DeFi Lender Takes 42% Hit to Top Line But Stays within the Black With RWA Strategy
At first look, MakerDAO’s monetary efficiency in 2022 appears grim — the No. 2 DeFi protocol suffered an 79% drop in working earnings and its prime line revenues skidded by 42%.
Yet, given the carnage in crypto in 2022, MakerDAO, a pioneer in DeFi lending, can at the very least boast it made cash final yr. And the protocol’s embrace of real-world belongings offered a most welcome supply of development.
Weathering the Bear
According to a report the protocol revealed Friday, MakerDAO recorded $19M in earnings on $62M in income in 2022. That’s a far cry from the underside line of $90M throughout the bull run in 2021. But given the full crypto market shed about two-thirds of its market capitalization final yr, MakerDAO seems to have weathered the bear market higher than most.
“Overall, Maker protocol financial results declined on the back of a major deleveraging cycle that unwound a large amount of lending demand for crypto collateral,” the Maker report stated. “The larger narrative is that MakerDAO exited 2022 unscathed through unprecedented market volatility that unwound extractive and criminal elements from our industry.”
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MakerDAO’s TVL has jumped nearly 20%, to $7B, this yr, in line with knowledge from DeFi Llama. Its native token, MKR, has eked out a 1.5% improve within the final seven days in comparison with a -1.1% slip in ETH.
Investors could need to hold their eye on Maker’s working bills, which jumped 110% in 2022, to $46M. Two-thirds of the funds was eaten up by the operational budgets of Maker’s Core Unit groups. MKR token vesting additionally accounted for $12M value of the protocol’s bills.
MakerDAO is an overcollateralized debt protocol. Borrowers can mint its DAI stablecoin by depositing collateral belongings within the protocol’s good contracts. DAI is the fourth-largest stablecoin with a $5.1B market cap, in line with CoinGecko.
Maker’s income fell proportionately to the decline in crypto lending exercise noticed in 2022. Net stablecoin borrows on Maker, Aave, Compound, and Liquity fell 81% final yr.
DAI’s circulating provide fell from roughly 9B at the beginning of 2022 to 5B on the finish of the yr.
The report stated that Maker’s declining protocol revenues had been partially offset by its publicity to real-world belongings in 2022.
In 2022, Maker’s RWA publicity grew to $640M from $17M, with RWAs driving roughly half of Maker’s earnings whereas representing 10% of its asset holdings .
Maker described its protocol economics as transitioning from “being exposed to market demand for crypto-backed lending” to being uncovered to real-world belongings in 2022.
Real World Assets Can Deliver DeFi’s Promise
RWA Isn’t Just a Buzzword But a Catalyst for a Decentralized Financial System
Major RWA offers included the deployment of 500M USDC into short-term bonds, ETFs, and treasuries in October as a part of a proposal dubbed “Monetalis Clydesdale” and the launch of a 100M DAI vault for Huntingdon Valley Bank — a 151-year-old Pennsylvanian monetary establishment.
In December, RWA pursuits generated Maker 2M DAI in protocol income, of which 1.3M got here from Monetalis Clydesdale.
“RWA vaults roared to life just as crypto lending slowed,” Maker stated.
The report additionally famous that 2.7B DAI held by Maker’s peg stability module (PSM) was not producing yield for the protocol. The PSM permits low-slippage swaps between DAI and different stablecoins, holding vital stablecoin reserves.
“The Maker protocol balance sheet has been under-allocated to productive assets that could earn a positive interest spread,” Maker stated. “Our team has been advocating for improving the return on assets as… the Maker protocol was holding an excessive amount of liquidity in the PSM reserves.”
Looking forward, Maker predicts it’s going to generate $43M in income throughout 2023 and put up earnings of $7M for the yr.