Ashok Menon

The Most Lucrative Business on Sui Three protocols represent 2/3 of the total Sui TVL ($0.8/1.2B) and generate millions every month. They are the Lending Protocols or Money Markets. They generate each about 50k usd weekly in revenue atm. But if @navi_protocol and @suilendprotocol have a similar TVL, @Scallop_io is 3x smaller. If we compare to equivalent startups on other chains: - @KaminoFinance owns 5x the TVL of Suilend or Navi but generates 10x more revenue - @aave has 10x the TVL of Kamino but the same revenue So why these big discrepancies? Borrow Fee The answer lies in the borrow fee. This is a fee that is deducted from the borrowed amount. e.g. borrow 100 SUI with 1% fee. you get 99 SUI. but you must still repay 100 SUI at some point. Let's break it down for each protocol: > Navi - 0.3% fee > Suilend - 0.3% (main assets) 1% (isolated assets) > Scallop - 0.3% (main assets) 1% (isolated assets) Suilend and Scallop have identical fee model so why is Scallop generating 3x more revenue proportionally to the TVL? More Fees This is because these protocols collect fees at multiple levels! They also earn from interest rates charged on borrowings which can represent up to 40% of the paid interest on borrows. There are also fees on liquidations (up to 10%) and flash loans. Incentives The thing is that these high fees should complicates drastically the acquisition of borrowers. Fortunately, Mysten Labs / Sui Foundation have massive funds to develop the ecosystem. The insane growth of Sui DeFi is mainly due to huge incentives distributed by users via protocols. It has been very effective (at least on the short term), hence why Aptos is replicating this strategy. Suilend received about $1M in incentives on a 2 weeks duration at the beginning of the month. This completely offsets the fees from the user perspective. Incentives criteria are opaque so all we know is that Mysten is delegating its management to an external firm (@openblocklabs). This firm relies on data (including fees) to attribute incentives. The highest the metrics, the highest the incentives. That is why we see practices such wash trading and high fees. Wrapping up If blockchain was supposed to remove "parasite" intermediaries, we can ask ourselves if we are not deviating from this principle by introducing new "rentiers". Aave never charged an upfront fee that penalize borrowers heavily on the short term - 1% fee on an asset with 10% apr represent about 1 month of farming. Kamino changed this paradigm by introducing a 0.5% fee that probably inspired Sui protocols. If incentives definitely helped putting Sui on the map (top 22 in MC but top 9 in TVL), they first benefit to a minority that "sell the shovel". Not to mention the fact that they completely prevent healthy competition since without these free millions it's impossible to compete. No system is perfect but it might be time for these fintech startups to iterate, especially when incentives are drying up. Bonus, you can find easter eggs like Navi claiming (and keeping) rewards for users that would forget to collect their rewards upon season change (fixed now).