Key Takeaways

We expect value to flow to those DeFi protocols that generate revenue for the remainder of the year Frax is likely to gain more market share with the launch of Fraxlend and fraxETH. To date, the protocol has generated $36.3 million in revenue Synthetix and GMX continue to dominate perpetual trade size and TVL on Optimism and Arbitrum, with each protocol generating daily revenue of approximately $100,000 to $300,000 dYdX (DYDX) and Uniswap (UNI) will make significant strides in adding value to their tokens The crvUSD and GHO announcements mark the potential start of a new narrative around protocol-specific stablecoins. Among other features, native stablecoins allow protocols to generate additional revenue and drive the utility of their governance tokens. curve is optimized to provide deep stablecoin liquidity, so it is likely to be the battleground for this narrative Our Q2 Final Report focuses on the evolution of DeFi assets during the bear market and explores the future of the major protocols.

From the Maker reign, to the summer of DeFi led by Synthetix and Compound, to the false hope of "DeFi 2.0" and "unstable" stablecoins, and now the revival of the OGs original language. DeFi has been a long struggle. During that time, TVL was used as the best measure of success.

TVL lost its usefulness as a product market fit (PMF) metric as users were lured by unsustainable inflationary native token rewards. Users join the program to farm and dump their earnings. Once the rewards slow down or stop, users leave. Falling token prices mean that the promised APY becomes unattainable.

One project paid out 14.7 times its original allocation in the first five months after launch, driving TVL to record highs by 2021. As the rate of token release dropped to double-digit annualized inflation, TVL fled. By the end of the second quarter, monthly rewards had fallen 99% from a high of $20 million per month to $200,000.

PMF can be better measured by how much users are willing to pay for the service. Temporary rewards can help reduce customer acquisition costs, but agreements require users to stay after the reward ends.

While few agreements currently deliver real value to agreement vaults or token holders, users pay for borrowing and trading tokens, bribing liquidity pools, and making investments outside of DeFi. Users also earn real fees through ETH pledges and mint taxes. uniswap, dYdX, Convex, Frax, Aave, GMX, Synthetix, Curve, and MakerDAO are all in the top 20 of DeFI fees.

Growth stocks rarely (if ever) pay dividends. Early-stage crypto protocols may likewise consider similarly accumulating and reinvesting fee income to grow their businesses. Total fees will continue to be a key metric in terms of token holders being entitled to ultimately profit from the successful businesses they back, regardless of whether their income is paid or reinvested.

We believe that the next bull market will be driven by tokens with current or future value appreciation. In this report, we present the latest news and bull cases for the protocols we believe are critical to DeFi's future. All of the protocols covered have proven product market fit (PMF) and earn real fees from real users.

Lending

Aave Aave launched its V3 product on 6 different chains at the end of Q1 2022, bringing some key new features to the market.

Portals are "permissioned shelf" bridges that facilitate cross-chain transactions, allowing assets to flow seamlessly between Aave V3 marketplaces deployed across different chains. They help solve the liquidity fragmentation problem Efficient mode (e-mode) allows users to obtain higher lending capacity within the same asset class, enabling borrowers to maximize returns from collateral Segregation mode enables Aave governance to segregate certain newly shelved tokens and determine maximum loan-to-value ratios, thereby limiting the protocol's exposure to high-risk assets. Gas optimization feature reduces fees for all transactions by 20-25% L2-specific features enhance the user experience of the Ether Scaling solution Aave V3 now sees more DAUs than Aave V2.

Looking ahead, all eyes are on Aave's recently proposed stablecoin: GHO. the vote to issue a GHO stablecoin passed overwhelmingly on July 31. This stablecoin would allow Aave users to mint GHO with collateral they provide to continue earning interest. this could be a huge revenue opportunity for the Aave DAO, with 100% of borrowed revenue going to the Aave vault. the most common concerns on the Aave forums include the need to properly vet potential facilitators (i.e. those with GHO minting/destruction privileges), the need for a GHO minting/destruction module similar to The GHO smart contract is currently being audited and a separate proposal will follow outlining a robust starting state for the GHO. s starting state.

MakerDAO Maker has made great strides in its real-world asset strategy, deciding to allocate $500 million from PSM to short-term Treasuries and corporate bonds, and partnering with two major institutions.

