Sifting for Gold: Identifying Long-Term Investment Targets Through Market Cycles (2025 Edition – Part I)

Introduction: Altcoin Bear Market – Fundamental Investing Still Works

Undoubtedly, this bull cycle has witnessed the worst performance of altcoins in crypto history.

Contrary to historical patterns where altcoins surged and Bitcoin’s market dominance rapidly declined after previous bull market initiations, Bitcoin’s dominance has steadily climbed from about 38% in November 2022 (the market bottom) to over 61% today. This trend persists despite the exponential growth in altcoin supply during this cycle, highlighting the unprecedented weakness of altcoin prices.

The current market trajectory aligns with Mint Ventures’ analysis in Preparing for Primary Wave: My Periodic Strategy on This Bull Market Cycle (March 2024). In that report, we argued that only three of the four key bull market drivers were present:

1. Bitcoin halving (supply-demand dynamics) ✓
2. Loose monetary policy or dovish expectations ✓
3. Regulatory easing ✓
4. Innovative asset models or business paradigms ✗

Consequently, we advised tempering expectations for legacy altcoin categories—including smart contract platforms (L1s/L2s), GameFi, DePIN, NFTs, and DeFi—and recommended the following strategy:

• Increase allocation to BTC and ETH (with a long-term preference for BTC)
• Limit exposure to legacy altcoin sectors (DeFi, GameFi, DePIN, NFTs)
• Seek alpha in emerging narratives: Memes, AI, and Bitcoin ecosystem

To date, this strategy has largely proven effective (though the Bitcoin ecosystem has underperformed expectations).

However, it’s worth noting that despite the overall sluggish price performance of most altcoins this cycle, a few altcoin projects have performed significantly better than BTC and ETH over the past year. The best examples are Aave and Raydium, which were highlighted in the Mint Ventures report titled Altcoins Keep Falling, Time to Refocus on DeFi published in early July 2024 during the altcoin market’s lowest ebb.

Starting from early July last year, Aave’s peak increase relative to BTC exceeded 215%, and 354% relative to ETH. Even after substantial price corrections, Aave’s increase relative to BTC is still 77%, with a 251% increase relative to ETH.

Starting from early July last year, Raydium’s peak increase relative to BTC exceeded 200%, and 324% relative to ETH. Currently, despite the overall decline in the Solana ecosystem and the negative impact of Pump.fun’s self-developed DEX, Raydium’s gain relative to BTC remains positive and significantly outperforms ETH.

Considering that BTC and ETH, especially BTC, have significantly outperformed most altcoins this cycle, Aave and Raydium have stood out in terms of price performance among altcoins.

This is because, unlike most altcoin projects, Aave and Raydium have stronger fundamentals. Their core business data set new records in this cycle, and they possess unique moats with stable or rapidly expanding market shares.

Even during an “altcoin bear market,” betting on projects with outstanding fundamentals can yield Alpha returns exceeding BTC and ETH, which is the primary goal of our research efforts.

In this report, Mint Ventures will identify quality projects with solid fundamentals from thousands of listed crypto projects. We’ll track their recent business performance and market share, analyze their competitive advantages, assess their challenges and potential risks, and provide some valuation references.

It’s important to emphasize:

• The projects mentioned in this article have certain advantages and appeal, but they also face various issues and challenges. Readers might have differing opinions on the same project after reading.
• Likewise, projects not mentioned in this article do not imply “poor fundamentals” or that “we’re not optimistic about them.” We welcome you to recommend projects you find promising and share your reasons.
• This article represents the stage-based thoughts of the two authors as of publication. Future changes may occur, and the views are highly subjective, with possible errors in facts, data, or reasoning. All opinions in this article are not investment advice, and we welcome criticism and further discussion from industry peers and readers.

We will analyze the projects from several dimensions, including current business status, competitive landscape, main challenges and risks, and valuation status. Below is the main text.

1. Lending Sector: Aave, Morpho, Kamino, MakerDao

DeFi remains the sector with the best product-market fit in the crypto business world, and lending is one of its most crucial sub-sectors. It features mature user demand and stable business revenue, attracting numerous excellent projects, both new and established, each with its own strengths and weaknesses.

For lending projects, the most critical metrics are active loans and revenue. It’s also important to assess the protocol’s expenses, particularly token incentives.

1.1 Aave: The King of Lending

Aave is one of the few projects that has successfully navigated three crypto cycles, maintaining stable growth. It completed financing through an ICO in 2017 (then called Lend, with a peer-to-peer lending model) and surpassed the then-leader Compound in the previous cycle. Today, it consistently holds the top position in lending volumes. Aave currently offers services across most major EVM-compatible L1 and L2 chains.

Current Business Status

Aave’s primary business model involves operating a pool-based lending platform, generating income from lending interest and liquidation penalties during collateral liquidations. Additionally, Aave’s stablecoin business, GHO, is now in its second year, providing Aave with direct interest income.

Active loans

Aave’s total loan volume has surpassed its previous cycle’s (November 2021) peak of 12.14 billion since November of last year, reaching an all−time high of 15.02 billion in late January 2025. However, as market activity has cooled recently, the loan volume has declined and currently stands at approximately $11.4 billion.

Revenue

Similar to its loan volume, Aave’s protocol revenue has consistently exceeded its previous peak from October 2021 since November last year. Over the past three months, Aave’s weekly protocol revenue (excluding GHO interest income) has mostly remained above 3 million. However, recent cooling market sentiment coupled with declining interest rates has driven weekly protocol revenues down to the 2 million+ range over the last fortnight.

