TLDR; We’re excited to launch DeFi behind the scenes – an exploratory look at business models and traction behind various decentralized finance applications on the blockchain. Two widely held beliefs about Ethereum DApps: 1) Nobody uses them for anything useful besides speculation and 2) There are no business models and nobody is making money. Our vision behind this series is to use data to provide a credible narrative behind the dollars and users that make these projects stick. We are experimenting with a video format to tell this story – short 5 to 10 minutes that builds a case.
We kickoff the first episode with InstaDApp - an intuitive frontend for MakerDAO, Compound, Uniswap and other decentralized finance applicaitons.
InstaDApp provides a slick UI to engage with various decentralized finance applications, like MakerDAO and Compound. Besides providing a way to open up loans on Maker and Compound, they also provide a way to port your loans from Maker to Compound and vice versa – they call this InstaBridge. This is the most interesting feature which they can potentially build a revenue model around. In this episode, we’ll build a business model around the InstaBridge feature.
Bonus: An outsider’s perspective: Joel John from Outlier Ventures
We asked Joel John, an analyst and seed stage investor at Outlier Ventures to crunch the numbers and provide an independent analysis. You should read his blog post for the complete projections and analysis:
Speaker: In this episode we’re going to build a revenue model for InstaDApp. InstaDApp provides a slick UI to engage with various decentralized finance applications, like MakerDAO and Compound. Besides providing a way to open up loans on Maker and Compound, they also provide a way to port your loans from Maker to Compound and vice versa. This is the most interesting feature which they can potentially build a revenue model around
Let’s take a look at how InstaBridge is performing.
In Covalent, we just have to go to the InstaDapp model and start exploring. What you can see here is there have been 894 instant bridges, which is people porting their MakerDAO loans to Compounds or vice versa in a lifetime of InstaDapp. We can further break this down by month. You can see that 200 bridges created in August of this year. Further breakdown by direction and you can see that 180 Maker to Compounds and 20 Compounds to Maker and that’s how it adds up to 200.
Further build the ETH amount and the DAI amount and the fees that they charge.
What you can see here is that in August of this year, $2 million of Maker loans were ported over to Compound. They charge zero fees right now, but this is the feature that they can potentially build a business model around.
Three ways they can charge for providing this feature. One could be a percentage of the funds transferred over, so if they were to charge 1% of this $2 million, that’s quite a tidy sum, but that’s not really within the ethos of decentralized finance. Realtors in the real world, charge a percentage of your asset, but it doesn’t really make sense in this case. The other extreme is a fixed fee, so if they charged $1 for a port, then they would have made $180, and obviously as you can see, that’s not really sustainable, because interest rates have been more or less stable across Maker and Compound.
The third most interesting feature, which I think is also fair, is a cut of the fees that they would have saved you by using this feature, so let’s take an example. If Compound were at 15%, and Maker at 20%, then by moving your loans from Maker to Compound, InstaDApp that would have saved you 5% per year, and so it just makes sense to take 1% of that 5% that you’ve saved, or whatever that proportion is.
So you can download the CSV here and do your detailed analysis. One of our partners Joel John from Outlier Ventures has done exactly – has built a sophisticated model and full projections for how these three different scenarios play out. I highly recommend you to take a look at his blog post, I’ll share a link in the show notes.
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