Tokenomics Report - Lending Compr

TOKENOMICS
REPORT:
Lending Protocol
Edition
Author:
Psaul Ogun
Editing:
Yohan
Degennoisseur:
Otter Olie
TABLE OF CONTENTS
Prologue
1. Intro ................................................................................................................ 3 Inflation vs Utilisation Rates Chart ................................... 31
A Market… for Money? ................................................................. 3 Emissions p/a vs Utilisation Rates Chart ....................... 32
Risk On vs Risk-Off Scenario ........................................... 3
Foundation ..................................................................................... 4 Part III ................................................................................................................................... 33
On-Chain Lending ...................................................................................... 4 Tokenomic Feature Table - 1 .................................................................. 34
Recap .................................................................................................................... 6 Tokenomic Feature Table - 2 .................................................................. 35
4. Discussion .......................................................................................................... 36
Part I ................................................................................................................................ 9 Tokenomic Scores [Visualised] ...................................................... 36
2. Protocols ................................................................................................... 10 Protocol Specific Analysis ......................................................................... 37
Ethereum .............................................................................................. 10 Radiant ............................................................................................................. 37
Aave ................................................................................................. 10 Geist ................................................................................................................... 37
Compound .................................................................................. 11 Tectonic ........................................................................................................... 38
Euler .................................................................................................. 12 Starlay .............................................................................................................. 38
Notional ......................................................................................... 13 Wing ................................................................................................................... 39
Silo ...................................................................................................... 14 Aave ................................................................................................................... 39
Geist .................................................................................................. 15 Notional .......................................................................................................... 40
Hundred ......................................................................................... 17 Hundred .......................................................................................................... 40
Radiant .......................................................................................... 18 Euler ................................................................................................................... 41
Benqi ............................................................................................... 19 Moonwell ....................................................................................................... 41
Starlay ........................................................................................... 20 Sonne ................................................................................................................ 42
Tectonic .......................................................................................... 21 Benqi .................................................................................................................. 42
Moonwell ...................................................................................... 22 Silo ....................................................................................................................... 43
Wing ................................................................................................... 24 Compound .................................................................................................... 44
Sonne ................................................................................................ 25
Part IV ................................................................................................................................... 45
Part II ............................................................................................................................. 27 5. Conclusion ........................................................................................................ 46
3. Supply Schedules & Inflation ..................................................... 28 The Lending Flywheel .......................................................................... 46
Inflation Charts .................................................................................. 28 Where to Look ............................................................................................ 46
Current Emissions ............................................................................. 28 Token Management .................................................................... 47
1st & 2nd Years' Inflation ................................................ 29 Balancing Token Value & Decentralisation for
3rd Year Inflation & Circulating Supply ............... 30 Governance ........................................................................................ 48
Emissions p/a ...................................................................................... 31 Injecting Composability ........................................................... 48
Activity ..................................................................................................... 31 6. Closing Statements ................................................................................... 49
Inflation vs Utilisation Rates ..................................................... 31 7. Appendix ............................................................................................................ 50
1. Intro 1.1 A Market… for Money?
Decentralised Finance (DeFi) has the potential to Most people are unaccustomed to the term “money
bring society into a new era of financial market”. They might think: What? Markets… like
engineering. Within the DeFi ecosystem, most where people buy groceries?
attention and volume has been directed to capital
markets through lending and borrowing protocols. Not quite. If you understand what money markets
The key driving factor of this appeal is that lending are you might have some vested interest in
protocols provide users with trustless access to understanding finance or have simply been exposed
secure leverage through an increase in asset to finance bros. Good for you.
exposure.
In the following section, we introduce the concept of
For example, depositors can effectively increase money markets with an example of two market
their exposure to certain assets by looping their participants. The features of money markets can be
collateral into repeated borrows. Alternatively, they fine-tuned in multiple ways and adhere to various
can create dual-yield strategies to short their factors within DeFi for their users.
desired asset using tokens called stablecoins.
Similar methods can be performed to create delta- If you have a firm understanding of money markets
neutral positions by reducing their directional and lending protocols, feel free to jump to the
exposure while maintaining a consistent yield Protocols section and continue this report.
through borrow and lending interest rates.
1.2 Risk-on vs Risk-off Scenario
A money market is where these risk-averse and
risk-seeking players meet and exchange services. Shay: A giga chad DeFi trader, has both
Lenders provide capital, and borrowers provide experience and $10 million unallocated that he
yield through interest payments. Pretty simple. wants to deploy.
Complexity arrives in choosing which protocol to
host your money and either earn yields or take up Shay notices the market is entering a bullish period
one of the positions previously described… or both! and would like to long Bitcoin. Even though he is
bullish, he does not fancy selling off any of his assets
In this piece, we take a snapshot of 14 lending and actually wants an additional $5 million worth
protocols and analyse their tokenomics to: of Bitcoin. Shay is the risk-on participant.
1. Uncover how they use their tokens to attract Lauren: A successful painter that would like to
users and keep them engaged with their generate steady returns with some of the
platform and, earnings from her artwork. She has $5 million
2. Propose efficient models and features any that she wants to put to good use.
new lending protocol could adopt when
creating a go-to-market plan. Lauren is seeking relatively low returns and is
looking to explore her options.
Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Prologue | 3

However, Lauren has a few requirements: These CDPs are enforceable smart contracts that
set limitations for protocols. The majority of lending
24/7 access to her capital at the click of a protocols will offer “Overcollateralised Loans” for
button. participants, which means the value of the collateral
Maintaining her privacy. provided is more than the loan’s value.
Lauren is the risk-averse, or risk-off participant. Since Shay wants to receive his loan and invest in
Bitcoin, he has to deposit an amount that is more
1.2.1 Foundation than the loan amount he requires. In this example,
Shay has deposited $10,000,000 USDC to borrow
In a money market, Lauren would lend her money $5,000,000 USDC.
to earn interest payments from a borrower. Shay is
the perfect counterparty because he needs the 1.3 On-chain Lending
exact amount Lauren is depositing. However, this A marketplace is where buyers and sellers meet.
may not favour Shay since Lauren could be setting From a money markets’ perspective, it is where
the terms of the loan at her discretion. lenders and borrowers meet. One could look at it as
where leverage seekers and capital providers meet
Both participants could use a centralised peer-to- as well.
peer (p2p) platform but Shay values speed and
ease of access. Lauren also wants to be able to opt- One party provides capital that is made available to
out at any time and has privacy concerns with another party (borrowers) under the condition they
centralised entities. provide some assets (collateral) before they take
out a loan (debt). This is where it differs from
In order to fulfill both their needs they can use an uncollateralised loans or credit - which requires a
on-chain lending protocol. We have provided score of some sort, Fico/TransUnion/Experian
examples in Protocols. depending on your jurisdiction.
For this scenario, both participants have funds Revisiting our example to uncover more nuances of
deposited on-chain and prefer to use stablecoins, a the trade; how does a lending protocol earn revenue
token pegged to a “stable” asset such as the U.S. and provide a safe, autonomous protocol for
Dollar. Shay and Lauren will be using USD Coin (virtually) continuous lending and borrowing?
(USDC) for their transactions.
When Lauren deposits her assets into a lending
Suppose Lauren deposits $5,000,000 USDC into a protocol to be lent out to borrowers, she’ll earn a
lending protocol and earns interest from Shay. In yield on that deposit derived from the interest paid
the meantime, Shay has borrowed $5,000,000 by borrowers. Every lending protocol earns revenue
USDC to swap for Bitcoin. by collecting a percentage on the spread between
what borrowers pay and what lenders earn. That
Now that both participants have deposited funds, percentage is determined by the protocols team
you might wonder what happens if Shay refuses to and is sometimes altered by governance.
pay Lauren back? Great question! On-chain lending
protocols employ money markets with For clarity and only to demonstrate what happens
Collateralised Debt Positions (CDPs). in terms of revenue, the following example is
outlined:

A borrower deposits some collateral and takes out Back to Shay’s position; Shay has taken out $5
a loan in USDC paying 5% interest. The protocol million and swapped it completely to Bitcoin. He has
receives 10% of that interest payment (0.5%) and successfully acquired the exposure he initially
the rest (4.5%) is earned by all USDC lenders. desired.
Shared pro-rata depending on their arbitrary
portion of the total amount of deposits i.e. the total Some days pass and news comes out that not only
USDC supply pool. is China banning Bitcoin, but a reputable crypto
exchange has been served by the SEC for
But how much can a borrower take out? It depends regulatory non-compliance. Our friend Shay wants
on two factors. The amount they deposit - or to buy the panic, and what he believes is the pico-
collateralise - and the collateral factor of that asset shmico bottom. He levers himself further by taking
which is predetermined by the protocol. Sometimes out an additional $3 million dollars, raising his total
a protocol will list their collateral factor as the LTV LTV to 80% ($8 million in total loan value) but he has
(Loan-to-value). All this refers to is the maximum to be careful because (for this example) his
loan amount they - borrowers - are allowed for liquidation threshold is 82.5%.
any given deposit.
Now, remember when we glanced at the types of
Assuming an LTV of 80%, Shay’s deposit of $10 positions that borrowers could create through
million entitles him to take out a maximum of $8 leverage? Well in this example, Shay has chosen to
million. go long Bitcoin, by taking out USDC which is the
same currency he collateralised for his loan. On
Shay only took out $5 million in USDC, which is both the supply-side and demand side, Shay is
50%. Does anything happen if he borrows the max? exposed to the same asset, USDC, so any price
Yes, and it depends on his health factor. fluctuations USDC experiences are cancelled out.
His position would remain constant, that is, his 80%
A borrower's health factor reflects how safe their LTV will remain at that level until he repays some of
position is by showing how close they are to the USDC loan he took out to buy bitcoin.
liquidation. Lending protocols usually have a max
LTV and a liquidation threshold which is Suppose Shay wanted to short Bitcoin instead. How
denominated in the same metric. I.e. if they list the would that change things?
maximum loan amount as an LTV, then the
liquidation threshold will also be given as an LTV. Lauren would earn less on her $5 million USDC
Liquidation thresholds are slightly larger than LTV’s deposit because there’re less borrowers paying
for two reasons: interest for her asset(s). Shay’s health factor would
be exposed to Bitcoin’s volatility, and he might not
To give borrowers a chance to top up their be able to borrow as much as $8 million for taking
positions and avoid liquidation (MakerDAO on additional risk.
actually bakes a function into their protocol
that opens up a window where users are A key point to take note of here is the reduction in
exempt from liquidation in order to pay during yield that Lauren earns for her deposit.
that time)
The second is to ensure there is enough of an How much less does she earn?
incentive to kickstart the liquidation process for
liquidators of undercollateralised positions. On lending protocols, as stated before, borrowers
Liquidators profit from purchasing underpriced pay lenders. Since everything occurs autonomously
collateral and selling on the open market. on-chain, builders found a way to include a function

