There are a wide variety of decentralized (DeFi) protocols in the cryptocurrency market and it is important to pick the one which can help you generate a lot of money or a substantial amount even on a passive basis. You need to check out and understand how much each platform is raising every year and how much of it is shared among the users.
Working Of DeFi Protocols
The services offered by DeFi protocols are mainly dependent on smart contracts. Some of the services include loans and liquidity pools. Other services include money markets, derivatives as well and saving products in the DeFi.
How Do DeFi Protocols Raise Revenue?
To determine the amount of transaction costs in the Defi sector, we need to know the total amount of computing power that controls the smart contracts. The amount is usually paid in the form of gas fees. The investors are also required to pay money that caters to maintenance and development. The main intention of this is to generate revenue and make profits.
Using Decentralized Exchanges (DEXs)
The investors incur transaction costs when exchanging tokens on a DEX. According to an example from the academy. binance, the trader may have to pay a 0.3% fee for the DEX operator’s liquidity stores and treasury as well.
Using Lending Protocols
If an investor is interested in borrowing from a lending protocol, they will have to pay a borrowing fee. The amount paid is distributed to the protocol while the rest goes to the provider of the liquidity.
The Significance Of Generating Revenue
- Revenue is crucial in maintaining the standards of the DeFi protocol.
- The profits or the gains made can be important to the investors who stake.
- The protocol may also use their revenues to add APRs for investors who stake their assets.
- DEXs can reel in more investors and enhance liquidity in the end.
- DEXs that generate higher income can also increase the APY for gain collectors if they take advantage of joining the funds that have been waged for “bribes” as validators.
The revenue-generating process consists of the following:
- The more popular projects reel in a lot of liquidity and this leads to more users flocking to the protocol.
- An increased amount of trading traffic and liquidity lead to reduced slipping and more rapid executions.
- As the number of users increases, so does the trading volume.
- The investors who stake their tokens share the revenue and this leads to higher levels of liquidity.
Investors who are interested in putting their money to work can earn compound interest. As the project continues to progress, more returns are made and the more yield farmers will flock to the site.
Checking How Much DeFi Protocols Generate
Information regarding the DeFi protocols can be validated depending on the blockchain used to record. There are a variety of blockchain data collectors that can show you the statistics. Google Search can show you the metrics and the statistics on the revenue earned.
Understanding how DeFi protocols work is one step to selecting the most valuable one when it comes to generating revenue. Wise investments are made using this information.