State of Metronome Q1 2024

Key Insights

• Metronome's Total Value Locked (TVL) has consistently grown, reaching nearly $17 million in Q1’24, with Ethereum mainnet accounting for 70% of deposits.
• Synthetic-for-synthetic asset swap volume doubled in Q1’24 compared to the entire year of 2023, indicating increased user activity and platform utilization.
• Users and transactions counts have not yet returned, with transactions down 5% QoQ, despite the increase in volume, TVL, and assets in the treasury.
• The proposed gradual increase in the Synth interest rate to 2% is designed to support product development and liquidity incentives, as yields in DeFi have increased.

Primer

Metronome (MET) is a multi-collateral, multi-synthetics protocol on Ethereum and Optimism. Its primary aim is to provide users with tools to issue synthetic assets (synths) backed by collateral, enabling efficient yield-farming strategies and exposure to different assets without selling. Metronome's 2.0 version includes the formation of the Metronome DAO, the launch of Smart Farming, and a transition to a new MET token.

Metronome's core feature is Smart Farming: it automates leverage yield farming using synthetic assets and offers a fixed borrowing rate with dynamic mintage parameters. In addition to enhancing yield farming, these mechanisms allow for a wide range of asset accommodations, such as productive ETH positions and their yield-bearing wrappers.

In addition to Smart Farming, Metronome offers a dedicated marketplace for zero-slippage trading of its synthetic assets, enabling users to take directional positions. Users deposit tokens to mint synths, governed by a Collateral Factor that determines the value that can be borrowed against the deposit. These synths function as dynamic debt instruments within DeFi, suitable for various strategies including trading, arbitrage, and liquidity provision.

Website / X (Twitter) / Telegram

Key Metrics

Performance Analysis

For the fourth consecutive quarter, the value of assets deposited on Metronome increased, ending the quarter at nearly $17 million. It was also the fifth consecutive quarter for an increase in net deposits for the protocol, though the smallest net change in that stretch with $467,000 being net added in the first quarter. By chain, Ethereum mainnet is responsible for 70% of Metronome deposits, ending the quarter with $11.83 million TVL. That amount represents a 23% increase from the previous quarter. Metronome’s Optimism deployment increased in TVL from $3.7 million at the end of Q4’23 to $5.1 million at the end of Q1’24.

The debt outstanding on Metronome, which is equal to the synths minted and outstanding, actually fell for the first time in five quarters, though by less than 1%. Metronome ended Q1’24 with just under $7.2 million. Rising debt is a sign of increased usage of the Metronome protocol (more demand for synths). At the end of 2023, 97.8% of the debt outstanding was denominated in ETH or USDC. The concentration is not too surprising when looking at the deposit assets.

Notably, 69% of deposits are Vesper lending tokens; Vesper is a yield aggregator protocol whose lenders use their deposit receipt as collateral on Metronome. Of the $11.5 million in Vesper assets deposited, $6.4 million, or 55%, are ETH-denominated assets (ETH, wETH, wstETH, etc.), and 99% are USDC-denominated. For smart farming, keeping the debt and deposit denominated in the same asset reduces liquidation risk.

After the protocol facilitated nearly $4 million in synthetic-for-synthetic asset swaps in all of 2023, it nearly doubled that in Q1’24 with $3.8 million of volume. Activity on both instances increased for the quarter, with 68% of volume on Optimism and 32% on Ethereum. Metronome facilitated $1.2 million of volume on mainnet, up nearly 3x form the $0.4 million last quarter. While Optimism execution increased more than 2x from $1.2 million last quarter to $2.6 million in Q1’24.

Metronome has also created Curve pools to facilitate liquidity between its synthetics and the base asset. There are currently three pools: msETH/wETH, msETH/frxETH, and msUSD/FRAXBP (FRAX BP contains FRAX and USDC). These pools carried over $12 million of volume in the first quarter, a near 3x increase from Q4’23 volumes. The msUSD/FRAXBP pool was again the most active, with over $5.6 million of volume in the quarter while the msETH/wETH pool was close behind with $5.3 million in volume. There have been great opportunities to earn very high yields on ETH given the points farming from EigenLayer and LRT protocols, and Metronome is likely benefiting from it.

Metronome has seen most of its activity, by transaction count and unique users, on the Optimism rollup. Given that the primary product is for looping yields, it is not surprising that there are more transactions on the more gas-efficient chain.