that automatically adjusts the interest borrowers along with a way to flag a user’s position for
pay on a given asset depending on the demand for liquidation, leaving a community of liquidators to
borrowing. This is known as the Utilisation Rate. trigger the process. Protocols choose this route to
Protocols can vary in its calculation but it’s further decentralise the process and spend less gas
relatively similar across the board, mainly because in maintaining the health of their system.
the smart contracts that employ these
computations have been audited and benefit from Since DeFi is mostly trustless, there is less
Lindy in their safety and security. credentialed or whitelisted access to debt or a
credit line because there is no way to enforce
In short, Utilisation rate ∝ Borrower Interest. If mandatory payments. In other words, no protocol
utilisation rates increase, there are more borrowers can ‘make’ you pay for a loan that you took out. So
so each one pays more interest and vice versa. how do Lending protocols ensure Lenders don't get
left holding the bag over and over again? The
We will cap off the example by changing Shay’s answer is in the aforementioned CDPs.
position to a short and exploring what happens in
the event of a liquidation. Because all positions on a lending protocol are
overcollateralised, anyone with a loan will always
Shay decides that his thesis is wrong and flips to a have less than the amount they deposited.
short bias. Luckily for him, he made this decision
quickly and his bitcoin position is still worth $8 This incentivises borrowers to pay back their loans,
million. He swaps it all to USDC and pays back his otherwise they risk losing their principal. It also
loan - we assume there’s no interest for the sake of contributes to making lenders whole in the case of
explanation. bad debt.
He decides to take out another loan and short Different protocols have different liquidation
bitcoin using its max LTV of 60% which also has a procedures but liquidated collateral is generally
Liquidation threshold of 62.5%. At this point, Shay auctioned off. Once Shay’s position becomes eligible
has collateral worth $10 million and a loan in for liquidation, liquidators will trigger the auction
bitcoin worth $6 million that he swaps to USDC on process for his collateral. Liquidators bid increasing
the open market. amounts of an asset e.g DAI for the discounted
liquidated collateral.
Unfortunately, he’s wrong and bitcoin's price rises
by 10%. This causes his loan’s value to rise to $6.6 It should be noted that Shay’s whole position will
million which is equivalent to a 66% LTV. Since 66% not be claimed by the protocol/liquidators. Partial
> 62.5% (Liquidation threshold) Shay’s position liquidations occur where only the necessary
becomes eligible for liquidation which is initiated by portions of his collateral required to restore his
a third party. health factor to a safe level are sold.
What’s “Liquidation” and why does the protocol do The protocol will claim a portion of the liquidated
this? The protocol doesn’t exactly ‘do it’ per se. collateral for itself, while the liquidators compete for
the rest. Each asset eligible for deposits on a lending
The protocol would typically have a dashboard market will have a liquidation fee/penalty
that lists open positions and their health factors associated with it as well.

This is the payment that a borrower will make Borrow Interest the payment borrowers make
directly to a protocol for being liquidated. Protocols on their debt/loans - the assets they borrow
vary in how they share this fee to properly Yield: the return users receive for depositing
incentivise liquidators to efficiently maintain the assets. Derived from borrowers’ interest
health of the system. payments (and sometimes token rewards. More
on this later)
1.4 Recap Liquidation Penalty: the fee paid by borrowers
to the protocol if their loan value exceeds the
A copious amount of information was divulged and liquidation threshold and their collateral is
we hope it’s been assimilated. You can always re- liquidated
read the section above to solidify your Pro-rata: one's share of a total composed of
understanding. everybody else's contributions.
Collateral: assets deposited and temporarily
Laying the foundations of lending protocols allows owned by a lending protocol that elicit
better evaluation of the decisions made by the borrowing
following projects analysed. Most design choices CDP - Collateralised Debt Position: an open
concerning their tokenomic models will be borrow position consisting of deposited assets
discussed at length. Later, we will also discuss and debt
recommendations in an attempt to support Overcollateralised: when the collateral’s value
builders throughout the ecosystem. is higher than the loan amount
Utilisation rate: a metric that reflects how
For now, let’s recap the core functionalities and much of the lending pool is active in borrowers
technical terms presented thus far: positions
Health Factor: a metric that shows borrowers
Lender: a depositor of capital to a lending how close they are to the liquidation threshold
protocol Money Market: the marketplace where lenders
Borrower: a collateralised depositor that takes and borrowers meet
out a loan Lending Protocol: an on-chain protocol or set
Collateral factor: the maximum borrowable of smart contracts that trustlessly facilitate
amount lending and borrowing.
LTV: the maximum borrowable amount defined Reserve Factor: a percentage allocated to
as a percentage of the deposit specific assets to depict the portion of the
Liquidation: the seizure of borrowers’ collateral revenues flowing directly into a reserve pool -
Liquidation threshold: the LTV/Collateral backstop.
factor when reached, causes a borrower’s
collateral to be liquidated In the following sections, an analysis of lending
Liquidators: third parties seeking profit by protocol tokenomics will unfold. We recorded
obtaining liquidated collateral for discounts to quantitative data concerning the included protocols
the market price and took note of their hard coded tokenomic
features.
Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Prologue | Page 7
By evaluating the tokenomic features of each
protocol, we will look to understand the attributes
that best suit lending protocols. A discussion takes
place and in our conclusion, we attempt to present
a few ideas lending protocols can use in crafting
their tokenomics. Some of which involve multiple
features observed in their peers.
[ B L A N K ]
Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Prologue | Page 8
Part I
2. Protocols $5.22 billion at the time of writing, and it looks to
only be the beginning. The Aave DAO have shown
clear interest in providing cross-chain services
Here, we introduce the analysed protocols and
marked by the quantity of networks they have
segment them by the chain they initially launched.
already launched on. Aave v3, an upgrade that
If a protocol has gone cross-chain and is therefore
significantly reduces users’ bridging risks through a
available on multiple networks, the first chain they
mint and burn feature, supports an improved cross-
launched on is used to categorise them.
chain user experience.
2.1 Ethereum As one of the lending and borrowing incumbents in

DeFi, Aave conducted a token migration from LEND
2.1.1 Aave to AAVE in September 2020. The migration marked
Launch Date: May 2020 their first liquidity mining campaign after witnessing
TVL - 1/4/2023: $5 billion Compound’s success with the same initiative. Since
Circulating Supply: 14 million then, Aave has remained a large player and
Holders: 159,692 continues to set a standard for operational practice
DAO: Yes as a protocol with no hacks, continuous innovation,
Chains: and a thriving community operating a 7 figure grant
program.
Background
Launched in 2017 after raising almost $18 million,
Aave has since become a powerhouse of lending
activity in DeFi today. Its TVL stands out with
Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part I | 10

Tokenomic Model 2.1.2 Compound
Currently, Aave operates a dual-token model in Launch Date: May 2019
which a main token (AAVE) is responsible for TVL - 1/4/2023: $2 billion
coordination of the underlying protocol. As shown Circulating Supply: 7 million
in the graphic, AAVE is used to govern the protocol Holders: 210,330
and provides some utility in providing a backstop DAO: Yes
incase of shortfall events. Additionally, interest rate Chains:
discounts are given to GHO borrowers provided
they are holders of the secondary token, stkAAVE. Background
After fathering liquidity mining with a campaign in
Aave has provided liquidity mining incentives on late 2020, Compound continued on a path to
various chains in the past like the Avalanche Rush solidify their position as a top decentralised
program. However, it should be noted that lending application. Their contracts are among the most
forked when setting up a
lending protocol, with every
duplication containing
slightly adjusted parameters
to fit their new ideas.
Compound emits a capped amount of COMP each
day (1,822 at the time of writing) with predefined
allocations for each market they operate.
Governance decides how token rewards are
distributed and are free to allocate them towards the
lending or borrowing side of any market. For example,
the DAO might consider allocating more rewards
activity incentivisation isn’t central to their model. towards the borrowing side of a pool to generate
This is noticeably different from several protocols higher interest payments for lenders, if perhaps, the
as will be shown in this report. yield on offer in that pool is already too diluted.
Instead, Aave provides a premium lending The Compound protocol has been through three
experience that places a high priority on security to iterations and currently operates v3 on both markets
gain activity. To date, the Aave protocol has never active on Ethereum & Polygon.
been hacked, with any shortfall event resulting in
minimal losses to Safety Module depositors. Compound III is characterised by several changes to
enable better cross-chain functionality for the
Another source of revenue for Aave is their flash protocol. Some of the most defining changes include
staking module that facilitates flash loans. These account management - limited control over users'
are large loans that can be taken out and paid back accounts by third parties.
to the protocol in the same block - a single
transaction. The revenues are shared between the
community and the DAO-controlled treasury.

Another is the introduction of a single, borrowable, If any entity is deemed worthy by a user, they are
and interest-earning base asset against a set of free to delegate tokens to that entity and support
collateral assets. Users can only deposit the base their proposal votes.
asset for yields, however, borrowers can provide
various collateral decided by protocol governance. 2.1.3 Euler
Launch Date: December 2021
Tokenomic Model TVL - 1/4/2023: $10 million
Compound operates a mono-token model. One Circulating Supply: 17 million
token both incentivises activity on the platform and Holders: 2,670
is used to govern the protocol. DAO: Yes
Present in Compound’s model is the inclusion of Background

delegation. A feature of both proof of stake and A high flying team and protocol attracting $32
delegated proof of stake consensus mechanisms, million in their last funding round, Euler was
delegating is the act of lending voting power to anticipated by many. They operate a platform that
another community member to vote on your provides permissionless lending as long as the asset
behalf. has a UniV3 WETH pair to use for the TWAP oracle.
Like many other lending protocols, Euler issues debt
If a community member builds up a credible tokens that represent a user's share of the underlying
reputation for themselves, they tacitly make pool..
themselves an upstanding community member.
The protocol introduced a few novel concepts to DeFi
Since delegation occurs by wallet addresses, that contribute to the overall power of the
various entities are eligible to become delegates ecosystem.
including protocols, individuals, and businesses.