Token Incentives

Aave currently maintains substantial token incentives, distributing 822 AAVE daily (worth approximately 200,000 at the current market price of 245 per AAVE). This elevated incentive value stems from Aave’s significant price appreciation over the past six months.

Notably, unlike most protocols that directly tie token incentives to user deposit/borrow activities, Aave’s incentives are allocated to its Safety Module (deposit protection fund). Consequently, Aave’s core lending/borrowing metrics remain driven by organic demand rather than artificial incentives.

However, in our view, Aave’s incentive allocation to its Safety Module remains excessive. The current incentive scale could be reduced by at least 50% without compromising protocol security. This issue will likely resolve organically with the rollout of Aave’s new tokenomics model, particularly the upcoming Umbrella module, which will phase out AAVE-based incentives for the Safety Module.

For a detailed analysis of Aave’s updated tokenomics, refer to Mint Ventures’ 2024 report: Exploring The Updated AAVEnomics: Buybacks, Profit Distribution, and Safety Module Shift

Competitive Landscape

In terms of loan volume (EVM chains), Aave’s market share has remained relatively stable, consistently holding the top position since June 2021. In the second half of 2023, its market share briefly dropped below 50%, but since the beginning of 2024, it has regained momentum and is now stable at around 65%.

Aave’s Competitive Advantages

Since I analyzed Aave last July, its core competitive advantages have remained largely unchanged, stemming from four main aspects:

1. Continuous Accumulation of Security Credibility: Unlike many new lending protocols that experience security incidents within their first year, Aave has operated without any security breaches at the smart contract level. This strong track record is a key consideration for DeFi users, especially large-scale “whale” users, in choosing a lending platform. Notably, Justin Sun is a long-term user of Aave.
2. Bilateral Network Effects: Similar to many internet platforms, DeFi lending is a typical two-sided market where depositors and borrowers form the supply and demand sides. Growth in deposits or lending on one side spurs growth on the other, making it harder for new competitors to catch up. Additionally, greater overall platform liquidity results in smoother transactions for both sides, attracting big fund users who further stimulate platform growth.
3. Superior DAO Management: The Aave protocol is fully governed by a DAO, offering more transparent information disclosure and thorough community discussion for important decisions compared to centralized team management. Aave’s DAO includes active participation from professional institutions such as top VCs, university blockchain clubs, market makers, risk management providers, third-party development teams, and financial advisory teams. This diversity and active governance have enabled Aave to balance growth and security, outperforming its predecessor Compound in both product development and asset expansion.
4. Multi-Chain Ecosystem Presence: Aave is deployed on nearly all EVM L1/L2 chains, with its TVL consistently ranking at the top. The upcoming V4 version of Aave will enable cross-chain liquidity, enhancing its advantages in this area. Aave plans to expand further to Aptos (its first non-EVM chain), Linea, and make a return to Sonic (formerly Fantom).

Challenges and Risks

Although Aave’s market share has been steadily increasing over the past year, new competitors like Morpho are growing rapidly.

Unlike Aave, where collateral assets, risk parameters, and oracles are centrally managed by Aave DAO, Morpho offers a more open approach. It provides a foundational lending protocol that allows independent markets to be built without permission, with the freedom to choose collateral assets, risk parameters, and oracles. Morpho also introduces vaults, akin to investment funds, managed by professional third parties like Gaunlet. Users can deposit funds directly into these vaults, and the managing institutions will assess risks and decide where to lend funds to generate returns.

This open and modular model allows Morpho to quickly enter new or niche markets, such as lending markets for innovative stablecoin projects like Usual and Resolv, enabling users to gain project rewards or points through leveraged loans.

Further analysis on Morpho will be provided later.

In addition to competition from within the Ethereum ecosystem, Aave’s development is also influenced by competition between the Ethereum ecosystem and other high-performance L1 chains. If ecosystems like Solana continue to erode Ethereum’s territory, Aave, which is heavily invested in the Ethereum ecosystem, will undoubtedly face limitations in its business potential.

Additionally, the highly cyclical nature of the crypto market directly affects Aave’s user demand. In bear market cycles, speculation and arbitrage opportunities shrink rapidly, leading to a significant decline in Aave’s lending volume and protocol income—common challenges for all lending protocols.

Valuation Reference

In terms of longitudinal valuation, Aave’s current PS ratio (fully diluted market cap to protocol income) is 28.23, sitting in the median range for the past year, still far from the PS values in the hundreds during the peaks of 2021-2023.

When compared horizontally, Aave’s PS metric is much lower than that of Compound, Silo, and Benqi, but higher than Venus.

It’s important to consider that DeFi, similar to traditional financial enterprises, has highly cyclical revenue multiples. Typically, PS decreases rapidly during bull markets and increases during bear markets.

1.2 Morpho: The Rising Star

Morpho started as a yield optimization protocol based on Compound and Aave, originally acting as a symbiotic project. However, in 2024, it officially launched the permissionless lending protocol Morpho Blue, becoming a direct competitor to major lending projects like Aave. After its launch, Morpho Blue experienced rapid business growth and was favored by new projects and assets. Morpho currently operates on Ethereum and Base.

Current Business Status

Morpho offers several products, including:

Morpho Optimizers

Morpho’s initial product aimed to enhance capital efficiency for existing DeFi lending protocols like Aave and Compound. It optimized fund usage by depositing user funds on these platforms to earn base yields and matching funds peer-to-peer based on borrowing demand.

