaluated various DeFi tokens concerning a price-to-earnings ratio of P/E, enabling investors to determine the expectations and future growth of any investment asset, associated with its existing earnings.

Synthetix Dominates The Ecosystem 

Most of the Defi tokens currently present in the ecosystem charges a low usage fee, and almost all DeFi tokens produced cash flows. Some of the significant tokens in opposition included Ox, MakerDAO and Synthetix etc.

Concerning annualized earnings of money protocol, Synthetix ruled the ecosystem as it generated fees having worth over $32 million. This happened because Synthetix has been charging a fixed 0.30 per cent of all trades and the fee made was divided amongst SNX stakers.

Although market capitalization of MakerDAO dominated, its DeFi token recorded just $6.7 million in annualized earnings via its stability fee. 

The post added,

“The Dai Saving Rate, which was started for Multi-Collateral Dai, utilizes the stability fees gathered from the outstanding debt of the system to distribute it to Dai owners who lock their Dai within the smart contract. With that, there is a spread among the Stability Fee and Dai Saving Rate, currently resting at 0.25% (8% Stability Fees and 7.5% Dai Saving Rate ).”

Other assets like Augur and Ox recording lower annualized earnings as they showed a negligible amount in fees.

Defi Tokens Needs More Improvement

Augur and Ox dominated the chart when the P/E ratios were compared. However, it remained crucial to realize that their market capitals were significantly lower, and they had spent a few less time then Synthetix and MakerDAO on the Ethereum mainnet. Therefore, these tokens needed to build a better token economic structure to gain protocol fees value.

When compared, MakerDAO maintained a decent 80 P/E ratio, which exceeded the low P/E returns of Synthetix. The common difference between their P/E ratios and annualized earnings revealed that these money protocols generated cash flows and mirrored properties of the traditional assets. Still, they were unlikely to generate monetary premiums as currently, rather than serving as store-of-value they were liable for providing support to the lending protocol.

The analysis of the P/E ratio proposed that DeFi tokens might have prospered in the industry, but when it came to cultivating notable cash flows, the tokens required lots of work to be done.


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Shailesh Panwar
Shailesh Panwar

Shailesh is an ardent follower of the crypto world and keenly watches every development taking place in the cryptocurrency space. He loves to voice his opinions through well-curated blogs and articles, which throw light on different facets of the crypto industry.