For example, Euler enhances security on their Although EUL tokens are used to govern the protocol,
platform by introducing a borrowing factor. These users that choose to stake debt tokens (etokens) in
are similar to collateral factors but function as a the Gauge Module and redirect EUL rewards, are
maximum borrow amount depending on the ineligible to vote on governance proposals. The
collateral deposited to elicit a loan. This is a step incentive for directing EUL incentives is by staking
taken to mitigate asset-specific risk. etokens obtained after depositing collateral to the
protocol.
Euler employs two different mechanisms that
allow MEV resistant liquidations. By abstracting 2.1.4 Notional
away those transactions, there exists enhanced Launch Date: March 2021
competition between liquidators. This competition TVL - 1/4/2023: $30 million
translates to better protocol health by efficiently Circulating Supply: 31 million
dealing with bad debt. Also, reducing risks to Holders: 1,572
depositors, is the option to render collateral DAO: Yes
unavailable for lending to third parties.
Background
Tokenomic Model Notional finance is a fixed loan lending platform. With
The EUL token coordinates the Euler their novel fcash innovation, they create net-zero
microeconomy, balancing the interests of lenders, borrowing positions for depositors. Depending on
borrowers, and voters continuously. Protocol whether a depositor is lending or borrowing, a certain
incentives in the form of EUL are released to fcash token remains in their possession. The protocol
depositors each epoch, where EUL rewards are then uses this to recognise what side they are on and
directed by voters. Gauge module staking accepts either charge, or pay interest accordingly.
EUL deposits and allows those participants to
allocate token rewards to lending markets on the Version 2 launched in November 2021, with various
platform. Naturally, votes tend towards the highest updates occurring since then. Most anticipated, has
activity pools. been their leveraged vaults offering up to

10x leverage. Available leverage depends on the Every vault charges varying fees depending on its
borrowed assets’ collateral factor. strategy. Additionally, borrowers will pay transaction
costs, like gas, and are also liable to liquidation fees
Notion leverages Compound finance by composing provided their health factors cross a threshold.
cTokens into a system that efficiently derives fixed
interest rates for lenders and borrowers. Notional sNOTE is the receipt token for staking Notional’s
debt tokens assist fcash in creating value for users, Balancer liquidity pool token in the Safety Module to
as a liquidity pool aggregates the available tokens protect against shortfall events. Like Aave, Notional
with different maturities. gains two benefits from this mechanism. The first, is
ensuring liquidity and efficient price discovery for
Tokenomic Model their token; the second, is as a type of insurance for
The NOTE token possesses numerous benefits to protocol liquidity providers.
token holders and integrates neatly into the
growing Notional microeconomy. NOTE governs sNOTE is minted for 80/20 NOTE-WETH BPT deposits
the protocol and provides depositor incentives. into the Safety Module. While holding sNOTE proves
existence of a backstop for the protocol, taking on this
Borrowers must deposit collateral to take out a risk is a critical endeavour. To properly incentivise
loan, however, NOTE rewards are only earnt by sNOTE token holders, the yield on offer is a collection
providing collateral across maturities in exchange of swap fees, protocol fees, and NOTE rewards.
for ntokens. At times their total yield can supersede
their loan’s cost.
When opening a leveraged vault, a borrower will 2.1.5 Silo Finance

deposit their collateral in a chosen maturity to Launch Date: August 2021
enable re-borrowing from that pool. Upon TVL - 1/4/2023: $31 million
completion of a looping process, they’d have Holders: 3,651
leveraged exposure to the assets included in the DAO: Yes
strategy. Chains:
Background Tokenomic Model
Silo is one of the first few protocols to sport an Silo finance employs a dual token economy
isolated lending model with greater control over consisting of SILO and XAI. SILO coordinates more of
collateral utility. the protocol as the governance token and subsidiser
via protocol incentives, however XAI is only
A ‘silo’ is an isolated lending market with various available through borrowing.
parameters and settings. When maximum capacity
is enabled, all assets inside a Silo are eligible for Hence, XAI provides a significant revenue stream to
lending and borrowing. the DAO that goes toward SILO buybacks. There is
an active redistribution mechanism to recycle SILO
In an isolated lending market only three assets to the protocol’s biggest value providers.
would be available. The exotic asset, which is used
to name that specific market, the bridge asset (ETH Silo finance’s governance uses a delegate system.
for Ethereum and Arbitrum) and Silo’s stablecoin, Users can lend voting powers to other community
XAI. members in a bid to pass certain proposals they
believe in.
Further, when new lending markets are created on
Silo, the increased control allows projects to limit Incentives are passed to where the protocol
their amount of risk exposure to the market and requires it most. Currently, those behaviours are in
token holders. On Silo, projects can enforce rules lending and liquidity provision for SILO and XAI.
such as collateral-only, which elicits the use of their
native token as a collateral option to borrow either 2.2 Fantom
ETH or XAI. With recommendations from the Silo
team, projects can limit the borrowing capacity. 2.2.1 Geist
Launch Date: October 2021
Example: In a UNI silo, Users would be able to
TVL - 1/4/2023: $40 million
deposit UNI into the silo and borrow either ETH or
Circulating Supply: 83 million
XAI. Similarly, the UNI supply cap may be 5k tokens.
Holders: 7,297
If users deposit XAI or ETH, there would be only 5k
DAO: No
UNI tokens available for borrowing.

Background Geist is no different here, but the mechanism they
Fantom gained adoption in 2021 consistent with its use with their token was only implemented by a
meteoric run in the latter half of the year. A surge in handful of protocols when it was released.
network activity complemented the token’s rising
value, and Geist finance became one of a plethora Geist creates a dashboard for users with open
of protocols that exploded onto the chain. positions to help visualise the health of their loan,
but also a place for their rewards to accrue. On this
Geist as a lending and borrowing protocol provided page, users have the option to claim their rewards
‘free money’ when their liquidity mining campaign instantly or lock them up.
began.
Borrower incentives were frequently higher than The decision made by the user has ramifications
interest payments, leading to many cases where however, and the game theoretical element seeks
debtors were paid to hold debt. to optimise token emissions by distributing them to
the protocols longer term value providers. In
Although Geist currently provides one of the best addition to open positions, users that provide
places on Fantom to borrow assets and earn safe liquidity and stake their LP token on Geist will also
yields, the team hasn't been the most active. Since have a similar page where their rewards accrue.
launching in Q4 2021, little has changed about the
protocol. Further, for value providers (LPs, lenders, and
borrowers), claiming their rewards on demand
Token Economy elicits a 50% penalty. The 50% taken is routed to
The popular choice amongst protocols is opting for value providers that lock their rewards for higher,
monotoken economies. inflationary token rewards.

In summary, value providers can vest their rewards stablecoin assets. While Hundred supports multiple
over 90 days and receive their full rewards. If they types of assets, their protocol is fine tuned to
lock for this period, they are permitted to receive emphasise stablecoin activity.
higher rewards from the protocol. However, if the
value providers vesting choose to claim their Hundred finance launched their service in 2021 as a
rewards at any point before the 90 days is full lending protocol with added rewards for
complete, 50% of the earned rewards are sent to stablecoins. By implementing ve-tokenomics, they
the 90 day lockers. seeked to become a go-to platform for stablecoin
holders to earn safe, low-risk yields.
2.2.2 Hundred
Launch Date: September 2021 In the spirit of decentralisation, while ve-tokenomics
TVL - 1/4/2023: $9 million gave the community a greater role in allocating
Circulating Supply: 30 million token rewards, Hundred also integrates B.Protocol. A
Holders: 6,296 (Arbitrum, Fantom, Optimism, decentralised offering that provides community-
Gnosis) sourced backstop liquidity. Users contribute a stable
DAO: Yes asset like USDC, and the protocol uses this pool to
Chains: bid on liquidated collateral that recollateralises the
system within healthy bounds.
Background
Fantom was the network Hundred finance chose to Tokenomic Model
debut their dapp. Sitting at $2.6 million TVL at the HND is the primary token for the Hundred Finance
time of writing, Hundred finance is a lending protocol. They operate a dual token economy in
protocol offering services for both volatile and which the locked derivative veHND is used to vote on

token reward allocations to different pools. HND is Background
used to incentivise activity on the protocol and Radiant is one of the top protocols on Arbitrum
govern the system. allowing investors to gain leverage. By implementing
a strategy that optimises token emissions, and
Hundred finance acts as a savings account in a focuses on the safest and most liquid assets, they
sense. have curated a core group of power users
instrumental in bootstrapping a community.
Users provide assets and receive htokens as receipt
tokens that represent their share of the underlying They [Radiant] launched originally in July 2022 but
collective pool. Users providing more volatile assets the protocol experienced some difficulty with a
like ETH and BTC, earn interest yields from highly inflationary model - a common move from
borrowers. However, stablecoins can be provided protocols to kickstart their beginnings. Since revising
to the protocol, and their corresponding htokens their model, version 2 was announced in Q1 2023.
are staked to earn interest yield in tandem with Version 2 purported a longer term emission schedule
HND token rewards. in addition to both better value retention, and value
accrual to token holders.
veHND, like other ve-tokens, is non-transferable.
However, an innovation by the Hundred finance Further, with an emphasis on security and a cross-
team is the implementation of a mechanism that chain vision, Radiant works closely with Layer Zero to
reflects a users' voting power on multiple networks enact seamless deployment on various chains with
using mveHND - Mirror Vote Escrow HND. minimal security risk. Although risk-free is impossible,
the team repeatedly demonstrates meticulous
With mveHND, users can aggregate their voting planning in executing orderly tactics for their
power across several chains. Assume a user has community and the overall health of their
1000 total mveHND, they can allocate 500 to ecosystem.
voting on rewards for a certain stable pool on
Fantom, and the remainder on another chain, like Currently, two chains are home to the Radiant
Optimism. Similarly, they can split the remainder of protocol - Arbitrum and BNB chain. Both of these
the voting power between a number of chains chains contribute to $217 million TVL at the time of
provided they do not exceed their 1000 limit. writing, with a claim of more chain deployments to
come. A metric that Radiant prides itself on is fee
If they want more voting power, the user would generation. According to Token terminal they
have to purchase more HND to lock up and receive generate an annualised $10.5 million in revenue
greater voting power in the form of mveHND. from the fees generated in the 30 days between
14/3/23 & 14/4/23.
2.3 Arbitrum
Tokenomic Model
2.3.1 Radiant Radiant underwent a significant overhaul with their
V2.
Launch Date: July 2022
TVL - 1/4/2023: $175 million
A single token, RDNT, incentivises lending, borrowing,
and liquidity provision while the main value driver is
Holders: 31,898
their main LP token on any chain they deploy. Main
DAO: Yes
LP tokens would consist of RDNT paired with the gas
Chains:
token for the network. For Arbirtum its ETH (RDNT-
WETH) and for BNB chain it’s BNB (RDNT-BNB).

