With the “Fee Switch” Activated, Will the New Stablecoin Protocol RESOLV Become the Next ENA?

Original | Odaily Planet Daily

Author | Azuma

On July 25th, Beijing time, the interest-bearing stablecoin protocol Resolv officially announced that it will gradually turn on its "fee switch," transferring up to 10% of daily protocol revenue to the foundation treasury to support long-term value creation and incentivize RESOLV stakers. Specifically, Resolv plans to gradually increase the revenue transfer percentage weekly (2.5% → 5% → 7.5% → 10%) over the four-week period from July 31st to August 21st, ultimately reaching the target of 10%.

"Fee switch" is a common term used in DeFi protocols regarding fee distribution. Generally speaking, it refers to a built-in contract function that determines whether the protocol allocates revenue to the native token. However, the specific implementation methods vary between protocols. Previously, well-known projects such as Uniswap and Ethena have discussed the "fee switch" issue, but failed to activate it due to community disputes over allocation and concerns about whether the conditions are ripe.

Generally speaking, a fee switch is a direct benefit to the protocol's native token, as it directly amplifies the token's value capture. However, conversely, since a fee switch often shifts some of the revenue originally accruing to protocol users to token holders, this can harm user interests to a certain extent. Therefore, major protocols are often hesitant to implement fee switches. For example, in the case of Uniswap, liquidity providers (LPs) originally received the full 0.3% transaction fee income, but after the fee switch is enabled, they are forced to transfer some of this income to UNI holders, which negatively impacts LPs' interests.

Resolv's Positioning and Considerations

Resolv, similar to Ethena's USDe, is an interest-bearing stablecoin collateralized by equal amounts of spot longs and futures shorts. Its income primarily comes from staking income from spot longs and funding rate income from futures shorts.

However, compared to Ethena, Resolv has implemented some additional mechanisms. For example, it introduces a risk stratification mechanism through the insurance pool (RLP), enabling USR to achieve a higher over-collateralization ratio; another example is the integration of a larger proportion of liquidity derivative tokens, achieving higher spot staking returns. Thanks to Resolv's mechanism design, the protocol has achieved an annualized yield of approximately 9.5% since its inception, which is quite impressive among emerging stablecoins.

At the end of May, Resolv officially launched its governance token, RESOLV. Despite attempts to empower RESOLV by offering high staking returns and accelerating the accumulation of points for the second season airdrop, its performance after launch has been less than ideal. Perhaps it was precisely to boost the price of the token that Resolv turned its attention to the "fee switch."

In its official announcement regarding the launch of the "fee switch," Resolv stated that "the timing and the architecture are now ripe"—the protocol has achieved real, non-theoretical traction; it has a clear value distribution framework; and it has demonstrated resilience—thus deciding not to postpone the launch of the "fee switch."

As previously mentioned, Resolv plans to gradually increase the revenue transfer ratio over four weeks, ultimately raising it to 10%. As for the specific use of this revenue, Resolv stated that it will be used to "expand the value Resolv provides to users and stakers," including: 1) supporting new integrations between DeFi, fintech, and institutional venues; 2) funding ecosystem grants and product development; and 3) driving buybacks and other token-related initiatives. Resolv also mentioned that a dedicated dashboard will be launched in the future to track revenue usage.

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

Is RESOLV more cost-effective than ENA?

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

With the early launch of ENA, more and more people have begun to turn their attention to Resolv, an interest-bearing stablecoin project with a similar mechanism. So, is RESOLV truly more cost-effective than ENA?

Looking at static figures, Ethena's current TVL is $7.781 billion, ENA's circulating market capitalization (MC) is $4.016 billion (MC/TVL ratio is 0.51), and its fully distributed value (FDV) is $9.48 billion (FDV/TVL ratio is 1.22). Resolv's current TVL is $527 million, RESOLV's circulating market capitalization (MC) is $57.28 million (MC/TVL ratio is 0.108), and its fully distributed value (FDV) is $205 million (FDV/TVL ratio is 0.39).

Judging solely from the MC/TVL and FDV/TVL ratios, RESOLV indeed offers a better static price/performance ratio than ENA. While ENA is currently receiving support from its treasury reserve strategy, considering that RESOLV will be the first to open its "fee switch," the prices of both tokens are expected to see some support in the short term.

Objectively speaking, however, USR's current scope of application and network effects are far less than USDe. Furthermore, Ethena also has a secondary business line, USDtb, in addition to USDe. Therefore, Resolv still lags far behind Ethena in terms of protocol potential.

Also, it's worth noting that, as mentioned above, Resolv stated that revenue from the "fee switch" will be used to expand the value Resolv provides to users and stakers. However, it didn't specify what percentage of the 10% revenue will go to RESOLV stakers, making it difficult to estimate the scale of additional value captured by RESOLV after the "fee switch" is opened.

In summary, considering RESOLV's relatively low market capitalization, it currently offers a promising alternative to ENA after its recent surge. However, the long-term prospects of the Resolv protocol itself remain to be evaluated, and the detailed revenue distribution plan after the "fee switch" is activated has yet to be disclosed. Whether it's worth investing in is something you'll need to decide for yourself.