With prices moving both up and down this round, the two sets of books that matter most to distinguish are: what does the protocol earn money from, and who pays for the rewards participants receive? Over the rolling 24 hours, $ETH +0.95%. Over the rolling 24 hours, $AAVE -2.69%. Over the rolling 24 hours, $UNI +1.09%. These are spot price movements, not proof of protocol revenue, borrowing demand, or distributions to token holders. Token prices can move, but that doesn't settle the protocol's books.
In terms of mechanics, interest paid by borrowers and fees paid by traders come from using services. Liquidity incentives, on the other hand, are rewards offered to attract participants, and their cost may be borne by the protocol or the ecosystem. The former is fee income; the latter is incentive spending. The payers and the destinations of the money are different. Calling both “returns” may sound convenient, but it can easily reverse how the books are described. This is a general explanation of the mechanics; it does not mean Aave or Uniswap has recently introduced any such arrangement.
We also need to distinguish between stocks and flows: the amount of assets at a given point in time is a stock, while the fees actually received over a period are a flow. A large pool or asset base does not mean high fee revenue; and fees flowing into a protocol do not automatically mean token holders can receive a share. We need to look at what the governance rules say and whether the relevant arrangements have been implemented. A proposal, its approval, and its implementation are not the same thing; a plan should not be treated as something that has already happened.
Lending also carries the risk of liquidations triggered by falling collateral values, while liquidity providers may be exposed to fluctuations in asset prices. The information available isn't enough to confirm current revenue, incentive levels, liquidation parameters, or token-holder rights, so I won't pass off general mechanics as the current state of a project. Rather than focusing only on one day's price movements, I'd rather ask: What are users paying? Where do the fees go? Who bears the cost of rewards? Only when these accounts are clearly distinguished can we discuss what problem the protocol actually solves.
In terms of mechanics, interest paid by borrowers and fees paid by traders come from using services. Liquidity incentives, on the other hand, are rewards offered to attract participants, and their cost may be borne by the protocol or the ecosystem. The former is fee income; the latter is incentive spending. The payers and the destinations of the money are different. Calling both “returns” may sound convenient, but it can easily reverse how the books are described. This is a general explanation of the mechanics; it does not mean Aave or Uniswap has recently introduced any such arrangement.
We also need to distinguish between stocks and flows: the amount of assets at a given point in time is a stock, while the fees actually received over a period are a flow. A large pool or asset base does not mean high fee revenue; and fees flowing into a protocol do not automatically mean token holders can receive a share. We need to look at what the governance rules say and whether the relevant arrangements have been implemented. A proposal, its approval, and its implementation are not the same thing; a plan should not be treated as something that has already happened.
Lending also carries the risk of liquidations triggered by falling collateral values, while liquidity providers may be exposed to fluctuations in asset prices. The information available isn't enough to confirm current revenue, incentive levels, liquidation parameters, or token-holder rights, so I won't pass off general mechanics as the current state of a project. Rather than focusing only on one day's price movements, I'd rather ask: What are users paying? Where do the fees go? Who bears the cost of rewards? Only when these accounts are clearly distinguished can we discuss what problem the protocol actually solves.