The LP token behaves as a gateway to access Whenever this occurs, the protocol places a
token incentives and fees generated by the ‘bounty’ on the user. Searchers are eligible to
platform. collect that bounty plus the emissions that users
would have received if their LP met the 5%
When a user provides collateral and borrows threshold during that time.
assets or seeks passive yield by lending their
capital, they are only eligible for the base APY It should be noted that dLP lockers earn yield from
created from borrower’s interest payments. 3 sources in platform fees, token rewards, and
trading fees.
Staking and locking 5% of their lending deposit on
the platform, boosted yields in the form of token 2.4 Avalanche
rewards become accessible. Boosted rewards are
only activated after they lock their LP tokens for a
duration of their choosing. 3.4.1 Benqi
Launch Date: August 2021
Similar to the boosted voting power that ve-token TVL - 1/4/2023: $242 million
lockers receive, LP token lockers receive multipliers Circulating Supply: 3.5 billion
on the rewards attainable for longer durations. The Holders: 22,580
multipliers in the graphic are approximate to what DAO: Yes
is received.
Background
Once a user locks their LP token and begins One of the Avalanche dapp incumbents, Benqi
receiving token rewards, earnt tokens accumulate provides a stellar experience for lenders and
on a claim page offering them one of two options. borrowers on the Emin Sür-led decentralised
network. Benqi launched in 2021, thoroughly
Users can linearly vest their token rewards for 90 benefitting from a liquidity mining partnership that
days and receive larger portions of their rewards as released $ millions of AVAX incentives to protocol
they reach the finish date. users.
The claimable amount ranges from 75% - 10%. A As the first lending option for users, Benqi was able
maximum 75% can be claimed before 90 days to accumulate a significant amount of traction.
whereas 100% can be claimed after. Readers Today it holds 31% dominance over the network,
should note that the earliest claims i.e. immediately sitting 2nd in Avalanche’s TVL rankings at the time
after locking is 10% which translates to a 90% of writing (DeFiLlama).
penalty on their accrued rewards at that point in
time. trading fees. A standout opportunity for Benqi was in Liquid
Staking. Whether the team understood the power
Or, users can auto compound their positions and of liquid staking derivatives or not, they decided to
engage in a new lock. The platform also launch the initiative and created the most adopted
implements an auto-lock function that allows users liquid version of staked AVAX - sAVAX.
to roll their LP into another lock for the same
duration of the recently expired lock. Placing security as an important concern, they
have completed four audits and sport an ongoing
Due to the nature of dLP locking, a user's LP value deal with Chaos Labs to monitor their lending
may fluctuate causing them to fall short of the 5% markets' activity and help to maximise capital
threshold. efficiency through continuous risk assessments. The
active dashboard can be checked here.

Tokenomic Model For the higher stake and greater chance of adding
Benqi’s tokenomics consists of a dual token model verified blocks to the chain, validators receive more
made up of QI and veQI. QI is both the governance AVAX rewards.
and reward token. Anytime the protocol chooses to
incentivise certain actions on the network, they 2.5 Astar
release inflationary QI rewards to inspire that
activity. Currently, QI rewards are directed at both 2.5.1 Starlay
lending and DEX LP providers.
Launch Date: March 2022
TVL - 1/4/2023: $3.5 million
After the introduction of Liquid Staking, QI gained a
utility that ties it to the Avalanche network’s
Holders: 56,207
growth.
DAO: No
Liquid staking works by receiving a user's network

Background
token (in this case AVAX) and minting them a liquid
Starlay is the 2nd biggest lending protocol on the
version of that token - sAVAX. The AVAX received by
Astar network catering to Astar natives.
the protocol is delegated to validators based on a
Capitalising on low fees and the multichain
predefined criteria that optimises delegations to
opportunity on offer, Starlay seeked to deploy on a
certain QI holders - the QI holders that stake their
popular network in Japan and build a valuable DeFi
QI for veQI.
veQI is the vote-escrow version of the QI token primitive. Providing a core service enables more
adapted from the ve-tokenomic model. On Benqi, complex decentralised application development
Validators have the incentive to acquire veQI and assists in fostering a larger developer
because they can use it to redirect AVAX community.
delegations to their nodes, leading to a bigger stake
that verifies more transactions on the network. To differentiate themselves from a variety of
lending protocols on the scene, Starlay introduced
leveraged vaults called ‘Makai’.
A set of smart contracts set up to maximise users’ 2.6 Cronos
capital efficiency by earning more rewards from
their positions. As with any other offering, when
2.6.1 Tectonic
users leverage up, they are taking on more risk than
Launch Date: December 2022
principally possible and are liable to liquidation.
TVL - 1/4/2023: $125 million
However, if they remain within safe confines, they
Circulating Supply: 185 trillion
can rapidly earn rewards for a longer time horizon.
Holders: 1,510,443
DAO: No
Starlay users also have the option to pay a fee to
trigger flash loans through the platform in which
lending and borrowing occur in the same block. Background
Tectonic launched on the Cronos network and still
Tokenomic Model stands as the biggest lending market on the chain
Like Benqi, Starlay also offers a dual token at the time of writing. The team forked Compounds'
economy composed of LAY & veLAY. LAY is the contracts as a template to build a permissionless
protocol’s primary token and is primarily used as lending protocol, although they added tokenomic
incentives to operate the platform. Lending and innovations and isolated lending pools.
borrowing activity attracts the majority of the
distribution while the remaining are paid to the Using Tectonic, other protocols can create more
team and reserved for backend efforts such as controlled lending parameters for their tokens
development, marketing, and hiring. when they’re listed. Isolated pools restrict the
contagion risk from collateralised assets, as
veLAY, the vote-escrow token, is staked and locked opposed to cross-collateral pools that collectively
by users on the protocol seeking to gain voting inherit the risk from all assets in the pool.
rights over protocol emissions.

With this feature, Tectonic allows users of varying Maturity Vault in a minimum six month lock. Or,
risk profiles to interact smoothly with the protocol they can lock all of the tokens and choose the
and creates greater opportunity for lower cap duration of time they desire. They are free to
tokens. Although they can benefit from listings, choose any lock duration for their rewards, despite
their size requires certain limitations to ensure what they opt for.
minimal risk and maximum user experience for
everyone. The Maturity Vaults are a mechanism to reroute
value to loyal token holders with simple mechanics
Tokenomic Model allowing users to accrue maximum rewards.
With TONIC and xTONIC, a dual token model
coordinates the Tectonic protocol. TONIC is the Additionally, Maturity Vaults integrate with various
governance token of the protocol and xTONIC is rarity NFTs of the same collection to further boost
the staked version of the token eligible for their vault APYs. A user can stake up to a maximum
magnified platform rewards. of 5 NFTs on their current vault and acquire a
maximum 1.5x boost to their APY.
The Governance token, TONIC, incentivises all
activity on the platform. A unique feature of their 2.7 Moonbeam
Tokenomics is the Maturity Vault, a smart contract
system supporting long term value providers by 2.7.1 Moonwell
multiplying their rewards.
Launch Date: June 2022
TVL - 1/4/2023: $35 million
When users open positions on Tectonic or stake
their TONIC for xTONIC, they receive TONIC
Holders: 3463
rewards. In order to claim those rewards, users
DAO: Yes
have two options: either they can claim, where 40%
is immediately available and 60% is held in the

Background Tokenomic Model
Moonwell is a lending protocol on both Moonriver The WELL token is the dominant token of the
and Moonbeam. Only the Moonbeam version is Moonwell ecosystem and serves the platform in
discussed here. However, each deployment vastly every facet. The token is used for incentives,
mirrors the other. governance, and as a backstop against shortfall
events while staked in the Safety Module.
After raising $10 million from several investors in
March 2022, including Coinbase, Moonwell Holding WELL entitles the holder to voting power
deployed to the EVM-chain and offered Polkadot during governance. Voting on proposals, proposing
parachain natives lending and borrowing services. protocol changes, presiding over the treasury and
grants to service providers are all involved in the
TVL is $37 million at the time of writing, where politics of the platform.
GLMR is the most supplied asset and FRAX is the
most borrowed. Moonwell provides a primitive Moonwell includes a delegation feature in their
service important to the DeFi ecosystem on governance set up so users have some freedom in
Moonbeam while offering competitive yields. allocating their voting power. Through their
governance portal, users can delegate their voting
Moonwell maintains these yields by engaging in power to themselves or to other community
Moonbeam’s incentive program that grants them members. Community members seeking added
GLMR token rewards to incentivise activity on their delegations, must create delegation profiles where
platform and in turn their network - Also reducing support for their ideas/opinions in the form of
Moonwell’s WELL token inflation. voting power coalesces.

As mentioned for both Aave and Notional, token EVM ecosystems like BNB chain, Ethereum, and
holders also have the option to stake WELL in the OKC. Wing Finance was an early adopter of a
Safety Module. Safety Module depositors are liable credit-based model on permissionless protocols.
to a maximum loss of 30% of their assets, anything Using an Oscore, Wing finance could assess the
after that is left for lenders to realise. likelihood of repayment from borrowers and offer
them more favourable lending terms than those
Different to Aave and Notional however, available to regular, non-KYC users. As a protocol
Moonwell’s Safety Module does not accept their implementing such practices, Wing catches a wider
liquidity token. There are also no fee distributions to user base than a standard lending protocol as
stakers. Moonwell Safety Module depositors are retail, institutional and clients that require
only incentivised by WELL rewards. mandatory KYC to interact with DeFi are supported.
2.8 Ontology Beginning with flash pools that mimic the standard
lending model, Wing later opened up inclusive
2.8.1 Wing Finance pools that utilises Oscores. NFT pools followed and
were perfectly positioned to tap into the growing
Launch Date: September 2020
field of NFTfi.
TVL - 1/4/2023: $30.4 million
Circulating Supply: 4.4 million
Tokenomic Model
Holders: 9548
Wing operates a microeconomy with the use of a
DAO: Yes
single token, WING. WING incentivises various
Chains:
activities on the platform and governs the protocol.
When key decisions need to be taken by the DAO,
Background
users will participate in the voting and make the
Wing finance is a credit-based lending and
final decisions using their WING tokens.
borrowing protocol originally launched on
Ontology. The Asia native protocol hosted the first
In other uses, WING compensates depositors during
lending transactions of the permissionless p2p
shortfall events and bad debt but that WING is
platform before it opened up cross-chain to more

contributed by borrowers. On standard lending Background
protocols, a borrower would deposit collateral and Benefitting from the burgeoning L2 narrative,
borrow crypto assets against it and manage their Sonne finance launched on Optimism relatively
position. early to provide lending and borrowing services.
Wing Finance allows borrowers to deposit 3% of They innovated on their tokenomics to give greater
their deposit to an insurance pool local to the optionality in payouts for their token, but also
lending pair. In return for contributing funds to a incorporated a launch strategy consisting of an
backstop pool specific to the lending market they LGE - Liquidity Generation Event. The strategy was
are utilising, they are paid extra borrowing employed to leverage Velodrome’s liquidity
incentives. In some cases, the rewards totally marketplace.
cancel out their interest payments resulting in
remuneration to hold protocol debt. Sitting at $39 million TVL at the time of a writing,
Sonne is the 2nd placed (behind Aave) lending
Users should beware however, the value of their market on Optimism and accepts more than nine
loan can appreciate such that the 3% of that loan assets as collateral. Users can engage in leverage
deposited, in WING, in the insurance pool can fail to strategies with nine different assets at the time of
meet the threshold. During this event, debtors will writing. Furthermore, users can observe data on
stop accruing WING incentives and start paying the their positions through a comprehensive
original full interest for their loans. dashboard that includes their health factor and
accumulated rewards.
2.9 Optimism Tokenomic Model