As Morpho’s first-generation product, Morpho Optimizers accumulated significant users and funds, helping Morpho Blue avoid a cold start. However, despite still holding substantial funds, the interest rate optimization from its matching feature has become negligible. This product is no longer a focus on Morpho’s development and has stopped allowing new deposits and loans since December last year.

Morpho Blue (or simply Morpho)

Morpho Blue is a permissionless lending protocol that allows users to create custom lending markets. Users can freely choose parameters such as collateral assets, loan assets, liquidation ratios (LLTV), oracles, and interest rate models to create independent markets. The protocol’s design ensures that market creators can manage risks and returns based on their assessments without external governance intervention, thus meeting diverse market needs.

After its launch, Morpho Blue’s rapid growth put pressure on lending giant Aave, which subsequently introduced the Merit incentive program. According to the program, users following the incentive rules on Aave receive rewards, while those using Morpho may face reduced incentives.

Before Morpho Blue, most isolated lending markets focusing on niche or new assets, like Euler and Silo, were generally unsuccessful, with most funds still concentrated on centrally managed platforms like Aave, Compound, and Spark, using mainstream blue-chip assets as collateral.

Morpho Blue has successfully paved the way, thanks to several factors:

• A long-standing, positive safety record. Before Morpho Blue, Morpho Optimizers managed substantial funds without any issues, earning DeFi users’ trust.
• Serving only as the underlying protocol for lending markets, it opens parameters such as asset support, asset parameter design, oracle selection, and fund management permissions:
  • This further liberalizes the lending market, allowing for a quick response to market demands. New asset issuers actively build markets on Morpho to offer leverage services, and specialized risk service providers like Gauntlet can create and profit from their own evaluated vaults without relying solely on servicing major platforms like Aave and Compound.
  • It enables further specialization in lending services, where participants focus on their roles, enriching product options. Crucially, “free outsourcing” reduces costs associated with self-operated businesses, such as frequent protocol upgrades, code audits, and services from specialized risk providers.

MetaMorpho Vaults

MetaMorpho Vaults are asset management tools designed to simplify the lending process, providing liquidity and yield opportunities. Users earn returns by depositing assets into vaults managed by professional teams, which are optimized based on unique risk configurations and strategies. Currently, funds from these vaults primarily flow into various lending markets built on Morpho Blue.

After understanding Morpho’s product situation, let’s take a look at the key business data of Morpho.

Active loans

Morpho’s highest total loan volume, similar to Aave, was at the end of January, reaching 2.35 billion, and is currently 1.9 billion.

Morpho has not officially initiated protocol fees yet, so there is no protocol revenue. However, we can observe the “Fee” (the total income earned by depositors from the protocol) to estimate the potential revenue Morpho could generate if it decides to implement protocol fees.

In February 2025, Aave generated a total fee of 67.12 million, while Morpho generated 15.59 million.

During the same period, Aave created 8.57 million in protocol revenue from the generated 67.12 million fee, indicating an approximate fee retention rate of 12.8% (just a rough calculation).

Since Aave is a lending protocol operated by the Aave Dao, it can direct all income from its lending market to its treasury while covering operational expenses.

On the other hand, Morpho serves as an underlying protocol for lending markets and involves numerous third-party participants, such as market creators and vault operators. Therefore, even if Morpho decides to activate protocol fees in the future, the proportion of revenue it can retain from the generated fees will likely be significantly lower than Aave’s, as it needs to be shared with other service providers. I estimate Morpho’s actual fee retention rate to be 30% to 50% of Aave’s, which is approximately 3.84% to 6.4%.

By calculating (3.84% to 6.4%) * 15.59 million, we can estimate that if Morpho implements protocol fees,its protocol revenue from February′s total fee of 15.59 million would range roughly from 598,700 to 997,800, which is 7% to 11.6% of Aave’s protocol revenue.

Token Incentives

Morpho also uses its own tokens for incentives, but unlike Aave, which incentivizes deposit insurance, Morpho directly incentivizes borrowing and lending activities. As a result, Morpho’s core business data may not be as organically strong as Aave’s.

According to Morpho’s token incentive dashboard, in the Ethereum market, Morpho’s current overall subsidy rate for borrowing is approximately 0.2%, and for deposits, it is about 2%. In the Base market, the borrowing subsidy rate is about 0.29%, and the deposit subsidy rate is approximately 3%.

Morpho has frequently adjusted token incentives. Since December of last year, the Morpho community initiated three proposals to gradually reduce the token subsidies for user borrowing and lending activities.

The latest Morpho incentive adjustment occurred on February 21, reducing the number of reward tokens on ETH and BASE by 25%. Post-adjustment, the annual incentive expenditure of Morpho will be:

• Ethereum: 11,730,934.98 MORPHO/year
• Base: 3,185,016.06 MORPHO/year

Total: 14,915,951.04 MORPHO/year

Based on today’s Morpho market price (March 3, 2024), the corresponding annual incentive budget is $31.92 million. Given Morpho’s current protocol scale and generated fees, this incentive amount is quite substantial.

However, it is expected that Morpho will continue to reduce incentive expenditures and eventually cease subsidies altogether.

Competitive Landscape

In terms of market share of total loan amounts, Morpho accounts for 10.55%, slightly higher than Spark, but still significantly behind Aave, placing it in the second tier of the lending market.

