Analysis of MetaMask's Business Model: A Traffic Entry Business Earning Over 100 Million a Year

Original Title: "IOSG Weekly Brief | A Business Generating Over 100 Million USD Annually - MetaMask #91"
Written by: IOSG Ventures

1. Analysis of MetaMask's Transaction Fee Business Model

Consensys's report in April shows that MetaMask has reached 5 million monthly active users. This indicates that for new users, MetaMask is indeed a gateway or primary choice for entering the decentralized economy. Notably, in October last year, MetaMask's monthly active users had already surpassed 1 million.

The reason for reaching 1 million in October was largely due to the DeFi craze. The growth from 1 million users to the current 5 million is mainly attributed to the recent NFT wave, which attracted a large number of mainstream users to Ethereum.

Source: https://consensys.net/blog/MetaMask/MetaMask-surpasses-5-million-monthly-active-users/

According to Consensys's report, Swap is the most frequently used feature by MetaMask users, and linking wallets to purchase NFTs has now become the second most popular use case for MetaMask. The Swap feature was launched in the same month that MetaMask surpassed 1 million monthly active users (October 2020), and the trading volume surged to $13 billion.

MetaMask Swap is an aggregator. MetaMask combines different sources of liquidity, not limited to professional market makers, but also includes DEXs like Uniswap and aggregators like 1inch and Matcha. Therefore, every time a user utilizes the Swap feature, they receive the best quote for their target token.

For many users who trade daily, MetaMask is a very convenient application. Moreover, users are willing to pay for it. For Consensys, the supporter behind MetaMask, the MetaMask Swap feature is a money-making machine.

In other words, MetaMask's official information shows that "each quote automatically includes a service fee of 0.875%." If we calculate the service fees from the beginning of the year, based on the trading volume generated in 2021, MetaMask has already made a profit of $100 million as of a few weeks ago.

Source: https://dune.xyz/momir/MetaMask-Swap

2. What Does $100 Million in Profit Mean in the DeFi World?

Many DeFi protocols are still in the stage of doing public welfare (zero revenue for the protocol). For example, Uniswap generally charges a 0.3% trading fee, but all revenue is used for market making, which means providing liquidity.

On the other hand, Sushiswap and Curve are also trying to bring profits to token holders by setting different fee structures.

For instance, Sushiswap distributes 0.25% to liquidity providers, and 0.05% of the total trading volume is shared with SUSHI token holders. Curve also charges a 0.04% fee for each transaction, half of which goes to liquidity providers, and the remaining half goes to CRV stakers.

MetaMask, however, does not need to care about liquidity providers because its sources of liquidity are different from ordinary DEXs. Therefore, for every $1,000 in trading volume, MetaMask earns $8.75, while SUSHI stakers earn $0.5, and CRV stakers earn $0.2.

In simple terms, the revenue generated per $1 in trading volume on MetaMask is 17 times that of Sushiswap and 44 times that of Curve.

Thus, even though MetaMask's trading volume is several times lower than that of Sushiswap or Curve, it is the largest money-making machine among the three companies.

Source: https://dune.xyz/momir/MetaMask-Swap

3. Why Such Strong Pricing Power?

MetaMask, as one of the safest and simplest ways to participate in the decentralized economy, attracts users from around the world.

Users do not need to pay for using features other than MetaMask Swap, and for those who do not like using the Swap feature, direct seamless connections to general liquidity sources like Uniswap are supported, avoiding the payment of the 0.875% fee.

In fact, most MetaMask users do not use the Swap feature at all. However, it is astonishing that MetaMask has generated $100 million in revenue with less than 2% of active users executing trades through MetaMask Swap.

Source: https://dune.xyz/momir/MetaMask-Swap

Moreover, there is a lack of competition in the browser wallet space. Even if there are many entrants in this field, it is difficult to break free from homogenization and gain the trust of a large user base. However, considering the impressive revenue record set by MetaMask, we can expect market forces to attract more potential challengers to the dominance of the top browser wallet.

Currently, end users have a complete chain to execute transactions. Aggregator of aggregators -> Aggregator -> DEX

There are several different paths for future development.

One path is for these vertical industries to focus on their respective tracks and attempt to monetize their positions, increasing costs for Web 3.0 users.

Alternatively, we may see direct competition between protocols in these vertical fields. For example, 1inch started as an aggregator but later launched their own DEX - Mooniswap, as well as the 1inch wallet.

In addition to MetaMask, Consensys is also responsible for Airswap. If the Web 3.0 industry develops a business model similar to Web 2.0, where large groups protect their positions in each vertical at the expense of user interests, it would undoubtedly be disappointing.

Of course, there are currently no signs that this will happen, for instance, even though Consensys is simultaneously responsible for two projects, it maintains a relatively fair attitude and equitable business model—MetaMask Swap does not provide "special treatment" or resource tilt towards Airswap compared to other liquidity sources.

In summary, MetaMask has just begun to reap what seems to be the benefits of a sustainable economic moat. Considering its unique position, MetaMask has no real competitors. In the foreseeable future, MetaMask may still be one of the largest cash printing machines in the Web 3.0 space.