Sonne finance uses a tri-token model.
2.9.1 Sonne Finance Predominantly a two token model, as any user has
the option to hold the gov token but a decision is
Launch Date: September 2022
made between two staked versions depending on
TVL on 1/4/2023: $40 million
their needs.
Circulating Supply: 37.3 million
Holders: 8337
SONNE is the reward token of the protocol.
DAO: No
Part I | 25
ISONNE currently incentivises lending and
borrowing activity on the platform and is used to
bribe veVELO holders for VELO emissions that
incentivise their SONNE/USDC liquidity pool.
Revenues earned on the platform can be rerouted

to SONNE token stakers through two versions:
uSONNE & sSONNE.
uSONNE holders are SONNE token stakers that

receive VELO rewards, but also Sonne revenue
payments in USDC. sSONNE stakers receive their
revenue payments in SONNE and are also eligible
for VELO rewards received through bribes. Finally,
Sonne can afford to distribute VELO rewards
because they own part of the liquidity pool from
their LGE.
[ B L A N K ]

Part II
3. Supply Schedules & The second year shows strategic changes as both
Notional and Tectonic take over the top spots.
Inflation Joining Moonwell as the most active emitters, they
released 51%, 35.7%, and 34.9% of their tokens
respectively.
Projects often release tokens to raise capital. The
accumulated capital becomes a driving force
Notional was the only emitter above a 50% rate;
behind developments, and various needs an early
the majority of the other protocols opted for a
startup requires to plot its path to sustainability.
range between 40%-20%. Benqi was the lowest
emitter in year 2, reducing their emissions by 65%
For decentralised applications, like lending
to 8.62%, they experienced the least inflationary
protocols, tokens require a go-to-market strategy.
pressure during their second year.
The founding team and their advisors are
accountable for this strategy which should be their
During the third year, the chart undergoes another
most careful attempt at balancing the interests of
shift. While Tectonic emits 35.7%, Silo finance and
various actors within the ecosystem.
Radiant emit 24% and 17.6% respectively. We see
the largest drop off in emissions in the third year
Common allocations released via automated
with over 80% of protocols emitting below 20% of
vesting contracts are private investor allocations,
their tokens. This represents a 52% reduction when
advisors, team tokens, and community incentives
compared with Year 1. Finally, Starlay emitted zero
like liquidity mining. The main goal would be
tokens in their third year as per their distribution
creating a plan that allows all investors to exit
schedule that only holds reserves for project
without affecting the protocol detrimentally. An
developments.
important factor that governs this release is their
vesting schedule, and hence inflation rates.
3.1 Current Emissions
Listed on the following pages, are tables showing Protocols also engage in various liquidity mining or
all the aforementioned protocols’ inflation rates other incentive periods to bootstrap activity for
sorted highest to lowest by the emissions released their protocols.
in each year.
Liquidity mining campaigns can make it worthwhile
Each chart shows different orders for the protocols for investors to use their protocol over another.
due to their vesting and release schedules.
For the purpose of assessing how heavily protocols
In the first years, Geist, Sonne, and Starlay emitted are incentivising their activity, their current yearly
the most tokens respectively. Their figures reflect at emissions toward token incentives are shown.
least double the bottom four protocols. Further, These emissions are based on the distribution
year 1 inflation rates generally remain higher than schedules released when they began.
subsequent years; Geist, the highest emitter,
released at least four times as many tokens as their Aave is closest to completing their emissions
counterpart on Moonbeam - Moonwell. schedule with 91% of AAVE available on the open
Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part II | 28

Aave is also one of the earliest protocols to launch optimised for emissions less than or equal to 6%
along with Compound which has 69% (>.<) on the with the lowest emissions p/a coming from Aave.
open market at the time of writing. This can be attributed to the large public sale of the
LEND token in 2017.
Newer protocols that launched during the bull
market and early 2022 have the most tokens still to 3.3 Activity
be released. It should be noted however, that The chart below helps us to decipher how effective
although Sonne finance launched in September token emission strategies were in encouraging user
2022, a higher inflationary model is observed as activity. The relationship between inflation rates in
37% of their emitted tokens are on the open market the first 3 years and the current utilisation rates on
after less than 12 months. each platform are depicted.
3.2 Emissions p/a 3.4 Inflation vs Utilisation Rate

Emissions rates differ between the protocols From the chart, we can see that there is no
although they don’t show a large variation. We can statistically significant correlation between token
see that 50% of the protocols aim for yearly emissions and utilisation rate. The R-squared
emissions in the 11-15% range, while one of the method was computed to identify a correlation
most recently launched protocols, Sonne finance, however other factors seem to affect utilisation
leads with 36.7%. Of this sample size, six protocols rates to a greater degree.