Metronome has power users on both Ethereum and Optimism. This quarter those users increased the size of their transactions, but not the number of transactions. While volumes more than doubled QoQ, the number of transactions deposit and repay transactions fell, along with withdrawals and issuance. But swaps climbed 54% to its busiest quarter ever with 257 transactions executed.

In September 2023, Metronome DAO introduced MET locking in, with the goal of enhancing the utility of the MET token. This improvement facilitates more active onchain governance, enabling tokenholders to make key decisions about the protocol, including asset additions and collateral ratios. The new feature also offers incentives like Smart Farming boosts, trading fee discounts, and access to specialized gated pools based on escrowed MET (esMET) holdings. At the start of the quarter, there was roughly 8,000 esMET that would expire in the quarter. After they have expired and have not yet been relocked, 11 stakers now share the remaining 16,883 esMET for at least the next six months.

Metronome has a large and active treasury, with multi-sig wallets on both Ethereum and Optimism as well as a team-managed satellite wallet. Assets in the Ethereum treasury wallet increased in USD value by 52%. At year-end, 33% of those assets were in sfrxETH, and 65% were deposited in Vesper earning interest. The $9.1 million in Vesper is split between vaETH (24% of ETH treasury assets), vaFRAX (21% of treasury assets), and vaUSDC (8% of treasury assets), with the remainder in vaSTETH, vaCBETH, and vaRETH.

On Optimism, 94% of the $6 million treasury is deposited in Vesper. Of these assets, 61% are in vawstETH, 17% in vaUSDC, 12% in vaOP, and 4% in vaETH. Assets in the Optimism multi-sig only increased by 14% in the first quarter of 2024.

Qualitative Analysis

Raising Interest Rates to 2%

The proposal to gradually increase the Synth interest rate to 2% on the Metronome platform is aimed at increasing revenue to enable more product development and liquidity incentives. Currently, the interest rates for Synth assets on Metronome are at 1%, with the Total Value Locked (TVL) nearing $20 million. Many users have been able to achieve high yields, exceeding 100% Annual Percentage Yield (APY) on msUSD, especially as DeFi yields climb. The proposed increase is designed to be implemented in two phases: initially, the interest rate will be raised to 1.5%, followed by a further increase to 2% after a two-week period.

The positive implications of this proposal include the potential for Metronome to secure additional resources for product development and to enhance liquidity incentives, which are crucial for the platform's long-term sustainability and growth. By gradually increasing the interest rate, the platform aims to minimize the earnings impact on product users, thereby maintaining an attractive yield environment. Additionally, the phased approach provides users with sufficient time to adjust their investment strategies in response to the changing interest rates, potentially mitigating any immediate negative reactions or market volatility.

However, there are potential negative implications to consider. The increase in interest rates might lead to a short-term decrease in the attractiveness of Synth assets for some investors, particularly those seeking lower-risk investment opportunities. This could result in a temporary outflow of capital from the platform, affecting its liquidity. The success of this proposal will depend on the platform's ability to effectively communicate the long-term benefits of the rate increase and to manage user expectations during the transition period, and given it is a small change relative to current rates it is not likely to have an outsized impact.

Closing Summary

Metronome's performance over the recent quarters showcases a platform in growth, with a consistent increase in the value of assets deposited, reaching nearly $17 million. While assets and volumes on metronome continue to hit new highs, the number of daily transactions has fallen. Growth in new users returned in Q1’24, but is still far from the highs of 2023. The DAO raised borrowing fees this quarter, as market opportunities should be able to support it and increased income helps the long term runway. The protocol continues to offer a unique product to users looking for synthetic assets and simple leveraged yield looping.

Let us know what you loved about the report, what may be missing, or share any other feedback by filling out this short form. All responses are subject to our Privacy Policy and Terms of Service.

This report was commissioned by Metronome. All content was produced independently by the author(s) and does not necessarily reflect the opinions of Messari, Inc. or the organization that requested the report. The commissioning organization does not influence editorial decision or content. Author(s) may hold cryptocurrencies named in this report. This report is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research, and consult an independent financial, tax, or legal advisor before making any investment decisions. Past performance of any asset is not indicative of future results. Please see our Terms of Service for more information.

No part of this report may be (a) copied, photocopied, duplicated in any form by any means or (b) redistributed without the prior written consent of Messari®.