https://tafc.substack.com/p/comparing-the-profitability-of-dexs

The recent bear market has brought with it greater scrutiny over the tokenomics of various projects. The narrative has largely shifted from the pursuit of reflexive mechanisms, which work wonders during bull markets, to sustainable profit, which instead enables projects to endure through times of waning retail interest. Yet it is rare to see projects directly compared based on their profitability, and unfortunately there are few if any resources designed specifically for this purpose.

I have therefore undertaken the following research to compare major Ethereum and Solana DEXs (with a focus on the latter) based on their profitability. Profit will be defined as:

Profit = Revenue (protocol fees) - Expenses (liquidity mining)

In reality, projects may have expenses other than liquidity mining (e.g. team salaries, marketing, etc.) as well, but these numbers are usually not openly published. Finding the protocol fees and liquidity mining figures for each project was difficult enough; this involved joining their respective Discord servers and asking questions, sometimes persistently. Further, not all protocols share profits with their token holders and some protocols require you to lock tokens to receive your share. We have thus defined profit as we have in order to bypass these differences and compare protocols on a normalized basis.

The questions we would like to answer are:

1. Is the protocol making more money than it is paying out (protocol fees > liquidity mining)? This helps us evaluate whether the protocol’s current strategy is sustainable.
2. At what token price would the protocol be breakeven (profit = 0)? This provides us with one method of estimating the “fair value” of a token.
3. How much would token holders receive if they were paid a proportional share of the protocol’s profit (APR of profit on market cap)? This gauges the desirability of holding tokens assuming all revenue was distributed to holders.
4. How much profit is the protocol able to generate using its TVL (APR of profit on TVL)? This gives us an idea of how efficiently the protocol is able to utilize its deposited assets.

Before discussing projects individually, let’s look at the overall results.

The highlighted columns at the right provide the answers to the questions posed above.

Daily Profit is simply revenue minus emissions.

Breakeven Token Price is the price at which daily profit would equal 0, and Breakeven Price Change the % change in the token price to arrive at that price. This is interesting to think about but is not meant to be prescriptive; the figures should not be interpreted as what the tokens “should” be worth. It is simply one way of quantifying the difference between what a protocol is earning and how much value it is emitting through LM. (Note: it cannot be applied to projects without any LM.)

APR of Profit on Market Cap & TVL are calculated by treating the daily profit as yield generated on the market cap & TVL and converting it into an APR.

Although uninteresting from a data perspective, I feel obliged to include Uniswap since it generates the most volume among all DEXs.