Societe Generale refinanced $30 million worth of DAI tokenized covered bonds Huntingdon Valley Bank secured an equivalent lending partnership of up to $1 billion in DAI, which is expected to generate $30 million in annual agreement revenue This continues to form two camps to address their governance issues: the camp of decentralization at all costs, and the camp of supporting a board style governance structure to increase efficiency and growth. The Lending Oversight Core Unit (LOCU) governance vote had the highest participation rate of any decision in its history, with over 293,911 MKR tokens valued at approximately $300 million being voted on. The vote rejected the implementation by a 60%/38% vote, implying support for a more decentralized governance structure.

Maker remains one of the leading protocols across DeFi, maintaining the largest TVL of any DeFi protocol at approximately $8.5 billion. As a lending platform, Maker is at its best when there is a large demand for leverage in the cryptocurrency market. This typically corresponds with expansion and contraction in DAI supply. While DAI supply fell by 27% in the first half of the year, it has been expanding since then. While much of the early July rally was due to PSM growth, $150 million of DAI has been minted from non-stablecoin collateral since July 27 as market demand for leverage is slowly picking up.

Derivatives Trading Platform

dYdX dYdX is a decentralized exchange for trading perpetual futures. During the second quarter, dYdX improved its user experience and feature set. New assets listed include TRX, XTZ, ICP, CELO, RUNE, LUNA, NEAR and ETC, and a governance proposal was passed to add 15 more. Rapid shelf tokenization pushed dYdX into a supported asset set that can compete with any perpetual futures exchange. New order types and higher maximum position sizes were implemented, providing large funds and traders with the tools needed to migrate to dYdX. Trading fees were reduced across the board and completely eliminated on August 1 for users with less than $100,000 in monthly trading volume. In addition, they have launched their own iOS app to provide a seamless mobile trading experience.

dYdX has a full roadmap. By the end of 2022, dYdX plans to migrate from Layer 2 ZK-Rollup to its own sovereign PoS chain built using Cosmos SDK. Order book storage, matching and verifier sets will be decentralized, thus increasing the censorship resistance of the protocol. dYDX tokens will have a new value-added mechanism as PoS tokens, with transaction fees allocated to pledgers. There are some obvious challenges ahead, but dYdX is fully positioned as a leader in the on-chain derivatives narrative and appears to be gaining momentum.

GMX GMX is a spot and perpetual exchange that supports low swap fees and zero price impact trading on Arbitrum and Avalanche, and continued to be adopted throughout the second quarter despite the overall market downturn. Trading is backed by a multi-asset pool (GLP) that earns LP fees through swap, market making and leveraged trades. It has become the largest dApp on Arbitrum with approximately $300 million in TVL and continues to gain traction on Avalanche with just under $100 million in TVL. Some highlights of the last quarter include.

Record influx of 7,273 new users on June 28, likely driven by the Arbitrum Odyssey campaign (which has been delayed) Surpassed 63 k unique users Has now generated over $50M in trading fees for LPs Historical trader profit/loss or partial LP revenue now at $36M Averaging around 1,000 DAUs vs. 150 last year

Investors expect GMX to add some significant new features in the second half of 2022, in addition to UI touches and platform reliability. Synthetics is expected to launch in the coming months, which will provide more options for traders using the product. After this release, the GMX team will start deploying on other chains and X4: an AMM designed to provide mining pool creators and projects with greater flexibility in their pooling capabilities. In standard AMMs, pool creators have few customization options, and the GMX team believes they can outperform existing AMMs in this area and gain significant market share. Some interesting features include dynamic fees for pools, custom price curves that allow traders to access various tokens, pools with revenue tokens, or aggregation of trades through other AMMs such as Uniswap V3. GMX has ambitious plans to build an AMM that will become a platform for other projects to leverage or even build upon.

Synthetix The second quarter saw the rise of atomic swap on Synthetix, allowing instant execution and no slippage on trades involving synths. With better pricing than direct matchmaking, atomic swap volumes reached $350 million per day. As we begin the third quarter, atomic swap remains Synthetix's primary source of revenue.

While 1 inch has been the main source of demand for atomic swap, they still miss a trade routing route: users can swap swap from USDC -> sUSD -> sETH and vice versa, but the last step of sETH -> ETH has to be done manually. 1 inch will soon add the last step to their router, which means we can expect more routing through synths and therefore more revenue for SNX pledgers. In addition, other aggregators have already started implementing atomic swap, including OpenOcean which already uses synths for routing from ETH -> USDT. with Curve announcing their OP grant proposal, we can expect to see atomic swap used for Optimism as well. we expect atomic swap to continue to be used extensively for routing order execution in Q3.

