Top 9 Web3 Companies That Makes The Most $ (& How they Made It) 📈

GM folks 👋🏻 - happy hump day 🐫.

3AC co-founders Su Zhu and Kyle Davies are rumored to have closed their new fund. These guys raise new capital not long after blowing up $18 billion in altcoins. All while chilling in Bali and Dubai. Meanwhile, here we are writing this newsletter to build a real business. It ain’t much but it’s honest work 🧑‍🌾

In other news, Justin Sun listed FTX debt token on Huobi. A move that is not incredibly ludicrous, but might also (most probably) be borderline illegal. His excellency is certainly pushing his status to the limit 👑

In Today's Email:

• What Matters: Binance suspends USD bank transfer 💲

• Case Study: 9 web3 business that made $5M+ 💸

• Features: Lido launches Version 2 💧

WHAT MATTERS

Binance Suspends USD Bank Transfer

State of play: The world's largest crypto exchange, Binance, has been cut off from the US banking system. The exchange announced that it's suspending all US bank transfers as of February 8, 2023.

• CEO Changpeng Zhao stated that bank transfers are only "leveraged" (that's an interesting choice of word) by 0.01% of their monthly active users.

• Binance is actively looking for a new SWIFT (USD) partner to avoid this interruption of service.

• Binance was previously using Signature Bank of New York to process dollar transfers via a Seychelles corporation, called Key Vision Development LTD. On January 22, Signature stated that it won't support any crypto exchange customers that are transacting less than $100,000 USD.

This means that Binance users can only use the exchange's peer-to-peer service to convert FIAT to crypto, and vice-versa until a new partnership is established.

Why it matters: To date, the crypto market is still heavily dependent on FIAT infrastructures to conduct business. Post the collapse of FTX, the risks associated with banking crypto exchanges might not be worth the potential business opportunities, especially when dealing with offshore exchanges.

• We don't see Coinbase or Kraken having issues with any banking system. Offshore exchanges without a strong presence in the US will find it increasingly harder to conduct business and maintain relevancy.

• 👨‍💼 Institutional participants would opt for US or Western-country-based centralized exchanges due to compliance and controls

• 👨‍💻 Savvy crypto-native investors would opt for DEXs instead of offshore exchanges as dApps infrastructures improve.

For builders: Pick a type of audience for your product. In crypto, the biggest mistake is to try and serve both the "institutions type" and the "degens type" of crowds at the same time. While there might be a few companies that successfully do this, it's difficult. Doing this worked for offshore exchanges, until now. Alas, make sure you truly understand the users of your products 📦

For investors: Investing in centralized exchanges that can get market share while maintaining proper controls will be lucrative 📈, the key is to focus on Emerging Markets. Coinbase might already dominate the US markets, but there are many CEXs in EMs that are targeting large and growing audiences. Example: Pantera invests in Pintu's $113 Series B.

CASE STUDY

9 Web3 Business That Made $5M+

State of play: There are hundreds of crypto companies out there, but how many are actually generating profits? In this brief study, we look at the top 10 protocols that made the most amount of money.

• These are earnings, not fees or revenue.

• They’re also not “net profit”, when you consider salaries and other operational costs, the final numbers will be considerably lower.

• This list doesn't include "base layer" projects such as Ethereum or Arbitrum.

From Token Terminal:

• 💸 Fees: what the protocol's end users pay in fees to use the protocol

• 🛒 Revenue: % that the protocol captures from the fees

• 🥕 Token incentives: governance tokens that the protocol distributes to users as an additional incentive

• 💰 Earnings: Revenue - Token incentives

(1) OpenSea - $911.5M in lifetime earnings

• 2.5% transaction fees for every NFT sale

• Nothing much to see, it’s the oldest business model in the book, a dominant marketplaces make money by charging fees.

• At its peak, OpenSea has consistent $2B+ monthly volumes, netting them $50M+ per month in gross profit

(2) MetaMask - $450M in lifetime earnings

• 0.875% swap fees

• MetaMask charges 0.875% for every swap done in its wallet

• It routes trades to multiple liquidity sources including Uniswap, 1inch, etc. Turns out, people are lazy

(3) MakerDAO - $146.9M in lifetime earnings

• stability fee (varies depending on the vaults)

• The stablecoin provider garners fees by charging DAI minters (similar to borrowing fees).

