SOMM stakers participate in profit sharing on strategies being run on Sommelier. