Roadmap & Revenue: Becoming The Liquidity Layer of Hedera

A recent community question to the Bonzo Finance team sparked a conversation that goes beyond the protocol's roadmap: "What is the protocol’s plan to increase revenue? Revenue is fairly low for the protocol relative to its TVL and utilization."

This led to a discussion that applies to any DeFi protocol operating in emerging ecosystems, and the response highlights fundamental principles for building economically sustainable DeFi protocols.

The Ecosystem Dependency Problem

DeFi protocols operating in ecosystems across web3 face the challenge of economic sustainability; in other words, does the protocol’s usage fee structure generate enough fee revenue to its DAO treasury to support paying for ongoing operations? With lending protocols in particular, such as Aave or Compound, revenue generation via interest rate mechanisms requires a few things.

The ecosystem in which the lending protocol operates requires:

1. Capital (Liquidity) - Funds actively flowing through the ecosystem.
2. Retail / Institutional Users - Individuals or companies utilizing DeFi services.
3. Utilization (Supply & Borrow) - Active supplying and borrowing of protocol liquidity.

If a protocol only plays in the "lending and borrowing" space, and the broader DeFi ecosystem doesn't have these three pillars solidly in place, it's unlikely the protocol has the ability to achieve economic sustainability through interest rates alone.

This isn't a failure of the protocol but a reality of operating in emerging ecosystems. The Hedera DeFi space, like many newer blockchain networks and ecosystems, is still building toward the liquidity and user density that makes DeFi protocols economically profitable.

Strategic Positioning as the Foundation

This is where strategic positioning becomes everything. Bonzo Finance has always positioned itself as "The Liquidity Layer of Hedera." This vision wasn't chosen randomly but was purposeful, designed to allow the protocol to extend itself beyond lending and borrowing into a diverse set of DeFi services and categories that add value to the network and ecosystem, and serve as stronger and more diverse protocol revenue streams.

The difference between thinking "Bonzo Finance is a lending protocol" versus "Bonzo Finance is the liquidity layer for an entire ecosystem" supports determining whether it’s limited to a single DeFi offering and revenue stream or positioned to capture value across multiple DeFi categories.

The Diversification Roadmap: Three Revenue Streams

While the introduction of decentralized lending solves a major gap for the Hedera DeFi ecosystem and observed immediate product-market fit, it was merely a first step in Bonzo Finance’s journey towards becoming The Liquidity Layer of Hedera. And rather than hoping the ecosystem grows fast enough to ensure lending alone is an economically sustainable endeavor for the protocol, Bonzo Finance is building multiple revenue streams across DeFi categories that tie into its overarching vision, which work together to support a more sustainable economic model.

Bonzo Lend

Bonzo Lend helped solve the Hedera DeFi ecosystem economic gap of credit markets — this is what exists today and, in building for the future, will continue to be maintained, improved, and optimized. The focus from a revenue perspective is around the optimization of interest rate models, lifting conservative parameters as they become available to do so, and improving features, functionality, and ease-of-use for greater adoption. Bonzo Lend acts as a foundation of liquidity by which more can be built on top.

Bonzo Vaults

Bonzo Vaults are automated yield-optimization strategies that enable retail and institutional users to optimize yield earnings, without the manual complexity of managing liquidity across multiple DeFi protocols and strategies.

The problem these vaults solve is real: it's a high-touch process for users to actively manage complex DeFi positions manually. Even advanced DeFi users dislike having to manage things like concentrated liquidity positions in decentralized exchanges, monitor loan-to-value ratios for leveraged positions in lending protocols, or manually compound incentives and yield.

Here's how Bonzo Vaults work:

• Users deposit funds and receive a liquidity pool token representing their position.
• The vault automatically routes liquidity across DeFi protocols in the ecosystem.
• Actively manages the vault’s liquidity positions across those protocols.
• Continuously harvests and converts rewards, supporting growth of the original deposit.
• And the vault token ideally accrues value over time as the strategy compounds returns.

Take SaucerSwap as an example: A Bonzo Vault could manage a SaucerSwap v2 pool (concentrated liquidity), automatically managing the concentration of liquidity ranges to maximize yield while ensuring greater market efficiency and reducing slippage for traders. The vault handles complex rebalancing that would otherwise require constant attention from users.

These vaults are modeled after successful platforms like Beefy Finance and represent a significant revenue and adoption driver, because they solve a genuine pain point for Hedera DeFi ecosystem users, while generating sustainable fee revenue for the protocol.

In addition, Bonzo Vaults are permissionless — any developer with smart contract experience can build complex vault strategies and deploy them for users to utilize. Those building and deploying vault strategies earn a “vault strategist” fee, as a percentage of the vault’s yield, while at the same time supporting retail user adoption, overall liquidity, and utilization of any protocol in which the vault touches.