Morpho’s Competitive Advantages

Morpho’s moat mainly comes from the following two aspects:

1. Solid Security History: Morpho’s protocol hasn’t been around for too long; since the launch of its yield optimization product, it has been operational for nearly three years without any major security incidents. This track record has built a solid reputation for security, as evidenced by the increasing volume of funds it attracts, reflecting user trust.
2. Focus on Lending Base Protocol: This approach, previously analyzed, helps attract more participants into the ecosystem, providing a richer and faster selection of lending options, enhancing specialization in different areas, and reducing operational costs.

Challenges and Risks

Morpho faces challenges from competition with other lending protocols, and the ecological impact of L1 competitors like Ethereum and Solana. Additionally, its token will face significant unlock pressures over the next year.

According to Tokenomist data, Morpho’s new token unlocks over the next year will equal 98.43% of its currently circulating supply, resulting in an inflation rate close to 100%. Most of these tokens belong to early strategic investors, early contributors, and Morpho DAO, potentially exerting significant downward pressure on the token price.

Valuation Reference

Although Morpho has not yet activated protocol fees, based on its generated protocol fees, we have estimated potential revenues upon fee activation. Based on its February protocol fee, projected revenue could range between 598,700 to 997,800.

Using today’s (March 3rd) FDV of $2,138,047,873 (Coingecko data) and the estimated income, its PS ratio ranges from 178 to 297, indicating a significantly higher valuation level compared to other mainstream lending protocols.

However, if calculated based on circulating market cap, Morpho’s circulating market cap as of today (March 3rd) is $481,361,461 (Coingecko data), resulting in a PS ratio of 40.2 to 67. Compared to other lending protocols, this metric is not excessively high.

Of course, using FDV as a market cap reference is a more conservative valuation comparison method.

1.3 Kamino: The Number One Player on Solana

Kamino Finance is a comprehensive DeFi protocol based on Solana, established in 2022. Its initial product launch was an automated management tool for concentrated liquidity. Currently, it has integrated lending, liquidity, leverage, and trading functions. However, lending remains its core business, contributing the majority of the protocol’s revenue. Kamino charges various fees for its services. In the lending sector, these include a commission on interest income, an initial fee charged at the time of borrowing, and liquidation fees. For liquidity management, fees include deposit fees, withdrawal fees, and performance fees.

Current Business Status

Active Loans

Currently, Kamino’s loan size is 1.27 billion, with a peak loan volume of 1.538 billion occurring in late January this year.

Revenue

January was the highest revenue month for the Kamino protocol, reaching 3.99 million. February also performed well, with revenue at 3.43 million.

In January, for instance, lending accounted for 89.5% of Kamino’s protocol revenue.

Token Incentives

Unlike other lending protocols that directly use token incentives, Kamino employs a new incentive method called the “seasonal points system.” Users earn project points by completing designated activities and receive a share of the total token rewards at the end of the season based on their points.

Kamino’s first season lasted three months and distributed 7.5% of the total token supply as a genesis airdrop. The second season also lasted three months, distributing 3.5% of the tokens.

Based on the current token price, the total 11% of KMNO tokens distributed over these two seasons is valued at $105 million, significantly driving Kamino’s rapid growth over the past year.

Kamino’s third season is currently underway. Unlike previous seasons, it began on August 1st last year and has continued for over six months, with no end yet. This has not slowed Kamino’s growth; if the third season’s airdrop mirrors the second, the incentive could be valued between 30 to 40 million.

Notably, one of the main functions of Kamino’s KMNO token is to accelerate point acquisition through staking, enhancing user engagement and token retention.

Competitive Landscape

On the Solana blockchain, major lending protocols include Kamino, Solend, and MarginFi.

• Kamino: Currently holds 70% to 75% of the market share (by loan volume), with its market presence on Solana even stronger than Aave’s on Ethereum.
• Solend: Led the market from 2022 to 2023 but experienced slowed growth in 2024, reducing its market share to below 20%.
• MarginFi: Faced a management crisis in April 2024, leading to a mass withdrawal of user assets and dropping its market share to single digits.

Kamino’s total value locked (TVL) has secured a stable position in the top two on Solana, second only to Jito, which focuses on staking. Its lending TVL has also significantly surpassed former competitors like Solend and MarginFi.

Competitive Advantages of Kamino

1. Rapid Product Iteration and Strong Delivery Capability: Founded in 2022 by members of the Hubble team, Kamino was initially positioned as the first concentrated liquidity market maker optimizer on Solana. This pioneering product met user needs in the concentrated liquidity market making by offering an automated, optimized yield liquidity vault solution. Building on this foundation, Kamino has expanded into lending, leverage, trading, and other modules, forming a full-stack DeFi product suite. Such integrated DeFi projects across multiple scenarios are rare, and Kamino’s team continues to explore new ventures.
2. Proactive Ecological Integration: Kamino has been actively building a network of partnerships both within and outside the Solana ecosystem. A notable example is its integration with PayPal stablecoin—Kamino was the first Solana protocol to launch and support PYUSD lending, taking a leading role in the asset’s expansion. Additionally, its collaboration with Solana staking project Jito resulted in leverage products related to JitoSOL, attracting many SOL stakers to Kamino. With the announcement of Kamino Lend’s V2 upgrade in 2024, plans include introducing order book lending, supporting real-world assets (RWA), and opening modular interfaces for other protocols. These moves will further embed Kamino in Solana’s foundational financial infrastructure, making it harder for competitors to challenge its position as more projects are built on Kamino and new capital prefers to flow into it.
3. Economies of Scale and Network Effects: The DeFi lending space exhibits a noticeable “winner-takes-all” effect, with Kamino’s rapid expansion in 2024 exemplifying this network effect. A high TVL and liquidity mean safer borrowing and lower slippage, boosting confidence for significant investors to enter the platform. This substantial fund scale acts as a competitive barrier: capital typically flows to platforms with the most liquidity, further augmenting the platform’s scale. Kamino benefits from the positive feedback of these network effects through its early accumulation of liquidity and users.
4. Strong Track Record in Risk Management: To date, Kamino has not experienced any major security incidents or large-scale liquidations. In contrast, competitors like MarginFi have faced issues that drove ecosystem users toward Kamino.

