Original Author: Alphabeth Capital Analyst

Original Translation: Jordan, PANews

The field of on-chain derivatives is the most competitive area in DeFi, with dozens of protocols already launched and many new projects about to be released. This article will focus on comparing the key indicators of 6 major on-chain derivatives protocols.

While the raw data may suggest that a protocol appears to be a good investment, it is still important to understand the background, especially the protocol design and revenue sharing model.

(Note: The data in the above table was captured on July 24, 2023.)

I. GMX

GMX is a perpetual synthetic decentralized exchange, and its most well-known feature is zero-slippage trading. From metrics such as locked value, trading volume, fees, and revenue, GMX should be the largest-scale derivatives protocol at the moment. They share 70% of the fee revenue with liquidity providers and 30% of the fee revenue with GMX stakers, making GMX very popular and attractive to investors. Its price-to-earnings ratio (revenue minus token incentives) is 31.16, which means GMX is "relatively expensive," but investors may price GMX v2, which will be launched in a few weeks and will have the following features:

• Chainlink low-latency oracle providing better real-time market data

• Support for more assets (not just cryptocurrencies)

• Lower transaction fees

• Slippage coexistence in GMX v1 and v2

With the intensification of competition, the market share of GMX is gradually decreasing. If v2 cannot bring more trading volume and fees to the platform, the reasonable price of GMX may fall into the $40 range, with a P/E ratio of about 20.

2. Synthetix

Synthetix allows users to mint synthetic assets based on its native token SNX. Other projects (such as Kwenta) can use Synthetix to build their own frontends to enable traders to access perpetual DEX trading. In terms of market capitalization and revenue, Synthetix is the largest among the six derivative protocols. They allocate 100% of fee revenue to SNX token stakers, who are also liquidity providers themselves.

In order to incentivize liquidity providers, Synthetix rewards them by unlocking SNX tokens. Currently, over $100 million worth of SNX has been paid out as incentives. However, the protocol has only $36 million in fee revenue and a negative P/E ratio, which means they are running at a loss.

Based on the current valuation, fees, and token release, SNX appears to be a very expensive token. Without additional incentives, future trading volume may decline.

3. Gain Network

Gains Network is a comprehensive derivatives platform that allows for leveraged trading of cryptocurrencies, forex, and commodities. Currently, the platform shares about 33% of fee revenue with GNS token stakers and about 17% with liquidity providers. However, starting from September this year, the fee revenue sharing ratio with GNS token stakers will increase to 61%, which could potentially increase its valuation.

Gains Network has the lowest price-to-earnings ratio among the six derivative protocols, at only 10, and a price-to-revenue ratio of 8.7. However, its trading volume/lock-up ratio is relatively high at 568 without incentive conditions. From key metrics, product development, and future updates, GNS may be an undervalued project.

IV. Perpetual Protocol

Perpetual Protocol is built on top of Uniswap v3 smart contracts, currently distributing 80% of fee revenue to liquidity providers and about 14% to PERP token stakers. Perpetual Protocol has an annual revenue of $1.4 million, while the value of unlocked tokens is $2.8 million, which means it has negative annual returns. Considering various indicators, Perpetual Protocol seems to be unattractive to investors and difficult to compete with Kwenta (Synthetix) on Optimism.

5. Level Finance

Due to a significant amount of trading incentives with LVL token, Level Finance protocol has gained a lot of market attention in its early stages. Currently, the trading volume of Level Finance protocol has been maintaining at the level of several billion dollars, but some key metrics are showing a downward trend due to the decrease in token circulation and price.

Considering that Level Finance has a similar design to GMX, the ratio of trading volume to locked amount reaching 1000 seems a bit high (possibly due to artificial factors), it should be noted that although Level Finance generates a substantial fee income, the yield is negative - which means that the tokens distributed by the protocol are more than the tokens generating fees.

Level Finance allocates 45% of fee income to liquidity providers, 10% to LVL token stakers, and 10% to LGO stakers (Note: LGO is the second token launched in the Level ecosystem, with governance and financial rights). Some key metrics of Level, such as trading volume, seem inflated due to the early incentive stage, but its yield is negative, so it doesn't appear to be an attractive investment choice.

VI. MUX Protocol

MUX Protocol is both a trading protocol and an aggregator. The protocol distributes 70% of fee revenue to liquidity providers who provide ETH and MUX token stakers. MUX Protocol has different types of protocol combinations as it is deployed on various widely adopted ecosystems such as perpetual trading platforms, options platforms, betting platforms, etc. Although MUX Protocol has a relatively low market value, it exhibits good scalability and reliability, making it an "interesting" investment opportunity.

Summary

The competition among on-chain derivatives protocols is becoming increasingly fierce. It is difficult to identify the most promising protocol or predict which protocol will succeed over time. This article is not financial advice.