Part III
Tokenomics Feature Table - 1
Protocol
Governance
Non-native
Token Yield
Discounts
Multipliers
Lending/
Borrowing
Incentives
LP Token
Utility
Penalties
Gauge
Voting
Locking
Safety
Module
Revenue
Share
Score 8 6 6 4.5 3 2.5 2.5
Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part III | 34
Tokenomics Feature Table - 2
Protocol
Governance
Non-native
Token Yield
Discounts
Multipliers
Lending/
Borrowing
Incentives
LP Token
Utility
Penalties
Gauge
Voting
Locking
Safety
Module
Revenue
Share
Score 5 4.5 4 4 3 3 2
ROIs and cheaper debt costs, depending on what
4. Discussion
side the user is on.
Focusing on quantitative data and fundamentals is
crucial to uncover the effectiveness of each
These incentives are usually sold for profit, but
protocols’ tokenomic features. With both already
some protocols have added locking features that
presented, an illustrated summary of their
offer users benefits to reduce the selling pressure.
tokenomic features is included to enhance the
Users can lock their tokens in a way that suits them.
discussion. The charts can be found on pages 34 &
For example, they can use the ve-style lock to
35 with their scores visualised below.
allocate rewards to different pools, or use the
Radiant style lock to receive boosted protocol
4.1 Protocol Specific Analysis rewards by locking the token in a liquidity pair.
Lending protocols have implemented a plethora of
features to help their tokens accrue value. From the Hundred finance also implements such a feature
table, we see that newer protocols have been more but limits it to stablecoins. Aligning with their
innovative in their tokenomics in attempts at mission of becoming home to the most competitive
gaining greater market share. Similarly, achieving stablecoin yields in DeFi.
this goal is widely presumed to be predicated on
providing more value to token holders. Below, we separate features by their predominant
disposition to either sell-side or buy-side pressures.
The most common feature we see are lending and
borrowing incentives. Essentially, providing lenders Sell-side:
and borrowers with higher yields manifesting as Lending and borrowing incentives
Tokenomic Scores
[Visualised]
Buy-side: If Radiant maintains this approach for other chains
Governance they deploy on, the current schema may be
Non-native token yield sufficient. However, if they begin to onboard more
Discounts tokens further out on the risk curve, a new strategy
Multipliers may be desirable.
LP Token Utility
Penalties Further, the current structure helps their token’s
Gauge Voting price appreciation. Higher prices contribute to
Locking higher yields for each hosted lending market, but
Safety Module crypto markets are cyclical and those yields will
Revenue Share inevitably plummet.
Besides direct token rewards, protocols For this reason, a two-fold benefit ensues with
implemented 10 different tokenomic features to gauge voting;
attract token holders. In the following sections, we
take a deeper look at each protocol’s token redirecting emissions to pools with the most
economies and identify value accrual opportunities. activity helps to sustain fee revenues through
unsavoury periods i.e. bear markets
Emergence of further buy pressure for their
4.1.1 Radiant, RDNT (8) token as potential token holders take
Radiant has the highest score. Eight features are advantage of the incentives.
used to help their token become the centrepiece of
their cross-chain microeconomy. 4.1.2 Geist, GEIST (6)
One of the only protocols to launch on Fantom and
With increasing activity this year through a resist the urge to go cross-chain, Geist offers users
relatively successful relaunch and tokenomic various choices through their token’s features. They
overhaul, RDNT remains a widely coveted token were one of the first if not the pioneers of a locking
among users. The activity’s platform has model eliciting reward multipliers and penalties for
contributed to them earning over $5 million in fees users.
YTD (23/4/23) and (at this rate) looks to be more for
the remainder of the year. The model disincentivises selling and reroutes
tokens to long term holders. A drawback is the
The cross-chain protocol overlooked a gauge team's relative inactivity. Geist has one of the
voting system that would help optimise token lowest number of updates among the lending
emissions to the most utilised pools. This may not protocols listed and many of the Fantom projects
be significant in their current state as they offer still building.
liquidity for just four tokens; USDC, DAI, BTC, and
ETH - BNB on BNB Chain. With a well crafted Noticeable from Geist’s inflation rates, is that 50%
protocol, focusing on the most liquid assets of tokens were emitted in the first year. This
requires less incentivisation than voted negatively affected the tokens long term price
reallocations would give because they [the assets] where it still trades at 99.98% below its ATH.
already have vast markets.
Although, advantageously, it mirrors Aave’s Tectonic optimise their yields on pure lending
strategy of generous emissions to hasten truer activity. This may be difficult to implement with
price discovery. their current model that already offers a potential
90x multiplier on rewards for locking.
Two features they could use to increase demand
for their token are governance and gauge voting. Additionally, their distinct penalty feature escapes
With a locking model already implemented, they every other protocol's design. Geist and Radiant
can add voting power multipliers on the tiers include penalties for early token reward claims but
currently in use. This would allow the community to Tectonic forces users to lock a certain amount
optimise rewards and reroute them to long term (60%) in a vault, instead of redirecting those
holders, as those holders already have a system rewards to other lockers. The minimum lock is for 6
that reflects their dedication. months.
A few implementations could help the Geist token, Implementing this delays token emissions by 6
however the team explicitly stated the protocol months. This can be beneficial for small periods for
wouldn’t be experiencing upgrades and planned for the tokens price but it is only a delay.
it to be completely immutable.
Any selling pressure that would have occurred is
4.1.3 Tectonic, TONIC (6) only delayed for that period unless the users forget
The TONIC token possesses six features including a about their rewards, something the team may be
nuance in their locking system that utilises NFTs. aware of. With the fast nature of DeFi, it would be
Tectonic is the only protocol analysed that easy to miss those rewards while invested in other
integrates NFTs to enhance their protocol offering. ecosystems.
The strategy involves staking NFTs on their Tectonic’s minimum claim can also be seen as a
platform which leads to multiplier points TONIC deterrent to mercenary liquidity/farmers. As a
lockers receive for their individual vaults. standalone feature it doesn't look to be so efficient,
but when paired with the 60% lock it creates a
Tectonic reserves complete discretion of what NFTs strong disincentive for those sorts of players. This
are eligible for staking. Such a system is beneficial mechanism helps to route token emissions to long
because it allows them to offer utility to NFT term holders and those that believe in the
projects launching on the Cronos network. Since platform’s value proposition.
NFT markets are much like crypto in their cyclicality,
users can potentially gain multiplied yields for 4.1.4 Starlay, LAY (5)
relatively cheap. Conversely, In the event that Starlay is the only protocol to implement ve-
accepted NFTs become blue chips and therefore tokenomics in their model. Unfortunately, they
out of reach for most investors, Tectonic risks indirectly suffer from a lack of liquidity on the Astar
pricing out certain users from these yields. network which caps their flywheel’s momentum.
It should be noted however, that fractionalised The LAY token implements locking, multipliers, and
NFTs offer a potential solution if the team is willing voting that helps to optimise protocol token
to consider the idea. emissions.
Further, a gauge voting system would also help Pools with the most activity are typically used by
lenders in the Makai vault giving them leverage. selling but in uptrends there’s reduced resistance to
Makai vault depositors receive higher rewards upward price movements.
however it is mostly value-extractive as seen in the
tokens price performance. If Starlay had Finally, while Wing finance forgo the concept of
implemented gated yields like Radiant, this may revenue shares, they provide value to their
help limit the extraction, however the liquidity on community of token holders through buybacks.
Astar severely limits the available market to pull Buybacks can be effective during certain times and
from. for strategic reasons. However, they must be timed
correctly as buybacks return value to the entire
Furthermore, other competitors could siphon their (potential) market instead of only aligned token
liquidity through a simple vampire attack without holders.
forcing users into undue risk exposure.
It’s important to remember the token holder - the
4.1.5 Wing Finance, WING (5) core community member - is the main subject
Wing Finance is similar to Geist in terms of activity, projects are accountable to.
although their intention wasn’t to leave the
protocol in its initial state. While Wing experienced a 4.1.6 Aave, AAVE (4.5)
momentous beginning full of hype, their Aave improved their score through implementing
community has fizzled out. Consequently, protocol their new stablecoin, GHO. One of two protocols
updates aren’t as regular as their competitors. utilising discounts with stkAAVE holders receiving
lower interest rates when borrowing GHO.
Discussing the token, WING encases a unique
feature that elicits favourable borrowing rates if the Aave has tokens in their treasury that they deploy
borrower deposits 3% of their loan amount in to various strategic ends. Despite launching liquidity
WING. Lenders receive token rewards and APR from mining programs in the past like their Avalanche
borrowers but utility stops there. and Polygon deployments, token rewards are not
crucial to activity on the protocol. Their biggest
Granted the ecosystem was still active, their model market on Ethereum has $4.41 billion TVL (85% of
could be emboldened with a gauge voting system. all TVL, 2/5/23) and offers no token rewards for
The 3% rule is reasonable in ensuring perpetual lending and borrowing.
demand for their token. As long as there are
borrowers, there are buyers. Token rewards offered by the DAO are mainly
reserved for Safety Module deposits - the pool of
Two benefits of the 3% deposit present itself in case funds used to make lenders whole during shortfall
the lending pair experiences bad debt. When events. With their Safety Module, the only
lenders are made whole, payments are extracted accessibility measure they introduce is a 15-day
from the insurance pools first, before the remaining cooldown period. They could introduce a tiered
bad debt (if not fully secured) payments are shared model using duration locks that would both
between the insurers. incentivise and guarantee longer term locks.
Due to the 3% insurance rule, implementing Coupling locks with penalties avails limiting user
delayed rewards would help the protocol as optionality if we consider arguments against. With
perpetual demand meets offset supply - inflation. increased cross-chain deployments, Aave may be
During down trends, there can be periods of open to increased risk despite v3’s mint and burn
increased model developed to mitigate those concerns
altogether.
An option previously unavailable to Aave but made across all maturities. If done, it would be toward
possible through GHO, is paying stkAAVE holders in making sure liquidity is incentivised in the most
GHO and reducing AAVE emissions. This would active pools. Similarly, this feature would optimise
reduce sell pressure on the token and optimise their token rewards while fixed income lending products
reserves which go towards future requirements. are still finding product market fit.
Distributions could be from GHO interest payments
but it might not be enough to cover the whole When locking in fixed rates for longer periods,
payments. if true, then distributed GHO would need investors seem to prefer lending and borrowing
to be backed i.e. collateralised to pay stakers. stablecoins to reduce risk.
Aave’s DAO includes many notable figures in DeFi, Currently, the highest yield pool for lenders is USDC
and control of the protocol is seen as a valuable although this could easily change as governance
asset given the first mover advantage they hold. actively controls token emissions to different pools.
Some have even established a long term Automating this process would free up time for the
relationship in helping to secure the protocol. DAO and allow market forces to dictate emissions.
Since inception, Aave have repeatedly made With the introduction of Leveraged Vaults, sNOTE
quality moves to ensure they remain as a premier stakers receive higher fees, adding more demand
lending protocol for DeFi natives. Characteristic of for the token. We can expect fees to increase with
those moves is the inclusion of the 80/20 the introduction of new fee-generating products in
AAVE/WETH Balancer liquidity token for Safety the upcoming v3.
Module deposits.
All rewards paid to sNOTE stakers are currently in
This same first mover advantage coupled with a NOTE tokens. Notional could further reduce selling
capable team could be a reason for why they pressure by offering users a choice in pay outs.
waited so long to include some utility. Payments could be in a different token to realise a
profit, or users could receive NOTE in order to
A cross-chain gauge system similar to Hundred compound their position.
finance may enhance their token offering. However,
Aave have managed to gain significant TVLs on the 4.1.8 Hundred Finance, HND (4)
subsequent chains they deployed on despite a lack A standout feature of Hundred finance’s system is
of rewards. Also, Aave has emitted 91% of their their Mirror vote-escrow feature allowing cross-
tokens already, using the remaining (9%) as liquidity chain voting power functionality.
incentives may not be in their best interests amid
the many demands that could arise. It represents a significant milestone but has failed in
adoption by other protocols due to security issues
4.1.7 Notional, NOTE (4.5) that have plagued the Vfat-led platform. Twice
Notional’s NOTE token caters to various holder they have been exploited and developers shy from
profiles. Their sNOTE pool currently holds ~36% of such code.
their circulating supply at the time of writing, while
the rest are split between other liquidity pools, Optimising their [Hundred's] token rewards towards
smart contracts, and holders. stablecoin providers incentivised them to
accumulate HND rewards.
Gauge voting could help with optimising token
rewards to nToken holders that provide liquidity
However, this focus on stablecoin providers their respective pools to receive any portion of
reduced their competition in APRs for other assets. allocated rewards each epoch.
This culminated in a loss of market share to other
platforms offering better returns. The stablecoin While staked, their etokens cannot be collateralised
specialisation coupled with a lack of competitive although they can be lent out. The system works by
yields, contributed to a low number of HND holders incentivising these stakers to accept additional risk
after more than 18 months on the market. in contributing to the overall collateralisation of the
protocol.
For context, their cross-chain deployments opened
them up to a TAM (total addressable market) worth More rewards —> more uncollateralised etoken
$32 billion. stakes —> cheaper borrowing costs (below kink) +
greater liquidity —> more activity —> higher
Many features, both listed and unlisted, could help revenue flows into reserve pools for protection.
the HND token. However, the structural problems
described above, incur an almost herculean task in The largest reserves will be where the majority of
motivating DeFi natives to acquire HND. borrowers are.
4.1.9 Euler, EUL (3) 4.1.10 Moonwell, WELL (3)

