TVL & Emission Sustainability

For any lending protocol to function effectively and generate substantial revenue, it is crucial to attract high-quality Total Value Locked (TVL) such as ETH, BTC, USDT, USDC, FRAX, other stablecoins, and liquid-staking derivatives assets (LSDs). These bluechip assets provide the necessary liquidity that sustains the lending market.

However, the supply Annual Percentage Rate (APR) alone often falls short of luring liquidity providers to lend. As a result, most lending protocols resort to emitting governance tokens to incentivize participation.

Nonetheless, this model presents a significant challenge in terms of sustainability. The monetary value of the emissions often surpasses the actual revenue generated by the protocol, leading to an inflated supply and reduced demand. Consequently, the token's value plummets drastically.