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DeFi Key Metrics: Moving from TVL to "protocol Control value"

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Interpretation of DeFi development paradigm shift.

Current DeFi Paradigm Shift: From TVL to PCV

Original author: Star Soul

A while ago & have spent OlympusDAO The development of "DeFi 2.0" has shocked many, and others have used DeFi 2.0 to label this wave of DeFi projects. This time through the trial Mirror opportunity, combined with their own observation of DeFi, casually say some of their own views.

When DeFi started, TVL was a very important metric. TVL's leaderboards are also an important way to compare projects horizontally. Although different types of projects have different risks and Capital Efficiency, these can be more or less reflected in TVL.

Under certain conditions, it can be said that TVL is driven by APY (after all, capital pursues profit), and the higher APY is, the easier TVL will rise. We'll see a positive and negative cycle in TVL for an item. A positive cycle means that as the currency price rises, APY rises and TVL rises until it reaches an industry benchmark. With the increase of excavated assets, the selling pressure increases, and it may enter a negative cycle at a certain point. There are many other variables along the way that can be used to judge the status of the project.

However, as time passes, DeFi has entered its second year of rapid growth, if marked by Comp's start of liquidity mining. TVL plus the dimension of time, what happens?

Let's ask a question:

Suppose there are two projects, project A lasts one year at the TVL level of 1 billion, and project B lasts only 10 days on TVL. Can the two projects be the same?

The answer is different, but at a certain point in time, there is no difference in TVL.

TVL is obviously not enough. To some extent, this means that we need a new metric to measure the status of a project.

So let's ask the second question:

TVL + Time, what precipitates?

Liquidity enters the agreement and works in a predetermined way, generating revenue for the agreement and users. Users take their own revenue, and the revenue from the agreement is distributed according to the agreement. For most newer agreements, these revenues are likely to go to the Treasury.

Assuming that the codes of the two protocols are basically the same and other external factors are completely the same except for the different online time, the funds deposited in Treasury will be completely different. This index can be called Treasury AUM (Treasury Assets Under Management). However, if the funds entered into Treasury have specific purposes and obligations, It is called the Protocol Controlled Value (PCV).

Third question:

Is agreement income the only source of Treasury income?

Of course not.

It is assumed that the codes of the two protocols are basically the same, and other external factors are completely the same except for different online times. Although the accumulated revenue of the protocols is different, the differences between the two can be eliminated if the project party directly injected a sum of capital into the Treasury. In short: There are clearly many other ways for Treasury to grow.

This is also the core indicator of the ability to overtake on curves for post-line protocols.

Back to Fei Protocol, OlympusDAO, essentially designed at this level; They have cleverly designed a user asset exchange mechanism, so that users' assets can be exchanged with the original assets of the project. However, the assets exchanged include some assets with very good growth, such as ETH; Through the growth of ETH itself, the debt issued by the project according to the previous price can be eliminated to some extent.

Of course, the specific way of different projects is not exactly the same, and some of the effects brought by this are also different, so I will not make specific judgments here.

In short, in this way, the positive and negative cycle of the project will become closely related to the market, a good project of its own positive and negative cycle scale may be placed in the whole bull and bear cycle; With the right asset management strategy, it can even beat the cycle. At this point, the wisdom behind the DAO becomes critical.

The purpose of this paper is to record in general some of the thinking that has been, for the details are not expanded; In fact, if the extension, there will be a lot of points worth digging and exploring, some are still in continuous rapid development. But through this kind of thinking experiment, we can use our own way to see some of the deep logic behind, here to share with you.