Challenges and Risks

Aside from common risks faced by newer lending protocols, such as contract security and asset parameter design, Kamino’s potential issues include:

Token Economy, Inflation Pressure, and Profit Distribution

Kamino employs a points system similar to a Ponzi model, akin to Ethena. If the value of future airdropped tokens falls short of expectations, it may lead to some user attrition (though given its current scale, this is less of a concern for the project’s objectives). Additionally, according to tokenomics data, a significant amount of KMNO tokens will be unlocked over the next year, with an inflation rate of 170% based on the current circulating supply. Furthermore, all current protocol revenue seems to be funneled into the team’s pockets, without distribution to token holders or even being added to the treasury. While it’s typical for decentralized governance to be absent in early stages, if protocol revenue isn’t shifted to a DAO-controlled treasury and lacks transparent governance and financial planning, entirely monopolized by the core team, the expected value of protocol tokens may decline further.

Development of the Solana Ecosystem

Although Solana’s ecosystem development in this cycle has outperformed Ethereum, apart from memes, Solana has yet to see a track type with a clear Product-Market Fit (PMF). DeFi remains Ethereum’s strong point. Solana’s ability to expand asset types and capacity and attract more capital will be crucial for Kamino’s potential growth ceiling.

Valuation Reference

Using Kamino’s recent 30-day revenue and its Fully Diluted Valuation (FDV) as benchmarks, we calculate the Price-to-Sales (PS) ratio for its FDV and Market Cap based on data from CoinGecko, resulting in:

FDV PS = 34, MC PS = 4.7. This earnings multiple is relatively low compared to other major lending protocols.

1.4. MakerDAO: Old Roots, New Blossoms?

MakerDAO is one of the earliest DeFi protocols on the Ethereum blockchain, founded in 2015, making it nearly a decade old. With its first-mover advantage, its stablecoin DAI (including its upgraded version USDS) has long been the largest decentralized stablecoin in the market.

In terms of its business model, MakerDAO’s primary revenue comes from the stability fees paid for generating DAI and from the spread of DAI. This model is quite similar to the interest spread in lending protocols: borrowing DAI from the protocol incurs fees; providing excess liquidity to the protocol (sUSDS & sDAI) earns interest.

Moreover, looking at the business process, generating DAI with a CDP (Collateralized Debt Position) by depositing ETH is not much different from depositing ETH into AAVE to borrow USDC. Therefore, in early DeFi analyses, many regarded CDP protocols like MakerDAO as a form of lending protocol. With the brand upgrade to Sky, MakerDAO also launched a standalone lending protocol called Spark, which is why we consider MakerDAO as a lending protocol and analyze it in this section.

Current Business Status

Active Loans

For a stablecoin protocol, the most important metric is the scale of its stablecoin, which corresponds to the loan size for lending protocols.

The loan size for MakerDAO is currently close to 8 billion. It is still below the last cycle′s peak of 10.3 billion.

Spark’s loan size is around $1.6 billion, higher than that of the established lending protocol Compound but slightly lower than Mophro mentioned above.

Revenue

The concept corresponding to protocol revenue for MakerDAO and lending protocols should be the sum of all revenues, minus the interest costs paid to sDAI and sUSDS. From the chart below, we can see that MakerDAO’s revenue primarily consists of stability fees, totaling $421 million, which constitutes the vast majority of its income. Other contributions such as liquidation fees and price stability module charges are minimal.

Within stability fees, the DAI issued through Spark is expected to generate an annualized stability fee of 140 million, while DAI directly generated from USDC can yield 125 million in stability fees. These two parts account for two-thirds of the stability fees. The remaining stability fees come from DAI generated by RWA (71.83 million) and crypto asset-collateralized (78.61 million).

To incentivize the generation of stability fees at this scale, MakerDAO is expected to pay 246 million annually, MakerDAO′s annual protocol revenue is approximately 175 million, with an average weekly income of $3.36 million.

MakerDAO also reported its protocol operating expenses, totaling 96.6 million annually. After deducting operating expenses from the protocol revenue, the net profit is approximately 78.4 million, which is the main source for MKR and SKY buybacks.

Token Incentives

One reason for MakerDAO’s recent brand upgrade is the lack of additional MKR reserves to incentivize new business growth. Currently, MakerDAO’s token incentives are mainly used to encourage the deposit of USDS. Since the incentive plan’s launch at the end of September 2024, 274 million SKY tokens have been distributed over five months, equivalent to 17.4 million, with an annualized incentive amount of around 42 million.

Competitive Landscape

Currently, MakerDAO’s market share in the stablecoin sector is 4.57%. Stablecoins are one of the clearest areas of demand for cryptocurrency. As an established stablecoin, MakerDAO has built certain advantages, such as brand impact and first-mover advantage. This was evident in the previous Curve liquidity battle, where DAI, as part of 3CRV, could naturally benefit from significant incentives released by other stablecoin projects aiming to establish popularity.