The Synthetix ecosystem has also seen tremendous growth in Optimism, largely due to Kwenta's perpetual futures volume exceeding $80M per day. perpetual trading on Kwenta will be upgraded to V2, with significantly lower fees and more markets later this year. v2 also includes mobile UI support, cross margin trading, limit orders, stop loss and KWENTA token launch (as well as possible short-selling by traders.) SIP-254 also proposes to allocate 20% of SNX inflation to reward perpetual traders on the platform, further incentivizing traders to use Kwenta as their platform of choice.

Since our recent study, Synthetix has completed several key developments in terms of vision and upgrade implementation. synthetix intends to launch a "liquidity as a service" that will allow anyone creating new derivatives to leverage existing routing and deep liquidity to increase liquidity as quickly as possible by connecting directly to synth. Liquidity. This also includes a new proposal to enable the protocol to take ETH delta neutral positions to allow for expanded supply of sUSD and other synths to fully meet demand. Voting for escrowed SNX will result in higher token inflation and fee income for those who lock SNX for longer. There are also more important SIPs associated with V3 that are more technical in nature, which may indicate that V3 is very close to code auditing and release.

Stable Coins

Frax Frax is further integrated into the Curve ecosystem through several new mechanisms and introduces a number of upcoming products that will be available in the near future.

Frax Base Pool: A new stablecoin pool that can be paired with Curve to drive more FRAX demand and encourage capital efficiency among partners. Frax whitelisted to lock CRV: Curve passed a proposal to allow Frax to vote to lock its CRV tokens for veCRV, which gives Frax greater governance over Curve. Fraxswap: Frax launched a new DEX that enables users to buy various assets weighted by time over time to reduce price impact. The original language may be useful for agreements seeking to manage their pool of funds. 20 million FXS repurchase: Frax is currently using accrued revenue to repurchase FXS tokens on the open market. The FXS will be destroyed or distributed to veFXS holders. 2 million in FXS have been purchased. Fraxlend: Frax plans to launch a new lending dApp that will support license-free lending matching and custom debt structures, which paves the way for real-world asset-based lending, bonds and under-collateralized lending. FraxETH: Frax revealed it is running two verifiers on the beacon chain. frax plans to create an ETH collateralized derivative (fraxETH) to back its funding and create a new ETH product. We can assume that all proceeds from fraxETH will benefit veFXS holders in some way.

Later this year, Frax's FXS tokens could see a significant uptick from new product launches. After nearly cutting back earlier this year, FRAX supply is slowly rebounding, eventually bringing more value to FXS. Since the launch of Frax Base Pools, FRAX supply has increased by about $100 million. Currently, Frax's vaults contain $36.3 million in accrued profits. Fraxlend and Fraxswap open up the possibility of additional revenue from the agreement, which will benefit FXS holders in the long term.

Fraxlend will mark a milestone for the agreement, which will serve as a complete suite of decentralized banking services software, including AMM, lending platform and stablecoin. The protocol is scheduled to launch on day one with fraxETH collateral, which will enable users to borrow FRAX to pledge their pledged ETH collateral. fraxswap adds two new liquidity pairs, FRAX/SYN and FRAX/OHM, which could bring more trading volume to AMM. frax's synergy with Curve and Convex provides a powerful platform for participants looking to access their product suite offers attractive returns for participants wishing to access

Decentralized Exchanges

Curve and Convex Both Curve and Convex felt the pain of the bear market in the second quarter. Last quarter we saw.

Over $1.3 billion in USTs deposited into Curve, resulting in a 76% contraction in TVL for both Curve and Convex. The launch of Frax Base Pools and the approval of FIP-95 have deepened the link between Frax, Curve and Convex. Based on current cvxCRV pricing, Frax will stabilize the cvxCRV linkage by exchanging up to 95% of CRV awards for cvxCRV through the Curve pool or by depositing CRV directly into Convex. Convex unlocked a record 27.5 million vlCVX on June 30, and while traders shorted a significant amount of CVX during the event, the majority of CVX was immediately re-locked and caused a temporary short squeeze. Most notably, the Terra wallet re-locked its CVX, opening the door for a new Terra Ecosystem stablecoin. Curve is launching a native stablecoin (crvUSD) that founder Michael Egorov says will be overcollateralized and have a revolutionary clearing mechanism. The whitepaper has not yet been released, so we can only speculate on the design and implications.

