Bluejay Finance’s Revenue Model Explained
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The revenue model of a protocol is one of the most important components over the long term. Here we look at how Bluejay Finance’s protocol accrues value for its BLU holder.
Sources of Revenue
Bluejay Finance generates revenue from 3 main sources:
- Arbitrage (from differences in market price)
- Swap Transaction Fee (from LP pool)
Arbitrage
Arbitrage is the simultaneous purchase and sale of the same asset in different markets in order to profit from tiny differences in the asset’s listed price.
Since the price on the liquidity pools may not always reflect what is the actual market price, determined by the external oracle, there are often times where arbitrage opportunity exists.
In one scenario, the system is in an expansionary cycle where the stablecoin is more expensive on the pool than on external forex markets:
When the price of the stablecoin is higher on the pool, the protocol mints additional stablecoins and sells them.
This is similar to a traditional arbitrage where the protocol buys stablecoins for cheap and sold them for more value[3].
The effect of this process nets the protocol 540 DAI (73k-72.46k).
In another scenario where the system is in a contractionary cycle where the stablecoin is cheaper on the liquidity pool, the protocol buys stablecoins from the market for cheap and burns them. This means debts are repaid for cheap.
The effect of this process nets the protocol the value of 600 SGD (136.6k-136k) in the form of reduced liabilities.
Swap Transaction Fees
Finally, Bluejay’s Treasury also accrues value simply by owning the bulk of the liquidity in the stablecoin pools.
Since Uniswap pools charge 0.3% of transaction fees and accrue them towards the pools’ liquidity provider and Bluejay’s treasury will own the lion share of the liquidity pool, most of the transaction fees will be credited towards Bluejay’s Treasury.
In the example above, we see that if there is a monthly trade volume of 10M DAI, the protocol will make 30k DAI from just providing the liquidity (assuming 100% pool ownership).
Evolving Revenue Generators’ Contributions
The revenue generators does not contribute in equal proportions. Instead, each of them generates different levels of revenue depending on the product life cycle of the stablecoins.
In the introduction stage where the protocol is new to the market and the tokenomics is still highly reflexive, the bulk of the revenue will be from arbitrage as the protocol focuses on expanding its supply of stablecoins, and in turn earning revenue on issuing the stablecoins at higher than market rates. Revenue from transaction fees is low as the trading volume of the stablecoins on the liquidity pool is likely to be low until trading volume picks up.
In the growth stage where the protocol is expanding into the market as utility expands, the bulk of revenue continues to be primarily from arbitrage. The growing utility of the stablecoin will likely attract larger stakeholders to buy and sell the stablecoin in bulk, generating a moderate level of volatility on the liquidity pool that allows the protocol to generate revenue from trading or swap fees.
In the maturity stage where the protocol has saturated a particular stablecoin market and established its standing, lower amount of new stablecoins will be issued. Transaction fees would likely grow and contribute to the largest share of revenue as stakeholders are comfortable transacting in and out of the stablecoin. The occasional turbulence in the forex market and transactions from larger stakeholders on the liquidity pool will also allow the protocol to generate a substantial level of revenue from arbitrage.
Bluejay Finance is an Asia-focused capital-efficient protocol for multi-currency stablecoins. Our aim is to bring the FX market to DeFi, in order to accelerate financial inclusion for all users and businesses.
We are currently pre-launch as we run rigorous tests on our protocol. You may subscribe to our newsletter or get involved in the following ways:
[1] — The book “Seigniorage : on the revenue from the creation of money” introduces 3 classifications of currencies: commodity, fiat, and credit.
[2] — This method of estimating seigniorage is known as the flow approach as discussed in the book mentioned above.
[3] — While the protocol does not actually perform the swap with the external market as shown in the top half of the diagram, it generates or burns the stablecoin using the external rate which has the effects of adding or subtracting its fiat debt.
[4] — Bonding is not a revenue generator despite what other protocol portrays. Treating it as such is the same as a startup treating funds from fundraising rounds as revenue.
Legal Disclaimer
The information provided in this Medium Post pertaining to Bluejay Finance, its crypto-assets, business assets, strategy, and operations, is for general informational purposes only and is not a formal offer to sell or a solicitation of an offer to buy any securities, options, futures, or other derivatives related to securities in any jurisdiction and its content is not prescribed by securities laws. Information contained in this Medium Post should not be relied upon as advice to buy or sell or hold such securities or as an offer to sell such securities. This Medium Post does not take into account nor does it provide any tax, legal, or investment advice or opinion regarding the specific investment objectives or financial situation of any person. Bluejay Finance and its agents, advisors, directors, officers, employees, and shareholders make no representation or warranties, expressed or implied, as to the accuracy of such information and Bluejay Finance expressly disclaims any and all liability that may be based on such information or errors or omissions thereof. Bluejay Finance reserves the right to amend or replace the information contained herein, in part or entirely, at any time, and undertakes no obligation to provide the recipient with access to the amended information or to notify the recipient thereof. The information contained in this Medium Post supersedes any prior Medium Post or conversation concerning the same, similar, or related information. Any information, representations, or statements not contained herein shall not be relied upon for any purpose. Neither Bluejay Finance nor any of its representatives shall have any liability whatsoever, under contract, tort, trust, or otherwise, to you or any person resulting from the use of the information in this Medium Post by you or any of your representatives or for omissions from the information in this Medium Post. Additionally, the Company undertakes no obligation to comment on the expectations of, or statements made by, third parties in respect of the matters discussed in this Medium Post.