However, the competitive situation for MakerDAO in the stablecoin sector is not optimistic. As shown in the market share chart below, MakerDAO’s market share (represented by the pink segment) decreased during this cycle instead of increasing.

The core factor behind this phenomenon is that DAI, the third-largest stablecoin, has lost (or perhaps never truly had) the function of a settlement tool. Currently, users hold USDT and DAI for entirely different purposes: USDT is primarily used as a settlement tool, while DAI is held for leveraging and yield purposes. Aside from both being pegged to the US dollar, they share few commonalities.

Stablecoins with settlement capabilities have strong network effects, but unfortunately, DAI lacks such functions, making it difficult to develop network effects.

In terms of issuance scale, DAI’s market share is gradually decreasing. DAI still hasn’t returned to its 2021 peak issuance level, while USDT’s issuance continues to rise, having doubled since the end of 2021.

Stablecoins solely as yield tools have limited potential. Growth relies on ongoing yield incentives and various external conditions (such as relatively high US Treasury rates). Achieving long-term organic growth is crucial for MakerDAO to thrive anew in the stablecoin market.

Challenges and Risks

Beyond the challenges we’ve previously analyzed, MakerDAO also faces competition from newcomers.

The new stablecoin player, Ethena, has grown rapidly. In less than a year, its market size is already 60% that of MakerDAO’s. Ethena’s core product focuses on yield-driven stablecoins and has a significant advantage over MakerDAO: its yield base—”arbitrage profits from cryptocurrency perpetual contracts”—is much higher than MakerDAO’s “Treasury RWA yields.” In the medium to long term, if Treasury rates continue to decline, USDE will demonstrate a greater competitive edge over DAI.

Furthermore, MakerDAO’s governance capabilities are concerning. With a team costing $97 million annually, MakerDAO’s governance outcomes are inefficient and opaque. A prime example is the costly rebranding from MakerDAO to SKY, only to later reconsider reverting to Maker—a process that seems almost whimsical.

Valuation Reference

With protocol revenue of $175 million, MKR’s current price-to-sales (PS) ratio is about 7.54, making it relatively cheaper compared to its main competitor, Ethena (22). Historically, MKR’s PS ratio has also been consistently low.

2. Liquid Staking Sector – Lido and Jito

Liquid staking stands as one of crypto’s native verticals, offering enhanced liquidity and composability compared to native staking mechanisms. This inherent value proposition drives sustained demand and establishes its pivotal role within PoS chain ecosystems. Notably, the protocols commanding the largest TVL on Ethereum and Solana – the two most significant PoS chains – are both liquid staking solutions: Lido and Jito, which we will subsequently analyze.

For liquid staking protocols, the paramount evaluation metric remains staked asset volume (equivalent to TVL in this context). The operational model introduces a third-party dynamic through node operators, necessitating a revenue-sharing arrangement where protocol revenue is partially distributed to these network participants. Consequently, gross profit emerges as a more indicative performance benchmark than raw revenue figures. Concurrently, token incentives – representing protocol expenditure – must be rigorously evaluated to complete the economic assessment framework.

2.1 Lido: Treading Carefully on Ethereum

Current Business Status

Lido launched its operations at the end of 2020 with the opening of ETH staking, and within six months, it secured a leading position in Ethereum network liquid staking. Previously, Lido was the largest liquid staking service provider on the Luna network and the second largest on the Solana network, having expanded its services to nearly all major PoS networks. However, starting in 2023, Lido began a strategic contract, and currently, ETH liquid staking is Lido’s sole business. Its business model is straightforward: Lido stakes users’ ETH through various node operators on Ethereum, taking a 10% share of the staking rewards as protocol revenue.

Assets Staked

Currently, more than 9.4 million ETH are staked in Lido, accounting for about 8% of circulating ETH. This gives Lido a staking asset size (TVL) of over 20 billion, making it the protocol with the largest TVL today. At its peak, Lido′s TVL was nearly 40 billion.

The fluctuation in the staked asset size, when measured in ETH, is much smaller. Since 2024, the amount of ETH staked with Lido has remained relatively stable. Most of the changes in Lido’s staked asset size are due to fluctuations in the price of ETH.

Lido’s staked asset size has continued to grow, primarily due to the gradual increase in Ethereum’s network staking rate (from 0% to 27%). As a leading liquid staking service provider, Lido has benefited from the overall market growth.

Gross Profit

Lido takes 10% of staking rewards as protocol revenue. Currently, this revenue is split, with 50% going to node operators and 50% to the DAO, resulting in a 5% gross profit. As shown in the chart below, Lido’s gross profit has steadily increased. Over the past year, the weekly gross profit of the Lido protocol has fluctuated between 750,000 and 1.5 million.

It can be observed that Lido’s protocol revenue is strongly correlated with the size of staked assets, driven by their fee structure. Weekly changes in Lido’s protocol revenue are mainly due to fluctuations in the price of ETH.

Token Incentives

In the first two years after launch (2021-2022), Lido spent a significant amount of LDO tokens to incentivize the liquidity of its stETH and ETH. Over two years, it expended over $200 million in token incentives, which helped ensure ETH liquidity during major market liquidity crises, such as China’s BTC mining ban in May 2021, the LUNA crash in May 2022, and the FTX collapse in November 2022. This resulted in Lido’s leading position in liquid staking on the Ethereum network.

After this, Lido’s spending on token incentives significantly decreased, with expenditures below $10 million in the past year. The primary allocation of these token incentives is towards ecosystem development. Lido maintains its current market share with almost no need for token incentives.

