Title: The Current Paradigm Shift in DeFi: From TVL to PCV

Author: Xinghun

Recently, the development of OlympusDAO has shocked many people, and some have labeled this wave of emerging DeFi projects as DeFi 2.0. Taking the opportunity to try out Mirror, I would like to share some of my thoughts based on my observations of DeFi.

When DeFi first emerged, TVL was a very important metric. The TVL leaderboard was also a significant way to compare projects horizontally. Although different types of projects have varying levels of risk and capital efficiency, this can somewhat be reflected in TVL.

Under certain conditions, it can be said that TVL is driven by APY (after all, capital seeks profit); the higher the APY, the easier it is for TVL to rise. We can observe a positive and negative cycle in a project's TVL. A positive cycle means that as the price of the token rises and APY increases, TVL will also rise until it reaches a benchmark value for the industry. As more assets are mined and selling pressure increases, it may enter a negative cycle at some point. Throughout this process, many other variables are involved, which can also serve as indicators of the project's status.

However, as time passes, if we take the start of liquidity mining with Comp as a marker, DeFi has already entered its second year of rapid development. What changes have occurred when we add the dimension of time to TVL?

Let's ask a question:

Suppose there are two projects, Project A maintains a TVL of 1 billion for a year, while Project B only maintains a TVL for 10 days. Can these two projects be the same?

The answer shows they are different, but at a certain point in time, there is no distinction between the two in terms of the TVL metric.

The TVL metric is clearly insufficient. To some extent, this means we need a new metric to measure the status of a project.

So let's ask a second question:

TVL + Time, what has been accumulated?

Liquidity enters the protocol, operates in a predetermined manner, and generates income for both the protocol and the users. Users take their share of the income, while the protocol's income is distributed according to its rules. For most newer protocols, this income is likely to enter the Treasury.

Assuming two protocols have nearly identical code, with all other external factors being the same, but differing only in launch time, the funds accumulated in the Treasury will be completely different; this metric can be referred to as Treasury AUM (Treasury Assets Under Management). However, if the funds entering the Treasury have specific purposes and obligations, it can be termed PCV (Protocol Controlled Value).

The third question:

Is protocol income the only source of Treasury income?

The answer is certainly no.

Assuming two protocols have nearly identical code, with all other external factors being the same, but differing only in launch time, although the accumulated protocol income may differ, if the project team directly injects a sum of money into the Treasury, the difference between the two can be eliminated. In short: the growth of the Treasury can clearly occur through many other means.

For protocols that launch later, this is also a core metric for potential leapfrogging.

Looking back at Fei Protocol and OlympusDAO, they essentially designed mechanisms at this level; they cleverly created a user asset swap mechanism that allows users to exchange their assets for the project's native assets; however, the assets obtained include some that have very good growth potential, such as ETH; and through the growth of ETH itself, it can, to some extent, offset the debts issued by the project at previous prices.

Of course, different projects have different specific methods, and the effects brought about also vary, so I won't make specific judgments here.

In short, through this method, the positive and negative cycles of a project will become closely related to market conditions; a good project's positive and negative cycle scale may be placed within the entire bull and bear cycle; and if there are appropriate asset management strategies, it may even outperform the cycle. At this point, the wisdom of the DAO behind it becomes crucial.