A Comparison of Key Indicators for 6 Major On-chain Derivative Protocols
Comparison of 6 Major On-chain Derivative Protocols
Author: Alphabeth Capital Analyst; Translation: Jordan, LianGuaiNews
The field of on-chain derivatives is the most competitive area in DeFi, with dozens of protocols already launched and many new projects about to be launched. This article will focus on analyzing the key indicators of 6 major on-chain derivatives protocols.
Although the raw data may indicate that a protocol seems to be a good investment, understanding the background is still very important, especially the protocol design and revenue sharing model.
(Note: The data in the table is as of July 24, 2023)
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GMX is a perpetual synthetic decentralized exchange, and its most well-known feature is zero-slippage trading. From indicators such as lock-up volume, trading volume, fees, and revenue, GMX should be the largest derivatives protocol in terms of scale. They share 70% of the fee revenue with liquidity providers and 30% with GMX stakers, making GMX very popular and attractive to investors. Its price-to-earnings ratio (revenue minus token incentives) is 31.16, which means GMX is “relatively expensive,” but investors may consider GMX v2 pricing. GMX V2, which will be launched in a few weeks, will have the following features:
Chainlink low-latency oracle provides better real-time market data
Support for more assets (not just cryptocurrencies)
Lower transaction fees
Slippage will coexist in GMX v1 and v2
With increasing competition, GMX’s market share is gradually decreasing. If v2 cannot bring more trading volume and fees to the platform, the fair price of GMX may fall into the $40 range, with a price-to-earnings ratio of approximately 20.
Synthetix allows users to mint synthetic assets based on its native token SNX. Other projects (such as Kwenta) can use Synthetix to build their own frontends to allow traders to access perpetual DEX trading. In terms of market capitalization and revenue, Synthetix is the largest among the six major derivatives protocols. They allocate 100% of the fee revenue to SNX token stakers, who are also liquidity providers themselves.
To incentivize liquidity provision, Synthetix rewards stakers by unlocking SNX tokens. Currently, SNX tokens worth over $100 million have been paid to stakers as incentives. However, the protocol only has $36 million in fee revenue and a negative price-to-earnings ratio, which means they are operating at a loss.
Based on the current valuation, fees, and token release amount, SNX seems to be a very expensive token. Without additional incentives, future trading volume may decline.
3. Gain Network
Gains Network is a comprehensive derivatives platform that allows for leveraged trading of cryptocurrencies, forex, and commodities. Currently, the platform shares about 33% of fee revenues with GNS token stakers and about 17% with liquidity providers. However, starting from September this year, the proportion of fee revenues shared with GNS token stakers will increase to 61%, which may enhance its valuation.
Gains Network has the lowest P/E ratio among six derivative protocols, at only 10, and a price/revenue ratio of 8.7. However, it has a relatively high trading volume/token lock ratio of 568, indicating that GNS may be an undervalued project based on key indicators, product development, and future updates.
4. Perpetual Protocol
Perpetual Protocol is built on top of the Uniswap v3 smart contract. Currently, about 80% of fee revenues are allocated to liquidity providers, and around 14% is allocated to PERP token stakers. Perpetual Protocol has an annual revenue of 1.4 million USD, while the value of unlocked tokens is 2.8 million USD, which means it has a negative annual return. Overall, Perpetual Protocol seems unattractive to investors and is difficult to compete with Kwenta (Synthetix) on Optimism.
5. Level Finance
Level Finance protocol received significant market attention in its early stages due to extensive trading incentives with LVL tokens. Currently, the protocol’s trading volume has been maintained at billions of dollars, but some key indicators are trending downward due to a decrease in token supply and price.
Considering that Level Finance has a design similar to GMX, a trading volume/token lock ratio of 1000 seems somewhat high (possibly due to artificial factors). It is worth noting that although Level Finance generates a large amount of fee revenue, the income is negative, meaning that the protocol distributes more tokens than it generates fees.
Level Finance allocates 45% of fee revenues to liquidity providers, 10% to LVL token stakers, and 10% to LGO stakers (note: LGO is the second token launched in the Level ecosystem and has governance and financial rights). Some key indicators of Level, such as trading volume, seem inflated due to early incentive stages, but the income is negative, making it an unattractive investment choice.
6. MUX Protocol
MUX Protocol is both a trading protocol and an aggregator that allocates 70% of fee revenues to liquidity providers who provide ETH and MUX token stakers. As MUX is deployed on various widely adopted ecosystems such as perpetual trading platforms, options platforms, and betting platforms, there are different types of protocol combinations. MUX Protocol has a relatively low market capitalization but performs well in terms of scalability and reliability, making MUX an “interesting” investment opportunity.
The competition for on-chain derivative protocols is becoming increasingly fierce. It is difficult to discover the most promising protocol and predict which protocol will succeed over time. This article is not financial advice.