Disintermediation and real cash-flows
As the world increasingly embraces digital transformation, the inefficiencies of traditional business models are becoming more apparent. Centralised systems, particularly in finance, are often bogged down by middlemen—entities that introduce bottlenecks, increase costs, and create opportunities for human error. These intermediaries, such as banks and brokers, have long been considered necessary as they introduce ‘trust and reliability’. With the maturation of smart contracts, trust can move from humans with biases and persuasions, to code. One of the best examples of this is Decentralised Finance (DeFi). DeFi is arguably one of the few use cases with demonstrative product-market-fit (PMF). With recent victories in the regulatory space and bipartisan support for clear regulation, DeFi applications that are generating real-world cashflow are poised to achieve mass adoption.
Demand for Decentralised Lending & Borrowing
One of the most prominent examples of DeFi's adoption is Aave, a decentralised lending protocol. Aave allows users to lend and borrow cryptocurrencies without intermediaries, offering greater flexibility and control. As of 2024, Aave’s total value locked (TVL) stands at over $5 billion, demonstrating significant user adoption and confidence in the platform. The rise in adoption and usage has resulted in an annualised revenue of $70m USD. What sets Aave apart is its ability to offer flash loans—unsecured loans that must be repaid within the same transaction. This innovative feature has opened up new possibilities for arbitrage, collateral swapping, and self-liquidation, enabling users to optimise their financial strategies in ways that were previously unimaginable. Through 2024 Aave has reached new highs in terms of revenue, bettering it’s previous highs of 2021. Despite this performance it is trading as at a discount to revenue.
Another key cog in the lend / borrow value-chain is collateralisation. MakerDAO (Maker herein) has been a pioneer in this space - particularly with their adoption of real-world assets (RWAs). By allowing users to lock up assets as collateral to mint their native stablecoin ‘DAI’, Maker has created a stable and decentralised alternative to fiat currencies. In recent years, Maker has expanded its collateral base to include RWAs through partnerships with platforms like Centrifuge.
Centrifuge enables businesses to tokenise their real-world assets, such as invoices and real estate, and use them as collateral on the Maker platform. This integration has not only increased the diversity of collateral types but also demonstrated the scalability of DeFi in real-world applications. As of mid-2024, the combined TVL of Maker and Centrifuge’s RWA pools exceeds $2.7 billion. Maker alone is now making $100m USD of annualised revenue.
Demand for decentralised derivatives.
Aside from eating the marketshare of incumbents, DeFi is also offering new financial primitives such as perpetual contracts, better known as Perps. These have unlocked incredible value, particularly in the derivatives market. Synthetix, dYdX and GMX were the pioneers, offering synthetic assets and perpetual contracts without relying on centralised exchanges. Synthetix, dYdX, in particular, has seen exponential growth, with its platform handling over $1 billion in daily trading volume as of 2024. This volume results in ~$135m in annualised revenue. At the time of writing, emerging perp DEX Hyperliquid (Arbitrum - Ethereum L2) and Jupiter (Solana) are dominating marketshare with $10.5 and $4.2B in volume (past 7 days). With clear PMF and revenue generation, the market is becoming highly competitive and largely undifferentiated. This leads to protocols incentivising users with tokens, creating a mercenary user market. It’s hard to identify the long term winners in the market as lack true affinity is achieved. Despite this, the performance of this category highlights demand for alternatives to the traditional derivatives markets, driven through lower fees as a result of disintermediation.
AMMs and the emergence of decentralised exchanges (DEXs)
Permissionless, decentralised, exchanges (DEXs) like Uniswap are the most pertinent example of disintermediation onchain. Uniswap is the leading example and offers peer-to-peer trading through automated market-making (AMM) mechanisms. This removes the need for centralised order books and intermediaries. Uniswap’s V3 protocol which launched in 2021 also introduced concentrated liquidity. This allows liquidity providers to specify price ranges within which their assets are allocated, thereby maximising capital efficiency. As of 2024, Uniswap daily trading volume exceeds $3 billion. In 2023, the company that manages the protocol interface, Uniswap Labs, introduced front-end fees; generating ~$850m in annualised revenue. It’s likely that a fee switch at the protocol level will be turned on with the launch of V4 - resulting in revenue flowing back to token holders. When we consider metrics like Total Value Locked, annualised revenue and value accruing at the token holder level, it’s clear that the market is currently mis-pricing protocols generating real-world cashflow.
Markets Ripe for Disintermediation
There are other markets outside of traditional finance that are prime for disintermediation. These include:
Gaming: currently dominated by a few large publishers, who accrue the majority of value contributed by gamers - who are critical to a games success (it’s just a sim of NPCs without the gamers). Blockchain-based games like Axie Infinity have already demonstrated the potential for player-owned economies, where in-game assets can be tokenised and traded freely. Additionally, composability of onchain games allows gamers to take profiles or assets across to other games, allowing them to use their investment beyond the life-cycle of one title. This shift could empower gamers to truly own their digital assets and participate in a fairer, more transparent gaming economy.
Insurance: The core product of insurance is ‘risk pools’ where a cohort of the population pay a premium per month, over a period of years, that offsets the claims by people in that pool. This alone is a combination of policy, actuary science and fraud proofs - all of which can excel onchain. This leaves healthcare contract negotiations as the only central task required. Typical insurance models have low margins, on high revenue, taking home about 4%. The small margins are associated with the fundamental flaws in traditional insurance models which are often plagued by bureaucracy, inefficiencies, high costs, and lack of transparency. Decentralised insurance protocols like Nexus Mutual are already challenging incumbents offering peer-to-peer insurance models that reduce costs and increase transparency.
Social Media: Centralised social media platforms have long been criticised for issues related to privacy, censorship, and data monetisation. Decentralised alternatives like Lens Protocol and Farcaster are emerging, offering users greater control over their data and the ability to monetise their content directly . These platforms could redefine the social media landscape by putting power back into the hands of users, rather than centralised corporations.
The disintermediation of real-world business models through smart contracts is a rapidly unfolding reality. As platforms like Aave, Maker, Synthetix, dYdX, and Uniswap continue to scale, they are not only challenging traditional financial systems but also paving the way for the disruption of other industries. The benefits of re-platforming onchain inc 24/7 accessibility, global currency, censorship resistance are too economically favourable. Incumbents will be faced with the decision to re-platform and re-organise to give more value to customers; or be replaced.