Developers closely associated with the protocol have stated that LP tokens and CRV can be used as initial collateral for crvUSD. The specific assets backing the stablecoin are critical to its success, so Curve will likely whitelist accepted collateral through a process similar to its introduction of new metrics. convex currently holds 53.9% of the voting rights in Curve, so it is likely that the approved LP tokens will be Convex LP tokens, not Curve LP tokens, in a mutually beneficial agreement. Convex will also be able to whitelist cvxCRVs and additional utilities will help strengthen the cvxCRV/CRV hook and increase the number of CRVs permanently locked into Convex. If CRVs must first be voted locked as veCRVs to become eligible collateral, Convex still has a strong position of over $360 million in veCRVs in its vaults. convex can use its veCRVs to mint crvUSD and start growing its own CRVs. the CRVs generated by the new revenue stream can be permanently locked as cvxCRVs and paid to Convex LP and vlCVX lockers, thereby increasing Convex's value proposition while benefiting the Curve ecosystem by reducing supply.

While LP token collateral creates demand for asset deposits and increases Curve TVL, CRV and veCRV collateral removes CRV from circulation, which is necessary for Curve to be sustainable. Total locked CRV volume has steadily increased to 41% throughout the year and is now locked for an average of 3.6 years. In addition, CRV releases are decreasing by 15.9% annually, with the next decrease occurring on August 14. The increased demand for locked CRVs and reduced CRV supply creates an environment for bullish CRVs for the remainder of 2022.

The announcement of crvUSD and Aave's GHO stablecoin marks the potential beginning of a new narrative around protocol-specific stablecoins. Among other features, native stablecoins allow protocols to generate additional revenue and drive the utility of their governance tokens. For example, Frax generates mint tax revenue by mining FRAX, and Aave allows stAAVE holders to pay a lower interest rate for borrowed GHOs. If this trend continues, there will be many stablecoins competing for liquidity, and Curve is likely to be the battleground as it is optimized to provide deep stablecoin liquidity. The bribe market built around Curve and Convex allows other protocols to effectively rent liquidity for their pools by leveraging CRV releases. The new pools will drive increased TVL and swap, benefiting the Curve ecosystem. In addition, other protocols can pair native stablecoins with the Frax base pools (USDC and FRAX) metapool on Curve, generating FXS and CRV rewards for LPs. fraxBP has the ability to become the de facto base pool for stablecoin liquidity, further solidifying the flywheel.

Uniswap Uniswap's foray into NFT is just beginning, with more news sure to come in the second half of the year. in June, Uniswap Labs acquired the NFT aggregation platform Genie. this integration will allow Uniswap to facilitate trading of all digital assets, not just ERC20. uniswap plans to integrate with sudoswap, allowing traders to immediately provide liquidity to their NFTs.

With the addition of two new deployments in Q2, this AMM is now deployed on seven chains, including Gnosis, Moonbeam, Optimism, Polygon and Arbitrum. uniswap has maintained its position as the market leader in DEX, averaging over $47 billion in monthly trading volume in Q2. uniswap V3 has completed over $1 trillion since launch. Uniswap V3 has completed over $1 trillion in volume since its launch. In a short period of time, Uniswap has had the highest total fees of any platform, surpassing Ether and Bitcoin.

UNI Governance is preparing to test the fee-switching feature. on July 21, a governance proposal to gauge the sentiment of UNI holders regarding the implementation of fee-switching was approved. While the details have not been finalized, a test may soon be underway to take a percentage of the swap fees from V3 LP and redirect them to the UNI DAO-controlled vault. This is big news for UNI's value-added. We will post an in-depth look at the trial this week.

Sushi (Sushiswap) Sushi has been busy delivering new products. They deployed a cross-chain AMM that uses Stargate for bridging, released MEV protected transactions using SushiGuard, and launched MISO 2.0. Miso is an initial dex issuance (IDO) platform that allows anyone to easily raise funds for new tokens. The exchange now runs on nine chains and allows users to trade with one click. sushi launched a limit order feature and passed a proposal to restructure the DAO organization to help fight micro governance.

Sushi is looking for a new leader ("chef") and hiring for a number of positions. With a new chef and a better mechanism for paying contributors, Sushi is expected to work around the leadership controversies they have seen in the past. Like Uniswap, Sushi has seen a lot of development in the NFT marketplace Shoyu, including rare tools, a better UI, offers, sweeping features, gas efficiency, and social features.

Final Thoughts

Despite unfavorable market conditions, developers of active DeFi protocols continue to release code updates. We've listed some of the market's favorite protocols and their corresponding upside catalysts that could yield positive results in the future. For now, DeFi on ethereum continues to dominate the space. For investors, looking for revenue-generating products and tokens with added value could be a good strategy for the rest of the year.

