After a breakout summer that thrust DeFi into the spotlight, it's no longer a secret that DeFi protocols are creating real economic value. These protocols now store billions of dollars in assets and facilitate billions of dollars in financial activity daily, providing users with open, borderless, censorship-free financial services.
However what’s lesser known is that while many DeFi protocols each have their own unique cryptoeconomic designs, most share a common business model. The core of this business model is a protocol’s balance sheet, which can be defined as the total amount of assets under management (also referred to as total value locked). Understanding this can provide insight into how these protocols work and how they can defend themselves from competition and capture value.