State of Metronome Q4'23

Key Insights

• In Q4’23, TVL increased by 33% QoQ, ending the year at over $13 million. This is the fourth consecutive QoQ growth in Metronome TVL.
• The value of synthetic assets (synths) outstanding only rose by less than 1% QoQ in Q4’23, led by a $900,000 increase in USDC-denominated synthetics.
• Activity fell in Q4’23 as only 137 new unique users used the protocol. Simultaneously, transactions fell to 3,087 in Q4’23, the lowest since before the Optimism deployment in Q2’23.
• Metronome implemented LayerZero in the fourth quarter to enhance cross-chain liquidity.
  
  
  

Primer

Metronome (MET) is a multi-collateral 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 year at over $13 million. It was also the fourth consecutive quarter for an increase in net deposits for the protocol, with $1.6 million being net added in the fourth quarter. By chain, Ethereum mainnet is responsible for 72% of Metronome deposits, ending the quarter with $9.6 million TVL. That amount represents a 70% increase from the previous quarter. Metronome’s Optimism deployment fell in TVL from $4.4 million at the end of Q3 to $3.7 million at the end of Q4.

The debt outstanding on Metronome, which is equal to the synths minted and outstanding, also rose for the fourth consecutive quarter, ending with over $7.2 million. Rising debt is a sign of increased usage of the Metronome protocol (more demand for synths). At the end of 2023, 98.5% of the debt outstanding was denominated in ETH or USDC. The concentration is not too surprising when looking at the deposit assets.

Notably, 70% of deposits are Vesper lending tokens; Vesper is a yield aggregator protocol whose lenders use their deposit receipt as collateral on Metronome. Of the $9.7 million in Vesper assets deposited, $5.7 million, or 59%, are ETH-denominated assets (ETH, wETH, wstETH, etc.), and 29% are USDC-denominated. For smart farming, keeping the debt and deposit denominated in the same asset reduces liquidation risk.

Since Q1’23, Metronome has seen decent traction around its synthetic asset swap. The protocol facilitated nearly $4 million in synthetic-for-synthetic asset swaps in 2023. Volume was almost evenly split between Ethereum and Optimism, with $2.4 million on mainnet and $1.6 million on the rollup.

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 $14 million of volume in 2023, led by $9.6 million in the msUSD/FRAXBP pool and roughly $2.5 million in the other two pools. These volumes likely signal Smart Farming use, as loopers would need to swap the synthetic asset for the underlying to re-deposit it onto Vesper.

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. On Ethereum, 10 unique addresses each accounted for 3% or more of the deposits in 2023, totaling $9.5 million or 59% of total deposits. The Optimism deployment had the same number of unique addresses accounting for 3% or more of the deposits, with the 10 largest depositors accounting for $9.8 million, or 65% of deposits.

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. By quarter’s end, there was over 30,000 esMET, representing nearly 50,000 MET locked. Notably, 70% of the locked tokens (nearly 22,000 locked esMET) were committed for over one year.

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 69%. At year end, 31% of those assets were in sfrxETH, and 64% were deposited in Vesper earning interest. The $6 million in Vesper is split between vaETH (24% of treasury assets), vaUSDC (19% of treasury assets), and vaFRAX (13% of treasury assets), with the remainder in vaSTETH, vaCBETH, and vaRETH.

On Optimism, 95% of the $5.1 million treasury is deposited in Vesper. Of these assets, 61% are in vawstETH, 21% in vaUSDC, 9% in vaOP, and 4% in vaETH. Assets in the Optimism multi-sig only increased by 20% in the fourth quarter of 2023.

Qualitative Analysis

MET Liquidity Improvements

Metronome’s MIP 018 strategically shifts how the protocol manages its liquidity for the MET token. The key aspects of this change are detailed below.

1. Collaboration with Market Makers: The Metronome DAO, which has managed the MET liquidity pools since the protocol's relaunch in 2022, proposed a transition away from its direct management. Instead, the MIP suggests partnering with market makers to enhance liquidity options. This move is aimed at creating healthier MET markets by increasing the diversity and availability of market options.

2. Ethos Digital Partnership: The proposal includes a collaboration with Ethos Digital for the liquidity provision and management of MET liquidity pools on various decentralized exchanges (DEXs). This partnership is expected to bring professional expertise and efficiency in market making for the MET token.

3. Allocation of MET Tokens for Market Expansion: The proposal also includes a plan to allocate some MET tokens, previously earmarked for protocol-owned liquidity, to expand the token's presence in new markets. This step is intended to broaden the user base and accessibility of MET by integrating it into additional markets.

4. Loan and Option Agreement with Ethos Digital: Specifically, the agreement with Ethos Digital involves loaning 315,000 MET for onchain market making over a 12-month period. Post this period, Ethos will have the option to either purchase these MET tokens at a predetermined strike price or return them to the protocol.

MIP 018 has the potential to enhance the liquidity and market health of the MET token. By engaging with professional market makers and expanding into new markets, the protocol aims to improve the stability and efficiency of MET trading. This move could attract more investors to the Metronome ecosystem, contributing to its growth and sustainability. The partnership with Ethos Digital, in particular, is a significant step towards professionalizing the market making process for MET. It could lead to better price discovery and reduced volatility for the token.

Omnichain Liquidity

The fourth quarter for Metronome marked a significant development with the integration of LayerZero, enhancing its cross-chain capabilities. LayerZero is a cross-chain messaging protocol that facilitates the use of Omnichain Fungible Tokens (OFTs). This strategic update focuses on expanding liquidity and optimizing user experience within the Metronome ecosystem. Metronome’s integration is a leap forward from its initial launch on Optimism, which was aimed at speeding up transactions and reducing fees.

LayerZero's OFT standard represents an iteration on traditional ERC-20 tokens. Unlike ERC-20 tokens, which are confined to applications on an Ethereum Virtual Machine (EVM), OFTs can be used across any blockchain supported by LayerZero, without the need for wrapped token bridging. This capability is enabled through contract-to-contract communication, streamlining the previously complex process between chains.

For Metronome users, this upgrade brings a seamless cross-chain experience with uniform liquidity across all supported networks. It enhances the synthetic assets' functionality in Smart Farming by enabling cross-chain arbitrage, leading to steadier rates and improved yield opportunities. This upgrade also simplifies expansion to other LayerZero-supported networks by utilizing shared liquidity. Doing so will eliminate the need to establish new liquidity pools for each network.

Users can interact with Metronome's LayerZero integration in several ways. They can trade synthetic assets directly from automated market makers (AMMs) and move them across chains using the Stargate front end. Additionally, they can access synchronized, cross-chain liquidity for enhanced Smart Farming yields. In the future, there will be cross-chain support within the Smart Farming module. This feature will enable transactions that automatically mint synthetic assets and execute swaps on the most favorable network via supported AMMs.

This integration significantly broadens the scope and efficiency of Metronome's operations across different blockchains, offering a more versatile and efficient DeFi experience. It also demonstrates Metronome's commitment to leveraging advanced blockchain technologies to enhance its protocol's capabilities and user offerings.

Closing Summary

The fourth quarter capped off a year of consistent growth and successful launches for Metronome. TVL and the value of synths outstanding grew to over $13 million and $7 million, respectively. Metronome’s users have been sticky — not withdrawing many assets. However, the growth in new users slowed dramatically in the fourth quarter.

The DAO implemented a new token liquidity program and LayerZero for omnichain liquidity. Locked MET adoption was slow, but most of the locked MET was committed for over a year. 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®.