Key Takeaways

We expect value to flow to those DeFi protocols that generate revenue for the remainder of the year Frax is likely to gain more market share with the launch of Fraxlend and fraxETH. To date, the protocol has generated $36.3 million in revenue Synthetix and GMX continue to dominate perpetual trade size and TVL on Optimism and Arbitrum, with each protocol generating daily revenue of approximately $100,000 to $300,000 dYdX (DYDX) and Uniswap (UNI) will make significant strides in adding value to their tokens The crvUSD and GHO announcements mark the potential start of a new narrative around protocol-specific stablecoins. Among other features, native stablecoins allow protocols to generate additional revenue and drive the utility of their governance tokens. curve is optimized to provide deep stablecoin liquidity, so it is likely to be the battleground for this narrative Our Q2 Final Report focuses on the evolution of DeFi assets during the bear market and explores the future of the major protocols.

From the Maker reign, to the summer of DeFi led by Synthetix and Compound, to the false hope of "DeFi 2.0" and "unstable" stablecoins, and now the revival of the OGs original language. DeFi has been a long struggle. During that time, TVL was used as the best measure of success.

TVL lost its usefulness as a product market fit (PMF) metric as users were lured by unsustainable inflationary native token rewards. Users join the program to farm and dump their earnings. Once the rewards slow down or stop, users leave. Falling token prices mean that the promised APY becomes unattainable.

One project paid out 14.7 times its original allocation in the first five months after launch, driving TVL to record highs by 2021. As the rate of token release dropped to double-digit annualized inflation, TVL fled. By the end of the second quarter, monthly rewards had fallen 99% from a high of $20 million per month to $200,000.

PMF can be better measured by how much users are willing to pay for the service. Temporary rewards can help reduce customer acquisition costs, but agreements require users to stay after the reward ends.

While few agreements currently deliver real value to agreement vaults or token holders, users pay for borrowing and trading tokens, bribing liquidity pools, and making investments outside of DeFi. Users also earn real fees through ETH pledges and mint taxes. uniswap, dYdX, Convex, Frax, Aave, GMX, Synthetix, Curve, and MakerDAO are all in the top 20 of DeFI fees.

Growth stocks rarely (if ever) pay dividends. Early-stage crypto protocols may likewise consider similarly accumulating and reinvesting fee income to grow their businesses. Total fees will continue to be a key metric in terms of token holders being entitled to ultimately profit from the successful businesses they back, regardless of whether their income is paid or reinvested.

We believe that the next bull market will be driven by tokens with current or future value appreciation. In this report, we present the latest news and bull cases for the protocols we believe are critical to DeFi's future. All of the protocols covered have proven product market fit (PMF) and earn real fees from real users.

Lending

Aave Aave launched its V3 product on 6 different chains at the end of Q1 2022, bringing some key new features to the market.

Portals are "permissioned shelf" bridges that facilitate cross-chain transactions, allowing assets to flow seamlessly between Aave V3 marketplaces deployed across different chains. They help solve the liquidity fragmentation problem Efficient mode (e-mode) allows users to obtain higher lending capacity within the same asset class, enabling borrowers to maximize returns from collateral Segregation mode enables Aave governance to segregate certain newly shelved tokens and determine maximum loan-to-value ratios, thereby limiting the protocol's exposure to high-risk assets. Gas optimization feature reduces fees for all transactions by 20-25% L2-specific features enhance the user experience of the Ether Scaling solution Aave V3 now sees more DAUs than Aave V2.

Looking ahead, all eyes are on Aave's recently proposed stablecoin: GHO. the vote to issue a GHO stablecoin passed overwhelmingly on July 31. This stablecoin would allow Aave users to mint GHO with collateral they provide to continue earning interest. this could be a huge revenue opportunity for the Aave DAO, with 100% of borrowed revenue going to the Aave vault. the most common concerns on the Aave forums include the need to properly vet potential facilitators (i.e. those with GHO minting/destruction privileges), the need for a GHO minting/destruction module similar to The GHO smart contract is currently being audited and a separate proposal will follow outlining a robust starting state for the GHO. s starting state.

MakerDAO Maker has made great strides in its real-world asset strategy, deciding to allocate $500 million from PSM to short-term Treasuries and corporate bonds, and partnering with two major institutions.

