Crypto Loans Become Main Revenue Source for MakerDAO

Cryptocurrency-backed loans now account for over half of MakerDAO's revenue, surpassing Real World Assets (RWA).

Thursday, 18 January 2024 01:53

Market sentiment in the crypto space seems to have shifted towards a bullish trend following last year's breakout, and MakerDAO's data may suggest that optimistic leveraged bets are making a comeback.

The referenced data is MakerDAO's revenue matrix. In fact, cryptocurrency-backed loans are currently the largest revenue contributor to this DeFi protocol compared to Real World Assets (RWA).

DeFi Crypto Loans

According to data from the financial analysis and reporting platform Steakhouse Financial on Dune, cryptocurrency loans in the DeFi space currently make up 50.5% of MakerDAO's $243 million annual revenue.

The data shows that cryptocurrency-backed collateralized lending is currently at $2.4 billion in DeFi and is expected to generate $122 million in revenue, surpassing MakerDAO's RWA, estimated to have an annual revenue of around $107 million.

Crypto lending, being the main source of revenue for Maker, had brought in annual revenue of up to $200 million at its peak in 2021 before the push for RWA last year.

Since then, DeFi lending activities have experienced a sharp decline as the crypto market went through a prolonged bearish season with the collapse of Terra Luna and FTX.

DeFi protocols like Maker and Aave seem to have weathered the storm, which had left smaller players struggling, with some even having to shut down their services.

Now, it appears that cryptocurrency-backed loans are making a comeback amid a strong market recovery last year, witnessing the market cap doubling to $1.7 trillion.

This growth attracts demand for long-term and risky bets on future cryptocurrency prices, as reflected in the increased demand for cryptocurrency-backed loans.

Maker lends its stablecoin DAI, and this asset type serves as the primary liquidity driver for transactions. Cryptocurrency-backed loans accounting for over half of Maker's revenue indicates a shift in sentiment towards a rising market, and traders need more loans to earn higher profits, a characteristic of a bullish market.

Maker profits from both RWA and cryptocurrency loans

The shift to risk assets indicates that market participants are anticipating the U.S. Federal Reserve to cut interest rates, and therefore, there is little reason to deposit money into U.S. Treasury bonds while DeFi tends to generate yields of up to two digits.

However, MakerDAO's revenue potential continues to evolve and is not dependent on whether the interest rate on DeFi is higher or lower than what the U.S. provides.

Previously, Maker had pumped $100 million worth of RWA assets through BlockTower Andromeda, the majority of which was allocated to short-term U.S. Treasury bonds.

This addition is part of the protocol's "Endgame" plan introduced by founder Rune Christensen, part of which aims to increase investment in RWA and diversify the stablecoin DAI's reserve.