Euler’s token, EUL, has a score of 3 with no locking Moonwell announced an incentive program
mechanisms involved. Only a token-gated feature granted through the Moonbeam Foundation. This
functions in removing supply from the open market. would've allowed them to significantly reduce
token emissions and still maintain competitive
Staking Euler to vote in gauges causes users to rates.
forgo their forum voting power. Governance
participation (proposal voting) is temporarily Whereas they still heavily emit tokens, users can
disabled in order to allocate token rewards to pools further benefit from the initiative. Governance,
of their choosing. incentives, and a safety module (incentivised by
WELL rewards) are offered by Moonwell.
Additionally, bribing doesn’t exist for EUL stakers
and allocations are primarily based on two Considering the highly inflationary structure
parameters: (particularly the second year), the first addition
WELL could have, is a delay in token emissions
1. Where the highest activity is through a minimum claim and lock like Tectonic.
2. Creating high yields for specific or relatively
low risk assets This would reduce selling pressure on the token.
Protocols might not be able to incentivise Further, Moonwell already has a Safety Module
borrowing activity - which can easily become net which also doubles as a mechanism to remove
negative both short and long term - but Euler circulating supply and reduce sell pressure.
ensures that revenues have some optimisation. Although, this would be a makeshift solution as the
tokens can become liquid anytime after a
Since Euler doesn’t directly incentivise EUL staking mandatory cooldown period.
and voting, EUL holders must stake their etokens in
For this reason, a locking mechanism like that future deployments.
explained for AAVE could help in semi-permanent
removals from circulation and preserve value for Should an implementation in the likeness above
both token holders and lenders. What happens if transpire, sSONNE stakers receiving SONNE
investors no longer see any value in WELL? This is a rewards should receive more of those rewards for
potential reality should locking remain absent. higher risk exposure.
Providing value to your most loyal supporters is Other than VELO distributions, SONNE would
essential. Moonwell could supplement their Safety benefit from further aligning long term token
Module with a gauge voting system and include holders through a locking system that elicits higher
penalties for early exiters. Disincentivising selling rewards. Token-gated lending and borrowing yields
while directing token emissions at aligned token would also help the token, although undue
holders. Accepting other tokens to the Module is exposure to added risk could upset platform users.
also an option.
This could also lead to increased competition from
A system as such, would route significant value other platforms providing yield as users shop for
back to Safety Module depositors who essentially the highest returns. Such a dynamic can render the
subside the team from various problems in the mechanism useless and pressure Sonne into higher
event of an exploit. inflation. The added supply would only be sold and
the token would suffer.
4.1.11 Sonne Finance, SONNE (3)
Sonne finance benefitted from a LGE that 4.1.12 Benqi, QI (2.5)
bootstrapped liquidity and allowed their Benqi is one of the formidable lending protocols on
community to acquire the token at the same price. Avalanche sitting in the top 5 Dapps in TVL.
Their tokens were immediately available after the
event, and they could sell as quickly as they Their token obtained a low score but a valuable
possibly could. functionality is that it is tied to the growth of the
Avalanche network. By creating a Liquid staked
The LGE also allowed Sonne to launch a liquidity AVAX (sAVAX) they created an additional revenue
incentivisation program utilising Velodrome’s source and buy pressure for QI.
ve(3,3) model. This helped them to optimise token
emissions from genesis by engaging in an Validators with AVAX deposits can accumulate QI,
incentivisation strategy that lowers the cost of stake for veQI, and use the voting power to allocate
liquidity. sAVAX holder’s underlying AVAX to their nodes.
Subsequently, Sonne finances’ liquidity could Similarly, validators desire greater veQI balances to
become cheaper over time. Additionally, the model allocate more AVAX to their nodes. This helps
offers the future option of dividing their VELO increase their chances of verifying blocks on the
rewards between different initiatives. For example, Avalanche blockchain, resulting in more rewards.
a portion that includes token buybacks they can Higher AVAX balances translate to larger shares of
further distribute to SONNE stakers. Alternatively, the yearly inflation - essentially behaving as a
buybacks can remain in the treasury for strategic leverage tool.
As of 18/5/23 validators can acquire veQI at a rate circulating, 77% can be released with little
of 1:50. For every $1 of veQI owned, validators can economic reason to hold it.
control $50 of AVAX. That's 5000% capital
efficiency indicating a significant value (leverage) Silo doesn't heavily incentivise lending activity with
opportunity for validators. token rewards, however, they show a willingness in
deploying strategic reward programs highlighted
Additionally, QI is also the governance token of the by how they bootstrapped liquidity for their
decentralised Benqi community. As veQI’s control stablecoin, XAI.
over staked AVAX grows, the governance token
grows in value. SILO has significantly lower emissions than the
other projects. The stringent control is
Benqi have already created a version of their characteristic of the DAO maintaining maximum
governance token suited to validators. They could flexibility to market conditions. Rather beneficially,
add further flexibility by offering platform revenue the Silo team aren’t committed or obligated to
shares in another form. If released, a model release additional tokens as part of any program
incorporating an option to split the QI token into a except through DAO votes.
revenue sharing asset and ve asset with voting
power furthers optionality. Furthermore, this also buys time for the DAO to
innovate on their tokenomics where many of the
Currently, QI emissions go to lenders, borrowers, features listed here could help. Contrastively,
and LP providers. QI could optimise their system by original use cases can arise from their uniqueness
adding LP token utility to what’s mentioned above. and taking advantage of future developments.
It would be as such: User purchases QI, stakes it on Platform specific features to implement include XAI
the platform, they then choose for a ratio split to be discounts for LP token holders and penalties on
converted into veQI and revenue sharing QI. If token claims similar to Tectonic. This would boost
revenue sharing QI was in the likeness of sNOTE, liquidity for the platform and increase XAI supply.
and also paid platform revenues in non-native More XAI in the market is net-positive because it is
tokens like USDC, selling pressure on QI would be a decentralised stablecoin backed by real assets,
severely reduced. An increase in demand would untied to any centralised entity.
follow while allowing full optionality for the user.
After the situations with UST and USDC over the
A combination of the above would increase their last 12 months, investors find value in a
score to 5.5 decentralised stablecoin. Although, XAI's peg would
have to be stable to maximise any upside.
4.1.13 Silo Finance, SILO (2.5)
SILO possesses one of the lowest utility scores out Combining LP utility for XAI with a system similar to
of the lending protocols. Silo remains a useful RDNT would help the platform as stablecoin
platform offering due to the control given over liquidity is highly sought after. This can be seen in
collateral supporting greater risk management. various places such as Frax’s initiative to increase
frxETH liquidity.
The token could provide significantly more value to
the community. However, with 23% of tokens
4.1.14 Compound, COMP (2)
Compound possesses the lowest score out of the
protocols analysed but their token is relatively
strong in price terms. At the time of writing, COMP
possesses a market cap of $274 million.
Consequently, many features can be added to
bolster the token’s value proposition helping to
foster demand and dissuade selling pressures.
Further, it is worth noting that Compound has the

fifth lowest emissions and the fourth largest
percentage circulating supply, indicating a highly
inflationary strategy.
Many of the features here can be beneficial to

COMP individually or combined in a new way.
However, due to the product market fit found by
the protocol, we don't expect significant changes to
the tokenomics as it doesn’t heavily require such
innovation compared to newer protocols.
The whole market suffered plummeting prices in

2022. The lack of a resurgence for the COMP token
could be due to the absence of functionality, as the
utility added to AAVE through GHO undoubtedly
played a role in its outperformance during Q1
2023.
Part IV
5. Conclusion From the diagram we can see what actions users
The challenge of most lending protocols, like many can take, and the consequences. The most value-
DeFi apps, is thoroughly disincentivising token additive sequence is the core orange circle that
selling. Although market forces have an enables decreasing liquid supply. This should be a
uncontrollable effect on a token’s price, a project goal for all protocols. Holding the token is
should do all that is within its power to instil enough characteristic of an aligned community that
utility and incite demand. recognises the value proposition.
5.0.1 The Flywheel Ineffective communication of a protocol's value

Assuming most participants are purely profit- proposition will lead to undue selling outside usual
seeking, a lending protocol incentivising activity by market forces. The key insight to extract is a
token emissions, is essentially inviting sellers. question of how protocols can communicate their
value proposition through token utilities.
When prices increase, users are incentivised to
supply assets and earn higher yields, leveraging up 5.1 Where to look
the same asset in cases it is profitable to do so. Tokens of lending protocols are frequently disposed
Users attracted by these yields will either sell, or if to highly inflationary schedules. An average of 30%
there’s a staking utility attached, they can stake of tokens are released during the first year and
their tokens for the further rewards on offer. result in negatively affecting the token price. Many
projects attempt to salvage cratering prices with
Paying out token incentives isn’t a futile strategy. added utility in their tokens.
Many protocols have done it, however it can turn
extremely value extractive if the proper measures Greater utility contributes to less decline from
aren't put in place. Characteristic of this are GEIST, higher demand. Quantifying the effects of utility
RDNT, and TONIC tokenomics implementing locks features is difficult, and it would be beneficial to
and penalties for eager sellers. projects to have deeper insights into how their
Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part IV | 46

initiatives and ideas perform. Holder count can be a Furthermore, we also observe no real correlation
valuable metric for protocols, but it can be argued between inflation rates and utilisation rates. This
that it’s more important to understand the paths could be due to several factors including time on
that users holding those tokens take. the market, reach of the protocol, liquidity on the
network, number of wallets on the network and
A user may hold the token but only exercise 4/6 more.
utilities, if this is the case, projects should
understand why and what utilities they are. Some When emitting tokens, the primary reason for doing
utilities are more passive, like penalties, and this fact so is to incentivise activity. A feature of the best
illustrates that projects should be able to identify outcome for protocols is that a significant portion
the optimum path for a user holding their token. of their tokens are held in wallets, various smart
contracts, and liquidity pools. Whereas tokens held
5.1.1 Token Management in wallets are a function of some of the
In cases like QI, only validators are incentivised to aforementioned factors, tokens held in non-liquidity
hold veQI and allocate AVAX deposits, the smart contracts are also significant. Essentially
remainder of token holders are pure speculators. depicting active protocols that rely on the token for
Speculation transitions into price, however, it’s very specific reasons i.e Liquid lockers.
difficult for a token to have a floor if the majority or
all of the community are speculators. Although, this What may be useful for projects in the future are
challenge is reduced if buybacks are involved. token designs that factor in the product life cycle.
Optimising features and tokeneconomics for
Similarly, many of the protocols have provided dynamic schedules could open a door to better
utilities for the average user with little regard for value accrual and long term community sentiment.
several user profiles and psychographics. Lending is The economy is not a static machine. Why shouldn’t
a DeFi primitive, still, many users engage in them tokens - assets powering economic machines - be
for different purposes. Token’s utilities should reflect programmed or created around wider strategies to
these variations in user profiles. pre-empt, and capitalise on the cyclicality they are
inadvertently exposed to?

5.1.2 Balancing Token Value & If these tokens were built with the idea of
Governance for Decentralisation supporting the DeFi ecosystem, more people would
Many protocols don't see an increase in token be interested in them, increasing their value and
value when there's more activity on their platform. driving economic activity. Unfortunately, many
However, there is a benefit in terms of governance. lending protocols miss out on this potential value,
Lower token prices make it easier for more people even though they provide an essential modern
to participate in the decision-making process, which financial primitive.
supports decentralisation. However, it's important
to consider whether these governors have any real It's relatively simple, more composability and a
stake in the platform. greater number of the right integrations helps to
remove token supply.
Governance becomes more challenging when
community members who don't understand the Facilitating this synergy within the DeFi ecosystem
platform or the decentralised environment, have creates lasting buy pressure.
the same say in important matters as experienced
players. This is why progressive decentralisation
can be advantageous. It helps protect protocols
while increasing productivity, and the founding
team remains accountable for building a great
product. When the responsibility is offloaded to the
community, it can lead to avoidable problems.
Additionally, If teams want to prioritise

decentralisation, they should consider using token
designs that have a clear and effective way of
increasing in value. To make their relationship with
their community stronger, they can also use fairer
distribution strategies.
5.1.3 Injecting Composability

DeFi usually doesn't limit access to its platforms.
However, for lending protocols, it's important to
have some kind of benefit associated with their
tokens. Otherwise, the tokens will only be used for
speculation and won't be any different from stocks.
The essence of DeFi lies in its ability to combine

different protocols to create new functionalities.
This is what makes it private, decentralised, and
transparent. However, only one protocol, Radiant,
has created a token that can be used as a base for
other developers to build on.
Most lending protocols have tokens that are only

used for speculation, without considering how they
can contribute to the wider community.