Societe Generale refinanced $30 million worth of DAI tokenized covered bonds Huntingdon Valley Bank secured an equivalent lending partnership of up to $1 billion in DAI, which is expected to generate $30 million in annual agreement revenue This continues to form two camps to address their governance issues: the camp of decentralization at all costs, and the camp of supporting a board style governance structure to increase efficiency and growth. The Lending Oversight Core Unit (LOCU) governance vote had the highest participation rate of any decision in its history, with over 293,911 MKR tokens valued at approximately $300 million being voted on. The vote rejected the implementation by a 60%/38% vote, implying support for a more decentralized governance structure.

Maker remains one of the leading protocols across DeFi, maintaining the largest TVL of any DeFi protocol at approximately $8.5 billion. As a lending platform, Maker is at its best when there is a large demand for leverage in the cryptocurrency market. This typically corresponds with expansion and contraction in DAI supply. While DAI supply fell by 27% in the first half of the year, it has been expanding since then. While much of the early July rally was due to PSM growth, $150 million of DAI has been minted from non-stablecoin collateral since July 27 as market demand for leverage is slowly picking up.

Derivatives Trading Platform

dYdX dYdX is a decentralized exchange for trading perpetual futures. During the second quarter, dYdX improved its user experience and feature set. New assets listed include TRX, XTZ, ICP, CELO, RUNE, LUNA, NEAR and ETC, and a governance proposal was passed to add 15 more. Rapid shelf tokenization pushed dYdX into a supported asset set that can compete with any perpetual futures exchange. New order types and higher maximum position sizes were implemented, providing large funds and traders with the tools needed to migrate to dYdX. Trading fees were reduced across the board and completely eliminated on August 1 for users with less than $100,000 in monthly trading volume. In addition, they have launched their own iOS app to provide a seamless mobile trading experience.

dYdX has a full roadmap. By the end of 2022, dYdX plans to migrate from Layer 2 ZK-Rollup to its own sovereign PoS chain built using Cosmos SDK. Order book storage, matching and verifier sets will be decentralized, thus increasing the censorship resistance of the protocol. dYDX tokens will have a new value-added mechanism as PoS tokens, with transaction fees allocated to pledgers. There are some obvious challenges ahead, but dYdX is fully positioned as a leader in the on-chain derivatives narrative and appears to be gaining momentum.

GMX GMX is a spot and perpetual exchange that supports low swap fees and zero price impact trading on Arbitrum and Avalanche, and continued to be adopted throughout the second quarter despite the overall market downturn. Trading is backed by a multi-asset pool (GLP) that earns LP fees through swap, market making and leveraged trades. It has become the largest dApp on Arbitrum with approximately $300 million in TVL and continues to gain traction on Avalanche with just under $100 million in TVL. Some highlights of the last quarter include.

Record influx of 7,273 new users on June 28, likely driven by the Arbitrum Odyssey campaign (which has been delayed) Surpassed 63 k unique users Has now generated over $50M in trading fees for LPs Historical trader profit/loss or partial LP revenue now at $36M Averaging around 1,000 DAUs vs. 150 last year

Investors expect GMX to add some significant new features in the second half of 2022, in addition to UI touches and platform reliability. Synthetics is expected to launch in the coming months, which will provide more options for traders using the product. After this release, the GMX team will start deploying on other chains and X4: an AMM designed to provide mining pool creators and projects with greater flexibility in their pooling capabilities. In standard AMMs, pool creators have few customization options, and the GMX team believes they can outperform existing AMMs in this area and gain significant market share. Some interesting features include dynamic fees for pools, custom price curves that allow traders to access various tokens, pools with revenue tokens, or aggregation of trades through other AMMs such as Uniswap V3. GMX has ambitious plans to build an AMM that will become a platform for other projects to leverage or even build upon.

Synthetix The second quarter saw the rise of atomic swap on Synthetix, allowing instant execution and no slippage on trades involving synths. With better pricing than direct matchmaking, atomic swap volumes reached $350 million per day. As we begin the third quarter, atomic swap remains Synthetix's primary source of revenue.

While 1 inch has been the main source of demand for atomic swap, they still miss a trade routing route: users can swap swap from USDC -> sUSD -> sETH and vice versa, but the last step of sETH -> ETH has to be done manually. 1 inch will soon add the last step to their router, which means we can expect more routing through synths and therefore more revenue for SNX pledgers. In addition, other aggregators have already started implementing atomic swap, including OpenOcean which already uses synths for routing from ETH -> USDT. with Curve announcing their OP grant proposal, we can expect to see atomic swap used for Optimism as well. we expect atomic swap to continue to be used extensively for routing order execution in Q3.