Competitive Landscape

In the realm of liquid staking projects on the Ethereum network, few can compete with Lido. Currently, the second-largest liquid staking project, RocketPool, has a staked asset size that is less than 10% of Lido’s.

Among newer projects, the Liquid Restaking project ether.fi poses some competitive pressure on Lido. However, ether.fi’s staked asset size is only about 20% of Lido’s. Additionally, with Eigenlayer’s token issuance, the growth rate of ether.fi’s staked assets have significantly slowed, making it unlikely to challenge Lido’s position in Ethereum staking.

Over time, Lido has developed a significant moat:

1. Network Effects from stETH (wstETH) Liquidity and Composability: Beyond the liquidity advantages mentioned earlier, stETH is accepted as collateral by all major lending and stablecoin protocols. This unmatched composability among LSTs can significantly influence new stakers’ choices.
2. Accumulation of Security Credit and Brand Recognition: Since its launch, Lido has not experienced major security mishaps. Combined with its long-standing market leadership, this reputation makes it a key consideration for whale users and institutions when selecting staking service providers. Notable examples include Justin Sun and Mantle, before developing their mETH, who used Lido’s services.

Challenges and Risks

Lido currently faces significant challenges related to the decentralization demands of the Ethereum network.

For PoS chains, stakers determine consensus formation, and the Ethereum ecosystem is particularly dedicated to decentralization among mainstream PoS chains. As a result, concerns about Lido’s scale have been quite “stringent.” When Lido’s staked assets reached 30% of the Ethereum network’s total, there were calls to limit Lido’s growth. The Ethereum Foundation has been actively adjusting its staking mechanisms to prevent any “overly large single staking entity” from emerging.

For dApps, a significant challenge is when their sole underlying blockchain doesn’t support or restricts their business development. This presents a long-term challenge for Lido. Despite recognizing this and focusing entirely on Ethereum by cutting off operations on other chains from 2023, results have been limited.

Moreover, while the current ETH staking rate is below 30% (at 28%), there’s still a notable gap compared to other top PoS chains like Solana (65%), ADA (60%), and SUI (77%). However, the Ethereum team has historically wanted to keep the staking rate under 30%, limiting Lido’s potential market expansion.

Additionally, ETH’s underperformance in this cycle has been challenging for Lido, whose success is closely tied to ETH’s price.

Valuation Reference

Over the past year, LDO’s PS ratio has been at historic lows. In the past six months, it has consistently remained below 20.

It’s also worth noting that there is a possibility of protocol revenue being converted into LDO revenue this year. Starting in 2024, there have been multiple community proposals to allocate protocol revenue (the 5% allocated to the DAO) to $LDO holders. However, the core team, out of caution, has opposed this idea, and several governance votes have not passed. With the regulatory environment becoming significantly more relaxed and the protocol achieving accounting profitability from 2024 onwards (meaning revenue exceeds all expenses, including team salaries), the core team has officially included in their 2025 goals a discussion on “directly linking protocol revenue to LDO.” We might see $LDO beginning to capture staking revenue from the protocol in 2025.

2.2 Jito: Quietly Profiting on Solana

Current Business Status

Jito is a leading liquid staking service provider on the Solana network and also serves as an MEV infrastructure. In 2024, they began offering restaking services, although the scale is still small, with TVL just exceeding $100 million, and the revenue sources for restaking remain unclear. Jito’s main businesses are still liquid staking services and MEV provisioning.

The liquid staking service that Jito offers on Solana is similar to Lido’s on the Ethereum network, utilizing node operators to stake deposited SOL and extracting 10% from user earnings as protocol revenue.

In terms of MEV, the Jito Labs team previously took 5% of all income. However, with the recent launch of NCN (Node Consensus Networks) and proposals like JIP-8 at the end of January this year, the Jito protocol now obtains 3% of MEV revenue, distributed as follows: 2.7% goes to Jito DAO, 0.15% to stakers in the JTO Vault, and 0.15% to jitoSOL and other LST stakers.

When users conduct transactions on Solana, the gas fee they pay can be divided into three categories: base fee, priority fee, and MEV tip. The base fee is mandatory, while the priority fee and MEV tip are optional, both primarily aiming to increase transaction priority. The difference is that the priority fee boosts the transaction’s priority in the on-chain phase, which is universally set by the Solana protocol and belongs to validators (i.e., stakers). The MEV tip, however, is an independent agreement between the user and MEV service provider, aiming to obtain a higher transaction priority with the MEV provider (a prerequisite for being on-chain), with specific allocation determined by the MEV provider.

Currently, Jito’s MEV service returns 94% of the fees to validators, with 3% extracted by Jito Labs and 3% distributed to the Jito protocol. In the Solana network’s gas fees, the base fee is negligible, while the proportions of the priority fee and MEV tip are similar.

Compared to Lido on Ethereum, Jito can extract more value from MEV revenue due to its near-monopoly in Solana’s MEV ecosystem (similar to Flashbots’ position in Ethereum).

Next, let’s look at Jito’s specific data:

Assets Staked

Currently, Jito’s staked assets (liquid staking) exceed $2.5 billion.

In terms of SOL, Jito has staked 15.82 million SOL, which is approximately 3% of the total circulating supply of SOL. Over the past year, the amount of staked SOL has shown a steady linear increase.

In the MEV domain, Jito holds a near-monopoly position in Solana. Of the 394 million SOL staked, over 94% utilize Jito’s MEV services.

