OpenPeer is taking part in Blast’s Big Bang competition. What excites us most about building on Blast is enabling a new monetization strategy on OpenPeer where we can offer zero-fee P2P trading as a public good while using the native yield to fund the further development of OpenPeer.
A History of Exchanges as Public Goods
Arguably the most famous public good is Uniswap, the decentralized exchange that enables anyone to trade between tokens on Ethereum. While Uniswap was one of the OG teams that brought DeFi and Ethereum to where it was today, its model as a public good isn’t without its fair share of criticism.
Uniswap did the first and biggest airdrop of UNI token in September 2020, since then its consistently one of the top fee-generation protocols in all of crypto. However Uniswap’s 0.15% fee goes to liquidity providers rather than token holders. Since the inception of the token, holders have always speculated on the possibility that the Uniswap DAO would turn on the fee switch in order for token holders to earn fees when users trade on Uniswap. However over 3 years since the token launched this hasn’t happened and is likely to never happen. A fee however was introduced on the front-end application however the fee goes to Uniswap Labs rather than the DAO governed by token holders.
All this however is the right decision by Uniswap. Core financial infrastructure like Uniswap must be open source and because of that, if a fee was introduced anyone could simply fork the code, remove the fee and likely have users switch. Fees can’t be taken away from liquidity providers either as they are also likely to move to another protocol offering higher returns on their capital. Until the front-end fee the protocol essentially operated on reserves of the UNI token and its value based on the speculation that fees could be earned for token holders at some point. The reality is that token holders will never earn any fees.
Native Yield Opens Up New Possibilities
Operating public goods through donations simply isn’t a sustainable operating model. The reality is core infrastructure in our new financial system will require funding to operate and survive. One can only imagine the legal costs Uniswap has faced in its struggles with the SEC. As we’ve seen with Uniswap, charging fees isn’t a possibility. But earning yield from funds deposited on the protocol along with a share of gas fees might be.
Currently users aren’t choosing which protocols to use based primarily on wanting to receive yield for their onchain activity. While the concept is great it’s unlikely to be the 100x idea that will spark mass adoption and get users to move onchain, and some exchanges are offering yield already on deposits. But zero-fee experiences could be what shifts the needle especially in products that have a high volume of transaction fees. People naturally value items they own higher than items they don’t own, meaning losing money paying fees is undesirable. With the removal of fees from native yield, users have a reason to move onchain. And a high velocity of funds on the platform as a whole may produce enough yield to fund operations of public goods.
Native Yield is More Transparent
Of course a new monetization strategy where companies/protocols are funded by yield instead of fees is nothing new. However all past models have to deal with the core question of how that yield gets generated. Those earning the yield are incentivized to take riskier decisions in order to earn more money. With many centralized exchanges it’s unknown how yield is generated and what risk is being taken. With DeFi apps governance is typically controlled by a handful of insiders, and in many cases treasury funds have been lost due to excessive risk taking on nascent DeFi protocols. With native yield the question gets removed entirely. The money the protocol makes is simply the funds deposited on the protocol multiplied by the chains native interest rate. Users can take comfort in the fact that no outsized risk is being taken with their funds.
Internet Money is better Money
A native yield model isn’t perfect especially with USD interest rates set by the central bank. In a world where these can theoretically go negative or stay near zero for long periods of time (as seen in Europe over the past decade), relying on USD yield isn’t a long term solution. However with Ethereum we can always rely on staking yield staying relatively constant. It may be some time before ETH (or another crypto native asset) is used heavily in P2P transactions or as a medium of exchange but it’s a world that we’re all working towards.
Native internet money with native yield opens up a world of opportunities. We’re excited to launch OpenPeer on Blast, bridge your funds over when it’s live and come trade P2P for zero-fees (and earn points)!