The Synthetix ecosystem has also seen tremendous growth in Optimism, largely due to Kwenta's perpetual futures volume exceeding $80M per day. perpetual trading on Kwenta will be upgraded to V2, with significantly lower fees and more markets later this year. v2 also includes mobile UI support, cross margin trading, limit orders, stop loss and KWENTA token launch (as well as possible short-selling by traders.) SIP-254 also proposes to allocate 20% of SNX inflation to reward perpetual traders on the platform, further incentivizing traders to use Kwenta as their platform of choice.

Since our recent study, Synthetix has completed several key developments in terms of vision and upgrade implementation. synthetix intends to launch a "liquidity as a service" that will allow anyone creating new derivatives to leverage existing routing and deep liquidity to increase liquidity as quickly as possible by connecting directly to synth. Liquidity. This also includes a new proposal to enable the protocol to take ETH delta neutral positions to allow for expanded supply of sUSD and other synths to fully meet demand. Voting for escrowed SNX will result in higher token inflation and fee income for those who lock SNX for longer. There are also more important SIPs associated with V3 that are more technical in nature, which may indicate that V3 is very close to code auditing and release.

Stable Coins

Frax Frax is further integrated into the Curve ecosystem through several new mechanisms and introduces a number of upcoming products that will be available in the near future.

Frax Base Pool: A new stablecoin pool that can be paired with Curve to drive more FRAX demand and encourage capital efficiency among partners. Frax whitelisted to lock CRV: Curve passed a proposal to allow Frax to vote to lock its CRV tokens for veCRV, which gives Frax greater governance over Curve. Fraxswap: Frax launched a new DEX that enables users to buy various assets weighted by time over time to reduce price impact. The original language may be useful for agreements seeking to manage their pool of funds. 20 million FXS repurchase: Frax is currently using accrued revenue to repurchase FXS tokens on the open market. The FXS will be destroyed or distributed to veFXS holders. 2 million in FXS have been purchased. Fraxlend: Frax plans to launch a new lending dApp that will support license-free lending matching and custom debt structures, which paves the way for real-world asset-based lending, bonds and under-collateralized lending. FraxETH: Frax revealed it is running two verifiers on the beacon chain. frax plans to create an ETH collateralized derivative (fraxETH) to back its funding and create a new ETH product. We can assume that all proceeds from fraxETH will benefit veFXS holders in some way.

Later this year, Frax's FXS tokens could see a significant uptick from new product launches. After nearly cutting back earlier this year, FRAX supply is slowly rebounding, eventually bringing more value to FXS. Since the launch of Frax Base Pools, FRAX supply has increased by about $100 million. Currently, Frax's vaults contain $36.3 million in accrued profits. Fraxlend and Fraxswap open up the possibility of additional revenue from the agreement, which will benefit FXS holders in the long term.

Fraxlend will mark a milestone for the agreement, which will serve as a complete suite of decentralized banking services software, including AMM, lending platform and stablecoin. The protocol is scheduled to launch on day one with fraxETH collateral, which will enable users to borrow FRAX to pledge their pledged ETH collateral. fraxswap adds two new liquidity pairs, FRAX/SYN and FRAX/OHM, which could bring more trading volume to AMM. frax's synergy with Curve and Convex provides a powerful platform for participants looking to access their product suite offers attractive returns for participants wishing to access

Decentralized Exchanges

Curve and Convex Both Curve and Convex felt the pain of the bear market in the second quarter. Last quarter we saw.

Over $1.3 billion in USTs deposited into Curve, resulting in a 76% contraction in TVL for both Curve and Convex. The launch of Frax Base Pools and the approval of FIP-95 have deepened the link between Frax, Curve and Convex. Based on current cvxCRV pricing, Frax will stabilize the cvxCRV linkage by exchanging up to 95% of CRV awards for cvxCRV through the Curve pool or by depositing CRV directly into Convex. Convex unlocked a record 27.5 million vlCVX on June 30, and while traders shorted a significant amount of CVX during the event, the majority of CVX was immediately re-locked and caused a temporary short squeeze. Most notably, the Terra wallet re-locked its CVX, opening the door for a new Terra Ecosystem stablecoin. Curve is launching a native stablecoin (crvUSD) that founder Michael Egorov says will be overcollateralized and have a revolutionary clearing mechanism. The whitepaper has not yet been released, so we can only speculate on the design and implications.

