Will the "Fee Switch" activation make the new stablecoin protocol RESOLV the next ENA?

Original | Odaily Daily Report

Author｜Azuma

On July 25, Beijing time, the interest-earning stablecoin protocol Resolv officially announced that it would gradually open the "fee switch," intending to transfer up to 10% of daily protocol revenue to the foundation's treasury for long-term value creation of the protocol and to incentivize RESOLV stakers. Specifically, Resolv plans to gradually increase the revenue transfer ratio (2.5% → 5% → 7.5% → 10%) over a four-week period from July 31 to August 21, ultimately reaching the target value of 10%.

The so-called "fee switch" is a commonly used term in DeFi protocols regarding fee distribution. In simple terms, it refers to "a built-in contract feature that can determine whether the protocol will distribute revenue to the native token." However, different protocols have various differences in their specific implementation models. Previously, well-known projects such as Uniswap and Ethena have also discussed the issue of the "fee switch," but they have been unable to activate it due to community distribution disputes and concerns about maturity conditions.

Generally speaking, the "fee switch" typically implies a direct benefit to the protocol's native token, as it will directly amplify the token's value capture ability; however, conversely, since the "fee switch" often shifts part of the income that originally belongs to protocol users to token holders, it may somewhat undermine user interests. Therefore, major protocols are often hesitant about whether to activate the "fee switch" — for example, in the case of Uniswap, liquidity providers (LPs) originally could earn the entire 0.3% transaction fee revenue, but once the "fee switch" is activated, they have to transfer part of the earnings to UNI holders, which relatively harms the interests of LPs.

Resolv's positioning and considerations

Back to Resolv, similar to Ethena's USDe, the USR issued by Resolv is also an interest-bearing stablecoin backed by an equal amount of spot longs and contract shorts, with its yield primarily derived from the "staking income of spot longs" and "funding rate income from contract shorts."

However, compared to Ethena, Resolv has also implemented some additional mechanism designs, such as introducing a risk grading mechanism through the insurance pool RLP, allowing USR to achieve a higher excess collateral rate; furthermore, it has integrated a larger proportion of liquidity derivative tokens, achieving higher spot staking returns. Under the mechanism design of Resolv, the protocol has achieved an annualized return of about 9.5% since its inception, performing quite excellently among a number of emerging stablecoins.

At the end of May, Resolv officially launched its governance token RESOLV. Although Resolv has tried to empower RESOLV through methods such as "offering high staking rewards" and "accelerating the accumulation rate of points for the second season airdrop," the performance of RESOLV after its launch has still been less than ideal. Perhaps in order to boost the coin's price, Resolv has turned its attention to the "fee switch."

In the official announcement regarding the opening of the "fee switch," Resolv mentioned that "the timing and architecture are now mature" — the protocol has achieved real, non-theoretical traction; the protocol has a clear value distribution framework; the protocol has demonstrated resilience — therefore, it has decided not to postpone the launch of the "fee switch" any longer.

As mentioned earlier, Resolv plans to gradually increase the income transfer ratio over four weeks, ultimately raising it to 10%. As for the specific uses of this portion of income, Resolv's statement is "to expand the value provided by Resolv to users and stakers," including: 1) supporting new integrations between DeFi, fintech, and institutional venues; 2) funding ecosystem grants and product development; 3) promoting buybacks and other token-related initiatives. Resolv also mentioned that a dedicated dashboard will be launched in the future to track the usage of income.

Resolv has also made a rough assumption about the distribution of protocol revenue after the "fee switch" is turned on. With the current protocol's TVL of 500 million dollars and an average yield rate of 10%, it is expected to generate an annual revenue of 50 million dollars. After the "fee switch" is turned on, 45 million dollars will still flow directly to users through product earnings, while the protocol will retain 5 million dollars for long-term value creation.

Is RESOLV more cost-effective compared to ENA?

In last week's article "Up Nearly 50% in a Week, Will ENA Be ETH's Biggest Beta?", we analyzed the logic behind ENA's recent strong rise; afterwards, Ethena launched a treasury reserve mechanism similar to "MicroStrategy" around ENA, further boosting ENA's price.

As ENA has been launched ahead of schedule, more and more people are starting to focus on the similar interest-bearing stablecoin project, Resolv. So, is RESOLV really more cost-effective than ENA right now?

From a static numerical perspective, the current TVL of Ethena is $7.781 billion, with an ENA circulating market cap (MC) of $4.016 billion (MC/TVL ratio of 0.51), and a fully diluted valuation (FDV) of $9.48 billion (FDV/TVL ratio of 1.22); the current TVL of Resolv is $527 million, with a RESOLV circulating market cap (MC) of $5.728 million (MC/TVL ratio of 0.108), and a fully diluted valuation (FDV) of $20.5 million (FDV/TVL ratio of 0.39).

From the comparison of MC/TVL and FDV/TVL, RESOLV indeed has a better static cost-performance ratio than ENA. Although ENA currently benefits from the buying support of its treasury reserve strategy, considering that RESOLV will take the lead in opening the "fee switch", both parties' token prices are expected to receive some support in the short term.

However, objectively speaking, the current application scope and network effects of USR are far less than that of USDe. Additionally, Ethena has a second business line, USDtb, apart from USDe, and from the perspective of protocol potential, Resolv still has a considerable gap compared to Ethena.

Additionally, it is worth noting that the previous mention of Resolv in the section regarding the "fee switch" states that the revenue will be "used to expand the value that Resolv provides to users and stakers," but does not specify what proportion of the 10% revenue will flow to RESOLV stakers. Therefore, it is difficult to estimate the scale of the additional value capture of RESOLV after the "fee switch" is activated.

In summary, considering that the market capitalization of RESOLV is relatively low, the current RESOLV is a significant alternative after the surge of ENA. However, the long-term development expectations of the Resolv protocol itself still need to be evaluated, and the detailed revenue distribution plan after the "fee switch" is opened also needs to be further disclosed. Whether it is worth accumulating, everyone still needs to DYOR.