6. Closing Statements
"The challenge of tokenomics has prompted significant experimentation to date.

Recurring themes for lending protocols include high inflation and low utility.
Consequently, we clearly observe an imbalance between supply and demand. Protocol
tokens seem to be released at the same rate perpetually instead of having some
Psaul
tethers connected to activity.
Tokenomics &
Ecosystem
Development Despite the current fiat systems' shortcomings, there has always been a way to control
Anubis Labs the money supply. I don't advocate for replicating that system but KPI-based emissions
psaulogunfo@v can ensure certain synergies are created before releasing more tokens. I understand
egabrowndigita how this rests on what teams value most and those principles will also play a significant
l.com role in design decisions.
Finally, I believe the future of lending protocol tokens = utility functions x varied user
profiles and psychographics. I’m excited for new protocols as their nuanced
mechanisms provide opportunities for more creativity. It would be great for founders to
craft tokens in an empathetic manner that drives all community efforts fostering
deeper interpersonal bonds along the way.... And hmu for any enquiries!"
"As we wrap up, it is evident that tokenomics, especially in the realm of lending
protocols, presents both complexities and opportunities for additional innovation.
Emphasising the need for more comprehensive metrics, tooling, and additional
Otter educational efforts. It is vital as we progress towards broader mainstream adoption.
Addressing these prevailing challenges, including high inflation rates, insufficient utility,
Degenoisseur
and constant token release patterns, is essential for the growth of users and promoting
Otterolie@gmail.
of mainstream adoption.
com
It has been an absolute pleasure collaborating with Psaul on this publication, and I am
grateful for the invaluable experience gained through this endeavour. I hope the readers
find this report insightful and enjoyable, and I welcome constructive feedback via
twitter."

7. Appendix
References Cryptorank:
Aave
Coingecko: Benqi
Aave Compound
Benqi Euler
Compound Moonwell
Euler Notional
Geist Silo
Hundred
Moonwell Defi Llama:
Notional Aave
Radiant Capital Benqi
Silo Compound
Sonne Euler
Starlay Geist
Tectonic Hundred
Wing Moonwell
Notional
Websites: Radiant Capital
Aave Silo
Benqi Sonne
Compound Starlay
Euler Tectonic
Geist Wing
Hundred
Moonwell Graphics:
Notional Part III - Oliver Munday -
Radiant Capital https://www.newyorker.com/magazine/20
Silo 14/08/04/money-talks-6
Sonne Part III - Akisogabe -
Starlay http://www.akisogabe.com/ graphic
Tectonic Part IV - Painting Card Players, Painter -
Wing https://www.saatchiart.com/art/Painting-
Card-Players/1746971/8260130/view
Token Terminal: Product Life Cycle diagram -
Aave https://isengdoank1995.blogspot.com/201
Benqi 4/02/product-life-cycle.html
Compound
Euler
Moonwell
Notional
Radiant Capital
Sonne
Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Appendix | 50

Appendix
Docs: Silo
Token Allocation & Vesting - Silopedia SILO
QI Token - BENQI Arbitrum
GEIST Token - Geist Ethereum
Overview - Radiant XAI
TONIC Token - Tectonic Ethereum
Technical Docs - Moonwell Artemis Sonne
Allocation - Starlay Finance Starlay
The HND & mveHND Tokens - Hundred Finance Tectonic
Compound III Docs | Account Management Wing
Flash Pool - Wing Docs BNB Chain
White Paper - Euler Finance Ethereum
About Notional - Notional V2 Ontology
Aave
Sonne Finance Data
Lending Protocol Tokenomics Data
Block Explorers, Token Holders: Spreadsheet - All data charts are from
Aave here.
Ethereum
Polygon
Optimism
Arbitrum
Avalanche
Harmony
Benqi
Compound
Ethereum
Polygon
Euler
Geist
Hundred
Arbitrum
Ethereum
Fantom
Optimism
Gnosis
Moonwell
Notional
Radiant Capital
Arbitrum
BNB Chain

Appendix
Others
Compound Governance: Steps towards complete decentralisation, February 2020:-
https://medium.com/compound-finance/compound-governance-5531f524cf68
Hundred Finance Loses 7 million in Optimism Hack, April 2023:
https://cointelegraph.com/news/hundred-finance-loses-7-million-in-optimism-hack
Defi Protocols Agave & Hundred Finance Exploited on Gnosis Chain for 11 million, March 2022:
https://cryptonewsbtc.org/2022/03/15/defi-protocols-agave-and-hundred-finance-exploited-on-
gnosis-chain-for-11-million/
What is ve 3,3 & The Future Of DeFi in the Cryptocurrency Market, February 2022:
https://blog.cryptostars.is/what-is-ve-3-3-is-this-the-future-of-defi-in-the-cryptocurrency-market-
296fa7b8a2e6
Well Transparency Report, July 2022: https://medium.com/lunartechfdn/well-transparency-report-
8dfeb91f5176
Asset-Backed Security: https://www.investopedia.com/terms/a/asset-backedsecurity.asp
Crypto's Most Profitable Protocol, January 2023: A New Era for DeFi, Radiant Capital:
https://medium.com/@RadiantCapital/cryptos-most-profitable-protocol-a-new-era-for-defi-
b374ca82a741
Crypto firm Circle reveals 33 billion exposure to Silicon Valley Bank, Elizabeth Howcroft, Rishabh
Jaiswal, March 2023: https://www.reuters.com/business/crypto-firm-circle-reveals-33-bln-exposure-
silicon-valley-bank-2023-03-11/
veQI, Benqi, September 2022: https://benqifinance.medium.com/veqi-supercharging-avalanche-
validators-42cabdaf8e25
Benqi Liquid Staking Release, February 2022: https://benqifinance.medium.com/benqi-liquid-staking-
release-7d9e9eadba40
Gauntlet <> Aave Renewal, December 2022: https://governance.aave.com/t/arc-updated-gauntlet-
aave-renewal/11013
Crypto's Most Profitable Protocol: A New Era for DeFi, Radiant Capital, February 2023:-
https://medium.com/@RadiantCapital/defis-most-profitable-protocol-part-two-7ab13b11c2c2
veQI — Supercharging Avalanche Validators, September 2022:
https://benqifinance.medium.com/veqi-supercharging-avalanche-validators-42cabdaf8e25
Building On-chain liquidity for XAI, Aiham.eth, October 2022: https://gov.silo.finance/t/building-on-
chain-liquidity-for-xai/309
Progressive Decentralisation, Jesse Walden, 2019:
https://a16zcrypto.com/content/article/progressive-decentralization-crypto-product-management/
Liquidity Mining: A User-Centric Token Distribution Strategy, Dimitriy Berenzon, October 2020:
https://medium.com/bollinger-investment-group/liquidity-mining-a-user-centric-token-distribution-
strategy-1d05c5174641
frxETHBP & WETHR program, Dennis, Nader Ghazvini, Sam Kazemian, January 2023:
https://gov.frax.finance/t/fip-182-frxethbp-wethr-program/2097
The Fall of Terra, Krisztian Sandor & Ekin Genc, Coin Desk, December 2022:
https://www.coindesk.com/learn/the-fall-of-terra-a-timeline-of-the-meteoric-rise-and-crash-of-ust-
and-luna/

Appendix
Others
Velodrome Dapp, Bribe Page: https://app.velodrome.finance/bribe
Liquidity Generation Event, Sonne Finance, September 2022:
https://medium.com/@SonneFinance/liquidity-generation-event-67e7c3d1009b
Oscore Website: https://www.ocredit.io
Announcing Radiant v2: A New Era in Decentralised Finance, Radiant Capital, January 2023:
https://medium.com/@RadiantCapital/cryptos-most-profitable-protocol-a-new-era-for-defi-
b374ca82a741
Protocol Updates: Changes to our Token Emissions Schedule and Lanuch of our Maturity Vaults,
August 2022: - https://medium.com/tectonicfi/protocol-updates-changes-to-our-token-emissions-
schedule-and-launch-of-maturity-vaults-82e38c5dd367
What is Bad Debt? Write Offs and Methods for Estimating:
https://www.investopedia.com/terms/b/baddebt.asp
What is Proof of Stake? Shaan Ray, October 2017: https://hackernoon.com/what-is-proof-of-stake-
8e0433018256
With COMP Below $100, a Look Back at the 'DeFi Summer' It Sparked, Brady Dale, October 2020:
https://www.coindesk.com/business/2020/10/20/with-comp-below-100-a-look-back-at-the-defi-
summer-it-sparked/
Disclaimer
This report has been authored by employees of Anubis Labs and GG Capital. The opinions expressed in
this report are solely those of the authors and do not represent the views of Anubis Labs or GG Capital.
The authors may hold cryptocurrencies mentioned in this report.
The information provided in this report is intended for informational purposes only and should not be
construed as investment advice. It is essential that you conduct your own research and consult with an
independent financial, tax, or legal advisor before making any investment decisions. Past performance of
any asset is not indicative of future results.
Editorial decisions and content in this report are not influenced by advertising or sponsorship. Any third-
party advertisements and links to external sites promoting products or services should not be interpreted
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Tokenomics Report - Lending Compr

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TOKENOMICS

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Prologue | 3

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Prologue | 4

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Prologue | 5

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Prologue | 6

2.1 Ethereum As one of the lending and borrowing incumbents in

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part I | 10

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part I | 11

Present in Compound’s model is the inclusion of Background

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part I | 12

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part I | 13

When opening a leveraged vault, a borrower will 2.1.5 Silo Finance

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part I | 15

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Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part I | 17

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part I | 18

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Liquid staking works by receiving a user's network

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part I | 21

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2.9 Optimism Tokenomic Model

Revenues earned on the platform can be rerouted

uSONNE holders are SONNE token stakers that

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part I | 26

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part II | 28

3.2 Emissions p/a 3.4 Inflation vs Utilisation Rate

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part II | 31

Score 8 6 6 4.5 3 2.5 2.5

4.1.9 Euler, EUL (3) 4.1.10 Moonwell, WELL (3)

Further, it is worth noting that Compound has the

Many of the features here can be beneficial to

The whole market suffered plummeting prices in

5.0.1 The Flywheel Ineffective communication of a protocol's value

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part IV | 46

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part IV | 47

Additionally, If teams want to prioritise

5.1.3 Injecting Composability

The essence of DeFi lies in its ability to combine

Most lending protocols have tokens that are only

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part IV | 48

"The challenge of tokenomics has prompted significant experimentation to date.

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Part IV | 49

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Appendix | 50

Tokenomics Report: Lending Protocol Edition | 10th May, 2023 Appendix | 51

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