The Profitable Side of DeFi: Uncovering the Top 9 Earning Protocols

Decentralized finance [DeFi] is growing at an unprecedented rate, with hundreds of protocols and chains being created to facilitate peer-to-peer finance. However, despite the vast number of protocols, only a few have been able to turn a profit. In this article, let’s examine the nine DeFi protocols that have been profitable and outline the terminology used in assessing their earnings.

To begin with, there are different terms to understand. Fees refer to the amount of income generated by users when using the dApp, such as the swap fees on Uniswap. Supply-side fees, on the other hand, represent the amount of fees used for expenses. Revenue is fees minus supply-side fees, representing the amount of fees that goes to the protocol or native token holders. Token emissions refer to the value of native tokens being inflated by the protocol to attract users, while earnings represent revenue minus token emissions, indicating how much money the protocol has earned or spent.

The first profitable DeFi protocol on the list is Ethereum [$ETH$]. In February 2022, Ethereum had earnings of $60.6 million, a significant increase compared to the previous year when it had negative earnings of $500 million due to high ETH token inflation. Ethereum has reduced ETH inflation by 90%, from 5 million ETH tokens [$8.3 billion] per year to 600,000 ETH tokens per year, and has begun to burn ETH tokens. As a result, Ethereum is considered "ultra-sound money."

The second profitable DeFi protocol is Gains Network [$GNS$]. Gains Network has experienced its best quarter yet due to an increase in trading volume after launching on Arbitrum. There is no GNS inflation to incentivize staking, and all yield is generated by trading fees on gTrade. The tokenomics of Gains Network are unique as GNS is either minted or burned, depending on the profit and loss of traders.

$GMX$ is the third profitable DeFi protocol on the list, generating $18.8 million in fees in February. However, 70% of this was used to pay for liquidity, and $12.7 million was spent on token incentives. Thus, earnings were negative at -$7 million. Despite this, GMX is one of the largest fee-generating protocols, and its emissions will decrease with time, making it less reliant on emissions to keep growing.

Convex [$CVX$], the fourth profitable DeFi protocol, earned $1.03 million in February. Convex earns fees from CRV and FXS incentives and 3CRV staking yield. Earnings are calculated by subtracting $CVX emissions from revenue, which is what remains after paying fees to LPs. Convex is net profitable.

Arbitrum, the fifth profitable DeFi protocol on the list, generated $785k in earnings in February. Arbitrum has no costs in relation to token emissions, and revenue is equal to earnings as there is no ARBI token. Optimism, on the other hand, has a large expense in relation to $OP$ emissions used to incentivize liquidity through ecosystem grants.

Radiant [$RDNT$], the sixth profitable DeFi protocol, generated $320k in earnings in February. Radiant is an omnichain lending protocol on Arbitrum, and V2 is set to introduce improved RDNT tokenomics.

The seventh profitable DeFi protocol is Ethereum Name Service [$ENS$], which generated $1.9 million in earnings in February. ENS makes money from registration and renewal fees from users, and there are no on-chain costs related to this business model. The protocol operates at a surplus.

dYdX [$DYDX$] is the eighth profitable DeFi protocol on the list, generating $688k in earnings so far in March. dYdX earns fees from trading and doesn't pay any of these fees to liquidity providers, which means that all earnings go directly to the protocol or native token holders. The protocol also has a unique feature where users can earn rewards for providing liquidity through the "DYDX governance token." These rewards are paid out in ETH, and they incentivize users to provide liquidity, which generates more fees for the protocol.

The ninth profitable DeFi protocol is Aave [$AAVE$], which generated $5.5 million in earnings in February. Aave earns fees from borrowing and lending on its platform, and it also has a unique feature where users can earn rewards for staking their AAVE tokens. These rewards incentivize users to hold onto their tokens, which increases demand for them and drives up their price.

In conclusion, these nine DeFi protocols have been able to turn a profit by generating fees and managing their expenses effectively. While there are many other DeFi protocols out there, these nine have shown that they have what it takes to be successful in the decentralized finance space. As the DeFi ecosystem continues to grow and evolve, it will be interesting to see which protocols emerge as the new leaders in the space.