Bonzo Bridge (Cross-Chain Liquidity)

By leveraging LayerZero's OFT (Omnichain Fungible Token) standard, Bonzo Bridge facilitates seamless cross-chain liquidity experiences. It automatically routes assets from supported EVM networks onto the Hedera network, supporting greater asset diversity and liquidity within the DeFi ecosystem.

Bonzo Finance Labs (in coordination with the Hashgraph DeFi Alliance, asset issuers, and other supporting organizations) is helping drive development efforts around canonical cross-chain infrastructure and OFT contracts, which are permissionless and can be utilized by protocols across the Hedera DeFi ecosystem, as well as bridge providers.

On a longer timeline, integrated DeFi hooks will support cross-chain workflows by automating the manual work and complexity of bridging and utilizing liquidity. One example might be the ability to not only bridge an asset onto Hedera from another network, but also deposit it into a Bonzo Vault or Bonzo Lend, within a single motion. Instead of multiple manual steps and bridge transactions, users get a single interface that handles the complexity.

This streamlines cross-chain liquidity management for users who want to participate in Hedera DeFi but hold assets on other networks.

A Win-Win-Win Framework

Each of these products supports value creation for three different stakeholders:

• Protocol: Diversified protocol revenue streams that don't depend solely on ecosystem maturity or a single DeFi category.
• Users: Opportunities for earning optimized yield, while simplifying liquidity management and reducing complexity.
• Markets: Growth in key DeFi metrics, such as TVL, overall liquidity, user adoption, and market efficiencies (such as reduced slippage, greater liquidity concentration, etc.).
• Ecosystem Partners: Earning opportunities for supporting the growth and health of the DeFi ecosystem, such as operating a liquidation bot for Bonzo Lend or building vault strategies with Bonzo Vaults.

Using Bonzo Vaults for SaucerSwap v2 pools as an example: Bonzo Finance protocol earns vault management fees, users earn optimized yield with less manual effort, SaucerSwap benefits from greater market efficiency for pools, and the developer who built and deployed the vault earns a “vault strategist” fee.

Lessons for the Broader DeFi Space

This strategic evolution offers several lessons for anyone building ecosystem protocols:

• Ecosystem awareness is critical. Understanding an ecosystem's maturity level and planning accordingly is more important than copying successful models from mature ecosystems.
• Single-product protocols face risks in emerging ecosystems where core metrics, such as TVL, don't automatically translate to sustainable revenue.
• Strategic positioning enables expansion. How a protocol defines its mission helps determine which opportunities it may pursue.
• Protocol revenue diversification reduces dependency risk. Multiple revenue streams reduces dependency on a single category of DeFi achieving critical mass.
• Superior user interfaces and community create competitive advantages. In an industry where DeFi products often serve similar underlying offerings, user interfaces which reduce complexity and maximize results for users, while fostering a strong community, can function as a moat.

From Single Protocol to Ecosystem Infrastructure

This marks an evolution of Bonzo Finance moving on from being purely a decentralized lending protocol to embracing its mission of becoming “The Liquidity Layer of Hedera”. Bonzo Finance is building the liquidity infrastructure that supports pushing the Hedera DeFi ecosystem forward towards its path to maturity, while also opening the door to sustainable and diverse protocol revenue streams.

For users and developers, this means access to sophisticated DeFi strategies with less complexity and reward opportunities. For the broader Hedera ecosystem, it means greater efficiencies and growth of liquidity, with reduced barriers to DeFi participation. And for DeFi protocols across the ecosystem, it represents an opportunity for greater adoption and growth of liquidity.

The question that started this conversation around protocol revenue generation offers a straightforward answer: build multiple protocol revenue streams by solving real problems for users while strengthening the entire ecosystem. We’re excited to execute on this endeavor and bring greater adoption and awareness to the Hedera DeFi ecosystem. We’re looking forward to you joining the community!

Disclaimer

Forward-Looking Statements This document contains forward-looking statements regarding the Bonzo Finance protocol’s roadmap, planned features, revenue projections, and strategic initiatives. These statements are based on current expectations and assumptions and are subject to significant risks, uncertainties, and changes in circumstances. Actual results may differ materially from those expressed or implied in these forward-looking statements due to various factors including but not limited to: market conditions, regulatory changes, technological challenges, competitive pressures, and ecosystem development timelines.

Not Investment or Financial Advice This content is provided for informational and educational purposes only and does not constitute investment advice, financial advice, trading advice, or any other type of professional advice. You should not make any investment decisions based solely on this information. Always conduct your own research and consult with qualified financial advisors before making any investment decisions.

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