My recent post about how most top DeFi projects are unprofitable ended up being one of the most discussed things I've ever shared. While most people were thankful and supportive, some Curve Finance fans got pretty upset. Let's take a look at the main misconceptions behind their frustration.
Here’s the post that started all the discussions.
Many people don’t fully understand basic terms, which is normal. Fundamental analysis is tricky, especially in DeFi, where few projects publish financial reports. Trying to figure out a token’s value based on financial metrics is often a waste of time since the industry is still so young, and most people see tokens as tools for short-term speculation.
While we won't establish a token's fair value, we can assess if a project is unprofitable or sustainable.
Here are three common mistakes to watch for:
Confusing revenue with earnings.
People don’t separate the project’s profits from the profits for token holders.
Seeing bribes as part of the project's income.
Let's break it down.
Revenue
Revenue is the share of fees that goes to the protocol. For example, Curve DAO earns revenue from pools and crvUSD minting markets. Each week, this revenue is collected in various tokens, converted into one token (crvUSD), and distributed to veCRV holders.
Revenue comes from admin fees such as:
Stableswap Fees: 50% of the total fee charged in a Stableswap pool.
Cryptoswap Fees: 50% of the total fee charged in a Cryptoswap pool.
crvUSD Minting Market Fees: All interest accrued on debt in crvUSD minting markets is collected as crvUSD.
Earnings
Earnings typically refer to the portion of revenue remaining after covering all operating expenses. In DeFi, earnings are generally calculated as:
Earnings = revenue - token incentives
Why are token incentives (emissions) considered a loss ?
Distributing tokens through emissions directly reduces the project's capital. However, this can also be viewed as an investment in growth.
Consider how we estimate the value of a project's token at TGE. We usually look at the total number of tokens and assign them a value, often based on the project's funding rounds or by comparing it to a competitor who has already launched their token. This is known as the Fully Diluted Valuation (FDV).
So, the project’s value is often seen as equal to the total number of its tokens (though I believe a project’s value is really in its team and technology).
This means CRV emissions are both a loss for Curve Finance and a gain for veCRV holders.
Future of DeFi projects
We're still in the early days of DeFi, and many people aren't accustomed to thinking 3-5 years ahead. However, many have likely wondered:
"What happens when token emissions run out or decrease so significantly that they barely contribute to the project's income for token holders ?"
This would be a great moment for Trader Joe team to jump in and say...
Exactly, just fork your DEX onto another chain, rebrand yourselves, and start the emissions all over again. But I’d like to believe that projects that respect themselves and their investors wouldn't do something like that.
So, examining Curve Finance, we see the ideal scenario. I called token emissions an investment in the project's growth for a reason.
Over several years, these emissions should help the project develop a sustainable revenue stream, eventually replacing the need for token emissions.
Curve Finance recently celebrated its 4th anniversary and is beginning to demonstrate its growth trajectory:
Initially, the project issued numerous tokens and focused on technology development.
Over time, token emissions have decreased, and the built service is now generating steady income.
Increasing administrative fees are starting to balance the reduction in income from token emissions for veCRV holders.
The next step is to enhance sustainability by channeling most profits directly, with CRV emissions serving as an additional bonus.
Now you understand why projects allocate a portion of tokens in their tokenomics for project development, often on a 4-year(or so) vesting schedule, labeling this emission something like "core team", "development" or similar ? This timeframe is roughly how long the project expects it will take to build a product capable of generating steady income.
And that's why a project might launch an unexpected buyback & burn, like Vertex did recently. This could mean that the project is doing better than initially projected. But it's not about sending the token price skyrocketing, it's about reducing token emissions relative to revenue, which in turn increases earnings. Why ? Because investors prefer young businesses that are profitable.
Bribes is not part of revenue.
Why aren’t bribes considered part of the project’s revenue ?
Bribes are payments that projects or liquidity pools offer to governance token holders (like veCRV in the case of Curve Finance) to vote for specific pools or decisions. This is a way to attract liquidity or gain support in project governance.
Whose profit is it ?
Bribes are income for individual governance token holders (veCRV).
Those who hold these tokens receive bribes in exchange for their votes.
This is their personal income, usually received in tokens or other assets.
This income isn’t tied to the protocol’s operations and comes from third-party incentives.
These payments come from external projects or stakeholders and don’t go through the protocol’s financial reports. Since bribes aren’t the project’s income, they don’t show up in its financial statements. The project might mention the existence of bribes in its documentation or governance reports, but from a financial perspective, they don’t impact the protocol’s metrics. So when Token Terminal doesn’t include bribes in revenue or earnings, it’s not a bug, it’s a feature.
Unless...
The only time a project might record bribes as income is if it buys back its own tokens, stakes them as veCRV, and starts earning bribes on them.
In most cases, and according to standard TradFi practices, when a company buys back its own shares, they become treasury stock and don’t earn dividends. These shares stay on the company’s balance sheet but don’t participate in profit distribution, meaning the company doesn’t earn dividends on its own shares.
This is why Curve DAO members were pretty unhappy when they found out that Swiss Stake AG could stake 21M CRV tokens they requested as a grant and earn income from them, including bribes.
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