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If you’ve been in DeFi for a while, you’ve probably seen good protocols with bad tokenomics, and bad protocols with good tokenomics, but very rarely examples of projects that are able to combine the two together. The “good protocol with bad tokenomics” is the most common trope. We don’t want to name any names, but there are a number of blue chip DeFi protocols with tokens that fit this description. These protocols are the pillars of DeFi, functionally amazing to use in nearly all aspects, and capture high TVL with strong revenue flows. You want to invest in the continued success of these protocols, only to find out that the only real utility of the native token is… governance.
Now, please don’t mistake us. We believe governance and decentralization are very important, which is why Tren Finance will incorporate a DAO. But sentiment has changed on protocol tokens where the sole, primary utility is governance. People want more than just governance tokens. Uniswap, which has been the main example used for “good protocol, bad tokenomics” seems to be aware of this changing sentiment. While a final decision on enabling revenue share for $UNI holders hasn’t been made yet as of this blog post, there’s no doubt that investors reacted positively to the news, with a 60% price increase for $UNI when the fee switch proposal gained popularity in February.
$GMX was one of the first DeFi value accrual tokens to gain popularity back in 2021. By staking $GMX, users can earn roughly 30% of revenue generated by the protocol, which currently equates to around 10% APR. By staking $GMX, users also gain governance power, but the revenue share aspect, together with the success of the protocol, was what made the token popular. Other perpetual futures DEXs like Gains Network also gained popularity with similar revenue sharing features.
With this success, new tokens began launching with built-in revenue sharing tokenomics. Telegram trading bots like Bananagun and Unibot offered revenue sharing for their token holders. One difference from $GMX was that users did not have to stake their tokens, and just needed to hold the project tokens to claim accrued revenue. Rollbit, a GambleFi platform that allows users to bet on sporting events, went in a new direction with revenue sharing. Instead of the typical revenue share model where token holders/stakers receive a percentage of revenue generated by the platform, the platform uses this revenue to buy back and burn the project’s $RLB token. $RLB token holders benefit as the buybacks put buying pressure on the token, and the burns decrease token supply.
The buyback and burn method of value accrual opts for token price performance instead of revenue share. CEX tokens like Binance’s $BNB have also historically used a token burn method, although most don’t buy back tokens and instead burn token supply that is not yet circulating. As the massive $CRV liquidations on multiple lending protocols in June have shown, a successful protocol by itself no longer guarantees token success. Recent events with $UNI and $CRV are clearly saying that the market values, and now expects appropriate value accrual mechanisms for protocol tokens.
These are all lessons that we took into account when designing $TREN. We want the $TREN token to succeed as much as we want the protocol to succeed, and it’s why 90% of protocol revenue will be used for $TREN buybacks. This means that the fees that the protocol collects will be used to buy back $TREN. For example, if someone wants to borrow XY using collateral Asset A, they will pay a one time borrowing fee. This is paid to the protocol in the form of collateral Asset A, which will then be used to buy back $TREN.
This $TREN is then shared amongst various stakeholders within the protocol, as part of the revenue allocation process. As shared in our previous blog on risk, we are always thinking about balancing risk vs reward, and the revenue allocation process is no different. In general, the protocol will prioritize safety first, which is why Stability Providers and XY liquidity providers may receive a higher percentage of protocol revenue to start. Once the Stability Pool and XY liquidity is deemed sufficient, a higher percentage of protocol revenue will flow towards stakeholders involving $TREN.
These stakeholders include $TREN liquidity providers, and veTREN holders. This is to ensure that $TREN has strong liquidity for users to trade, and so that veTREN holders are compensated fairly for locking up their $TREN. The longer that veTREN holders lock up their $TREN, the more rewards they receive, as explained here.
Simply holding $TREN also allows anyone to be a part of the value accrual process. We’re committed to making $TREN a long term deflationary asset, and we will be conducting ongoing token burns with surplus accrued revenue, including team revenue (e.g. LP fees that the team earns from providing liquidity to $TREN and $XY on DEXs). With the $TREN buybacks and burns, holders benefit from increased buying pressure on $TREN, and a deflationary supply.
Based primarily from our own experiences using DeFi protocols and investing in protocol tokens, we wanted to design $TREN so that it would reflect the current and potential future success of the protocol. Through this, we believe that we have designed an innovative value accrual token in $TREN.
90% of protocol revenue is used to buy back $TREN, and distributed to stakeholders who make Tren a stronger protocol. Just by holding $TREN, users benefit due to the ongoing $TREN buybacks and burns, leading to increased buying pressure, and a deflationary supply. Other protocol stakeholders, such as $TREN / XY liquidity providers, Stability providers, and veTREN holders also benefit from these buybacks and burns due to the increased buying pressure and decreasing supply of $TREN, plus they also receive $TREN rewards on top of these benefits through the revenue share process. Through these mechanisms, we believe that we have created flywheel tokenomics that will make everyone think “good protocol, good tokenomics” about Tren Finance.
Tren Finance is the first Liquidity (re)Enabling Protocol that brings capital efficiency to DeFi through composability. We allow users to (re)collateralise their LP tokens, money market deposits, and (re)staked positions, unlocking billions in idle liquidity across the ecosystem. Built by a team of DeFi veterans with experience from leading protocols like MakerDAO, Ajna, Binance and Venom, Tren is paving the way for a more efficient and interconnected DeFi ecosystem.
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