• If DAI demands increase, Maker earns more $

(4) Ethereum Name Service - $78.3M in lifetime earnings

• .eth domain sale fee

• $5/year domain renewal fee

• they sell .eth domains, make money from it, and make money from the yearly renewal -- pretty straightforward ENS recurring fee

(5) Perpetual Protocol - $38.7M in lifetime earnings

• 0.1% tx fee

• The derivatives platform charges a 0.1% take rate fee for every trade executed

(6) Decentral Games - $35.9M in lifetime earnings

• $20M NFT mints revenue

• $3.1M NFT activation revenue

• in-game upgrade and secondary sales revenue

• The poker game made most of its money $ from NFT sales (initial inventory sales) but has also monetized from in-game activities

(7) Foundation - $26.4M in lifetime earnings

• 5% marketplace fee

• reserves the right to charge up to 15% of the total sales price

• Foundation charges 5% for every NFT sale on its marketplace

(8) 1inch - $23M in lifetime earnings

• swap surplus fee

• 1inch is an aggregator with no fee, how are they making money?

• tl;dr -- swap surplus between the time of the quote and the time the tx is mined see below

(9) DeFi Saver - $12.5m in lifetime earnings

• 0.1% same-value asset swap fee

• 0.25% swap fee

• 0.25% advanced service fee (smart savings, collateral/debt shifts, boost, create leveraged positions, etc.)

• The DeFi management platform basically charges fees to make things easier for users

Our take: Having a clear understanding as to how your business will make money is key for builders. Gone are the days when you can sell tokens to maintain your operational expenses. You need real businesses.

• For a moment, forget the idealistic preaching of decentralization maximalists. If there’s one thing we can learn from this bear market, ethos doesn’t feed you nor does it inspire new talents to join the space. It needs to be balanced by real use cases, applications, and business models (read: ChatGPT).

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FEATURES & GOVERNANCE UPDATE

Lido Finance Launches V2

Lido Finance launches its Version 2. The top liquid staking protocol with $8.5 billion+ in TVL has released a major upgrade. It’s focusing on two things.

• Staking Router: a new architecture that enables anybody, including solo stakers, to become a Node Operator.

• Withdrawals: an upgrade that allows stETH holders to withdraw directly from the Ethereum Beacon Chain.

The upgrade will also add two new features:

• Turbo Mode: the default mode whereby ETH withdrawals are fulfilled quickly (within hours) without requiring a validator exit.

• Bunker Mode: the mode to mitigate catastrophic scenario, it’s used to prevent bad actors from gaining an unfair advantage by delaying withdrawals in the protocol

Currently, security audits for this upgrade have begun. The upgrade will be made in preparation of the upcoming Ethereum Shanghai hard fork. Post Shanghai, ETH stakers will be able to withdraw their assets. The entire process is predicted to be finished by March or April. That said, the DAO still needs to do the following steps before the V2 is finalized:

• Having a signal DAO vote on the proposed design.

• Run it in Goerli testnet.

• Deploy the smart contracts to mainnet.

• Have an Aragon vote before the hard fork.

Why it matters: As the largest DeFi protocol by TVL and a dominant player in the Ethereum ecosystem, Lido shows maturity in its approach towards upholding crypto ethos. In short, The V2 design is optimized for inclusivity, transparency, and decentralization.

• The upgrade will open Lido development to external contributors globally. It will also remove the 6-of-11 multisig design that the protocol currently have, and remove the upgradeability of its withdrawal contracts.

Other notable feature updates:

• Synthetix began V3 voting.

• Shardeum launches Sphinx public testnet.

• Djed launches ADA-backed USD stablecoin.

• Membrane Finance launches EUROe stablecoin.

• Optimism proposed bedrock upgrade.

• Redacted Cartel launches Pirex for GMX.

• Ethereum launches Zhejiang testnet.

• Threshold launches tBTC v2.

• Jack Dorsey’s launches Damus web3 social app is live.

QUICK BITES

• Binance suspends USD bank transfers.

• 3AC ignore subpoena.

• Genesis-Gemini-DCG reach agreement in bankruptcy court.

• BAYC settles trademark infringement lawsuit.

• Revolut to offer crypto staking.

• Independent FTX examiner could cost $100M.

• SEC to examine US Broker-Dealers crypto pitch.

• DCG is selling holdings in Grayscale Trusts.

• Former Coinbase PM pleads guilty to wire fraud charges.

• SEC warns crypto in IRAs might be unregistered securities.

• The Sandbox partners with Saudi Arabia.

MEME & NOTEWORTHY READS

• Arthur Hayes’ article on macro markets and crypto.

• Nic Carter’s article on Proof of Reserves for policymakers.

• Messari’s report on usage-based governance with sybil resistance.

If you enjoy reading this issue, please consider subscribing. It takes 1 minute of your time but it would mean the world to us 🙇

Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.