DeFi Protocols Such as Lido Are Generating More Fees Than Layer 1 Blockchains

In what’s become a growing trend, some decentralized protocols are now earning more in fees than their base layer networks.

According to Ethan Francis, the head of protocol relations at Web3 infrastructure provider Particle Network, fees generated by DeFi projects will continue to grow in the next six to 12 months as a result of “chain abstraction,” in which end users conducting onchain transactions are not going to know which chains they are using. “We’re moving into this future quite quickly, especially on the user experience level where eventually users are going to be able to access different protocols and applications in general from any chain,” Francis said to Unchained in a conversation. 

As a result, “over the next six [or] 12 months, these applications are going to have users from the entire ecosystem… My expectation is that with this movement and UX, fees will be significantly higher.” 

“Fee-based models are proving to be the champion of revenue models of crypto,”  said Francis, pointing to how DeFi protocols are generating millions of dollars in fees on a weekly basis, sometimes more than the base layer blockchains. 

Here are the top five protocols by fees generated in the past week, outside of layer 1 blockchain networks: 

1. Lido – $19.1 Million

Lido, the leading liquid staking provider,  is at the forefront of fee generation among crypto projects, surpassing even major layer 1 blockchain networks such as Bitcoin ($5.9 million), Ethereum ($16.2 million), Solana ($9.3 million), and Tron ($9.6 million), data from DefiLlama shows. 

Lido is widely known for its flagship cryptocurrency, stETH, which enables holders to earn rewards by helping secure Ethereum while maintaining liquidity from their illiquid ETH. When someone decides to stake and contribute to Ethereum’s security, their ETH gets locked in a smart contract and can’t be used elsewhere. However, Lido users can use their stETH for a variety of different financial actions, such as supplying to liquidity pools or providing collateral on lending platforms.

According to Lido’s documents, the protocol generates fees by charging 10% on staking rewards, with the money being split between node operators and the DAO treasury. The treasury has an onchain portfolio of $328 million per Etherscan. 

2. Raydium – $18.0 Million

Raydium, an automated market maker native to Solana, charges a small trading fee ranging from 0.01% to 1%  each time a DeFi user swaps cryptocurrencies in a Raydium pool. This fee is divided up and then allocated to incentivize liquidity providers, fund RAY buybacks, and grow the protocol’s treasury, according to Raydium’s documents.

With a 24-hour trading volume of over $29.5 million, Raydium is one of the most popular venues on Solana on which to swap cryptocurrencies, especially memecoins. For example, memecoins inspired by Republican presidential candidate  Donald Trump surviving an assassination attempt on Saturday dominate the top 10 liquidity pools by fees collected in past 24 hours. These liquidity pools include SOL-FIGHT, SOL-EAR, and SOL-DJT. 

3. Uniswap – $9.0 Million

Uniswap, the popular automated market maker on Ethereum, has since expanded to other networks such as Base, Arbitrum, and ZKsync. Fees paid by users are earmarked for liquidity providers, who are individuals or entities that deposit their crypto assets into Uniswap’s liquidity pools allowing users to trade without relying on a traditional middleman. 

Uniswap’s documents indicate that all token swaps have a 0.3% fee that goes toward liquidity providers. “Swapping fees are immediately deposited into liquidity reserves. This increases the value of liquidity tokens, functioning as a payout to all liquidity providers proportional to their share of the pool,” the exchange’s documents state. 

Uniswap has taken governance steps to implement protocol fees aimed at rewarding UNI token holders that have staked and delegated their tokens, but as of press time, fees go toward liquidity providers.

Read More: Uniswap Foundation Reveals Assets and Fund Usage Ahead of Fee Switch Vote

4. AAVE – $6.3 Million

AAVE, the leading lending platform with almost $21 billion in locked liquidity across eight networks, according to its homepage, is also a top protocol by fees earned. 

“Users pay fees whenever they borrow, deposit, liquidate, or use flash loans. The Aave protocol splits fees between the Aave DAO and those who backstop the protocol’s risk in the Safety Module through staking the native token, AAVE,” wrote a Delphi Digital analyst in a 2023 research report. 

5. PancakeSwap – $5.7 Million

PancakeSwap, a protocol on BNB Chain similar to Raydium and Uniswap in that it is another venue on which to swap cryptocurrencies, is also among the top fee-generating platforms.

According to CoinGecko, PancakeSwap’s V3 is the sixth-largest decentralized exchange by 24-hour trading volume with a figure of $48.7 million. Those who provide liquidity to the platform are rewarded in trading fees when people use PanscakeSwap’s pools to execute a swap. 

“Whenever someone trades on PancakeSwap, for each [swap] in each Exchange V3 liquidity pool, depending on the liquidity pool fee tier, the trader pays a fee ranging from 0.01% to 1%,” the exchange’s documents state. 

Honorable Mentions: Jito and Maker

Solana infrastructure heavyweight Jito, known for its liquid staking services, and stablecoin issuer MakerDAO, which issues the DAI token, have collected $5.23 million and $4.59 million in fees, respectively, in the past week. 

Jito’s fees stem from a variety of sources. For example, holders of Jito’s liquid staking token, JitoSOL, pay an annual management fee equal to 4% of total rewards that is applied to staking rewards and MEV revenue. Jito has also implemented a withdrawal fee for users who directly unstake through its front-end website as a means to prevent “certain abuses in the protocol design,” according to Jito’s documents.  

Jito DAO, composed of JTO token holders, “have governance power over components of the Jito Network such as Realms Treasury management to allocate funds for community growth, protocol fee splits, stake pool fees, and other features,” per the protocol’s documents. 

In a similar vein, MKR token holders have governance powers over MakerDAO such as whether to change its “stability fee,” which is charged according to every user’s collateralized debt position. 

Sage is a crypto journalist at Unchained. He owns AAVE and stETH, as well as a few NFTs, gold, silver, BTC, ETH, LINK, PEOPLE, DOGE, PEPE, MOG, and BONK.