Balancer's BAL Shows How Tokens Can Supercharge DeFi Protocols
Also, Ethereum user paid $5M+ in txs fees, record cover for Nexus Mutual.
Hello Defiers! Here’s what’s happening:
Balancer’s BAL shows tokens can supercharge growth —COMP is next
One Ethereum user paid $2.6M in fees on two separate transactions
Nexus Mutual cover spikes to a record high
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Balancer Growth Shows Tokens Are Steroids for DeFi
Balancer Labs’s so-called liquidity mining program is proving tokenized incentives can be huge drivers for growth. Metrics across the board for the new liquidity and asset management protocol spiked since the launch of the token-based incentives program.
Balancer’s liquidity mining started in May with the initiative to distribute BAL, the protocol’s native governance token, to liquidity providers. The mechanism distributes tokens pro-rata based on total liquidity provided. The kicker with the incentive design is that liquidity pools which elect to charge a lower trading fee, earn more BAL than a pool with identical liquidity and a higher trading fee.
Balancer launched three months ago promising substantial improvements over its main competitor Uniswap. Still, there was minimal daily volume —$63K on average— one to two months since it opened for trading.
On May 15, Balancer Labs proposed the initial framework for liquidity mining, in which liquidity providers would receive BAL tokens in return. But not much happened. Volumes and liquidity remained stagnant. The protocol wasn’t planning on distributing tokens retroactively for those who participated before its mainnet launch, so there was no incentive to add liquidity yet.
But less than two weeks later, Balancer’s liquidity mining went live on Ethereum mainnet. Almost immediately, the protocol’s total liquidity, trading volumes and liquidity provider revenues spiked.
Balancer’s daily volume surged to $1.23M from ~$129k on the day of launch. Since then, the protocol has averaged ~$708k in 24H volume over the past two weeks, a 670% increase compared to last month’s average. While this growth is a positive signal for the future of Balancer, it still pales in comparison to Uniswap where daily volumes are over $10M.
Naturally with the increase in volumes, Balancer’s liquidity provider (LP) revenues also reached all time highs as cumulative revenue went near-parabolic. Prior to launching the incentive program, daily revenues across all LPs averaged only $438. Post-liquidity mining and this number swelled by 3.6x to an average of $2,019 per day.
On an annualized basis, this results in an estimated $736k in earnings for Balancer liquidity providers over the course of the next year. Again, while this growth is impressive, Balancer still has some distance to go before competing with Uniswap where liquidity provider revenues are on track to earn 2x more at $1.6M this year as of writing.
After launching its native token, nearly every fundamental metric for Balancer went up as DeFi users flocked to the protocol. It’s become clear that tokenized incentives can put emerging protocols on steroids.
That’s not to say a token is necessary for driving growth. While Maker, Aave and others were already embedded with native tokens, Compound and Uniswap have successfully been able to bootstrap sizable networks sans token. All they provided was (really) good technology for the DeFi ecosystem.
COMP is Next
But the strategy is also effective for untokenized protocols. Compound, which is following a similar token distribution model as Balancer, is a perfect example. In the coming weeks, COMP tokens will be distributed to users who borrow or supply capital to the protocol. The incentive design will likely drive more usage to the protocol as new users flood Compound’s money markets with capital in an effort to get their hands on COMP - likely to speculate on their future value.
Compound’s token distribution is set to begin on June 15th. If history serves us well, we may see the new tokenized incentives act as a similar catalyst for growth.
The key difference? Compound has a head start with $100M in value locked and over $1.5B in cumulative deposits.
Ethereum User Paid $5M+ in Txs Fees in One Day
Someone spent a record 2.6M in gas fees to send money over the Ethereum network. And they did it twice in one day. The user ended up spending ~$5.2M to send $84.5k.
The owner of Ethereum address 0xcdd6a2b9dd3e386c8cd4a7ada5cab2f1c561182d first sent 0.55 ETH (~$132) at a transaction fee of $2.56M, and hours later sent 350 ETH (~$84k) at a transaction fee of $2.57M.
DeFi Protection on Nexus Mutual Surges to Record High
Nexus Mutual reached an all-time high in total cover amount on Wednesday. Total value in the blockchain-based insurance platform has more than doubled in the past 90 days to over $4M, according to Nexustracker.io. The largest covers so far are for $484k on Balancer Labs and $387k on Aave, Nexus Mutual tweeted.
Image source: Nexustracker.io
“Band Protocol 2.0 launched Wednesday with its mainnet oracle solution, BandChain, leveraging the Cosmos SDK, according to a release from the firm. The project’s revamp comes 10 months after listing as an initial exchange offering (IEO) on Binance Launchpad and a $3 million 2019 seed round led by Sequoia India,” CoinDesk reported.
Check out Dune Analytics’s updated DEX volume data.
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About the founder: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. (Pre-order The Infinite Machine here). I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.