Gross Profit

Jito’s current protocol revenue comes from two sources: they take 10% of the yield generated by liquid staking and 3% of MEV income. Jito currently shares 4% of the liquid staking yield with node operators, resulting in a gross profit of 60% for this part of the revenue. Since I couldn’t find separate data for Jito’s gross profit, we’ll analyze it based on Jito’s revenue situation, as shown in the chart below:

It can be seen that Jito’s revenue is closely tied to the activity on the Solana network. Starting from October 2024, their revenue increased significantly, exceeding 1 million weekly. There were two notable peaks: on November 20 and January 20, when Jito′s protocol revenue reached 4 million and $5.4 million, respectively, corresponding to major speculative waves on the chain. However, as activity on the Solana chain cooled, their revenue quickly decreased.

Regarding the MEV portion, since MEV revenue sharing was just introduced, I couldn’t find specific statistics on mainstream data sites or Dune. However, we can estimate based on Jito’s total MEV revenue. Below is Jito’s total MEV revenue situation:

The trend of Jito’s total MEV revenue aligns with their liquid staking income. At its peak on January 20, this year, MEV’s total revenue was 100,000 SOL. After October 2024, the average daily MEV income was around 30,000 SOL, with a minimum of 10,000 SOL.

Using a protocol revenue rate of 3%, we back-calculate this period’s income. The highest single-day income was 3,000 SOL, equivalent to approximately 840,000 at the time. The highest weekly income was 14,400 SOL, about 3.7 million, and the average daily MEV income was 1,000 SOL (approximately 170,000U, For more details, readers can refer to the prediction in the JIP-8 proposal.

Overall, in addition to the current liquid staking revenue, MEV income can roughly increase Jito’s revenue scale by 50%.

From a gross profit perspective, liquid staking revenue generates an average weekly gross profit of around $600,000. The MEV revenue boasts a gross profit margin as high as 95% (with only the 0.15% allocated to jitoSOL not considered gross profit, and the portions entering the DAO and JTO Vault counted as gross profit). The corresponding gross profit is approximately $1,000,000 per week. This could increase Jito’s gross profit by about 150%, with the annualized gross profit reaching approximately $85 million.

It’s important to note that Jito’s revenue and gross profit are strongly related to the activity on the Solana network. As the meme trading frenzy on Solana has faded recently, their daily revenue has dropped to about 10% of its peak, showing significant volatility.

Token Incentives

For both liquid staking and MEV, Jito does not employ token incentives in their operations. The only form of token incentive was a 10% one-time token airdrop at launch.

Competitive Landscape

Restaking has not yet achieved a true product-market fit, so we will focus on Jito’s competitive situation in liquid staking and MEV.

In the Solana liquid staking market, although Jito launched in 2023, it has quickly risen to a leading position. Previously dominant players, Marinade and Lido, once held over 90% of the Solana liquid staking market. However, due to their own reasons, Jito has surpassed them.

Since the end of 2023, the Solana liquid staking market has seen an influx of new players like Blazestake and Jupiter joining the fray. However, Jito’s market share remained unaffected initially. Starting in October 2024, exchange-based SOL liquid staking products (mainly Binance’s bnSOL, as well as Bybit’s bbSOL) caused a dip in Jito’s market share. This shift primarily arises from centralized exchanges’ inherent asset custodial advantage, as they converted their SOL investment products from native staking to liquid staking, offering users a superior experience and thereby quickly increasing their market share. From Figure 1, we also observe that the growth from bnSOL and bbSOL is relatively independent, not encroaching on the share of any specific LST protocols.

Currently, over 90% of Solana’s staking is still native, with less than 10% involving liquid staking. This leaves significant room for growth compared to Ethereum’s approximately 38% liquid staking rate. While participating in Solana’s native staking is much easier for average users than Ethereum’s, Solana’s liquid staking ratio may not eventually match Ethereum’s. Nonetheless, liquid staking offers better liquidity and composability. In the future, Jito is expected to continue benefiting from the overall increase in Solana’s liquid staking scale.

In the MEV sector, Jito commands over 90% of the market share with virtually no competition. The potential for this market largely depends on the future activity on the Solana chain.

Overall, Jito has a solid leading edge in both the liquid staking and MEV sectors on the Solana network. This was also underscored when the SEC’s ETP working group consulted Jito on ETF staking issues.

Challenges and Risks

Jito’s current business and income are heavily reliant on the popularity of the Solana network, making this the primary risk they face. After the TRUMP and LIBRA events, interest in Meme coins cooled rapidly, causing a sharp decline in SOL’s price and a resulting decrease in Jito’s revenues. Whether Jito’s business can regain momentum in the future will largely depend on Solana network activity.

In the liquid staking domain, competition from centralized exchanges could impact Jito’s market share.

From an investment standpoint, another potential risk is the circulation rate of the JTO tokens, which is less than 40%. A significant 15% unlock occurred last December, and there will be continuous linear unlocking over the next two years, with an inflation rate of 62% in the next year. The selling pressure from early investors is also a potential risk factor.

Valuation Reference

With the recent rise in Solana’s popularity, the fully diluted PS valuation of JTO has rapidly decreased, currently down to around 33. This valuation does not yet account for the recently started MEV income. If MEV income is considered, the fully diluted valuation of JTO would decrease to approximately 22.

Additionally, JTO might accelerate revenue sharing. Currently, 0.15% of the MEV revenue collected by the protocol is allocated to JTO stakers. As revenue continues to grow, more income will likely be distributed to JTO stakers in the future.