Developers closely associated with the protocol have stated that LP tokens and CRV can be used as initial collateral for crvUSD. The specific assets backing the stablecoin are critical to its success, so Curve will likely whitelist accepted collateral through a process similar to its introduction of new metrics. convex currently holds 53.9% of the voting rights in Curve, so it is likely that the approved LP tokens will be Convex LP tokens, not Curve LP tokens, in a mutually beneficial agreement. Convex will also be able to whitelist cvxCRVs and additional utilities will help strengthen the cvxCRV/CRV hook and increase the number of CRVs permanently locked into Convex. If CRVs must first be voted locked as veCRVs to become eligible collateral, Convex still has a strong position of over $360 million in veCRVs in its vaults. convex can use its veCRVs to mint crvUSD and start growing its own CRVs. the CRVs generated by the new revenue stream can be permanently locked as cvxCRVs and paid to Convex LP and vlCVX lockers, thereby increasing Convex's value proposition while benefiting the Curve ecosystem by reducing supply.

While LP token collateral creates demand for asset deposits and increases Curve TVL, CRV and veCRV collateral removes CRV from circulation, which is necessary for Curve to be sustainable. Total locked CRV volume has steadily increased to 41% throughout the year and is now locked for an average of 3.6 years. In addition, CRV releases are decreasing by 15.9% annually, with the next decrease occurring on August 14. The increased demand for locked CRVs and reduced CRV supply creates an environment for bullish CRVs for the remainder of 2022.

The announcement of crvUSD and Aave's GHO stablecoin marks the potential beginning of a new narrative around protocol-specific stablecoins. Among other features, native stablecoins allow protocols to generate additional revenue and drive the utility of their governance tokens. For example, Frax generates mint tax revenue by mining FRAX, and Aave allows stAAVE holders to pay a lower interest rate for borrowed GHOs. If this trend continues, there will be many stablecoins competing for liquidity, and Curve is likely to be the battleground as it is optimized to provide deep stablecoin liquidity. The bribe market built around Curve and Convex allows other protocols to effectively rent liquidity for their pools by leveraging CRV releases. The new pools will drive increased TVL and swap, benefiting the Curve ecosystem. In addition, other protocols can pair native stablecoins with the Frax base pools (USDC and FRAX) metapool on Curve, generating FXS and CRV rewards for LPs. fraxBP has the ability to become the de facto base pool for stablecoin liquidity, further solidifying the flywheel.

Uniswap Uniswap's foray into NFT is just beginning, with more news sure to come in the second half of the year. in June, Uniswap Labs acquired the NFT aggregation platform Genie. this integration will allow Uniswap to facilitate trading of all digital assets, not just ERC20. uniswap plans to integrate with sudoswap, allowing traders to immediately provide liquidity to their NFTs.

With the addition of two new deployments in Q2, this AMM is now deployed on seven chains, including Gnosis, Moonbeam, Optimism, Polygon and Arbitrum. uniswap has maintained its position as the market leader in DEX, averaging over $47 billion in monthly trading volume in Q2. uniswap V3 has completed over $1 trillion since launch. Uniswap V3 has completed over $1 trillion in volume since its launch. In a short period of time, Uniswap has had the highest total fees of any platform, surpassing Ether and Bitcoin.

UNI Governance is preparing to test the fee-switching feature. on July 21, a governance proposal to gauge the sentiment of UNI holders regarding the implementation of fee-switching was approved. While the details have not been finalized, a test may soon be underway to take a percentage of the swap fees from V3 LP and redirect them to the UNI DAO-controlled vault. This is big news for UNI's value-added. We will post an in-depth look at the trial this week.

Sushi (Sushiswap) Sushi has been busy delivering new products. They deployed a cross-chain AMM that uses Stargate for bridging, released MEV protected transactions using SushiGuard, and launched MISO 2.0. Miso is an initial dex issuance (IDO) platform that allows anyone to easily raise funds for new tokens. The exchange now runs on nine chains and allows users to trade with one click. sushi launched a limit order feature and passed a proposal to restructure the DAO organization to help fight micro governance.

Sushi is looking for a new leader ("chef") and hiring for a number of positions. With a new chef and a better mechanism for paying contributors, Sushi is expected to work around the leadership controversies they have seen in the past. Like Uniswap, Sushi has seen a lot of development in the NFT marketplace Shoyu, including rare tools, a better UI, offers, sweeping features, gas efficiency, and social features.

Final Thoughts

Despite unfavorable market conditions, developers of active DeFi protocols continue to release code updates. We've listed some of the market's favorite protocols and their corresponding upside catalysts that could yield positive results in the future. For now, DeFi on ethereum continues to dominate the space. For investors, looking for revenue-generating products and tokens with added value could be a good strategy for the rest of the year.