DeFi Protocols Are Now Earning More in Fees Than Their Base Layer Networks

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

DeFi protocols are now generating more in fees than their base layer networks in a growing trend.

According to Ethan Francis, head of protocol relations at Web3 infrastructure provider Particle Network, fees generated by decentralized finance (DeFi) projects will continue to grow in the next six to 12 months as a result of “chain abstraction,” in which end users conducting onchain transactions are not going to know which chains they are using.

“We’re moving into this future quite quickly, especially on the user experience level where eventually users are going to be able to access different protocols and applications in general from any chain,” Francis told Unchained in a conversation.

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

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

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

1. Lido – $19.1 Million

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

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

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

2. Raydium – $18.0 Million

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

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

3. Uniswap – $9.0 Million

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

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

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

4. AAVE – $6.3 Million

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

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

5. PancakeSwap – $5.7 Million

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

According to CoinGecko, PancakeSwap’s V3 is the sixth-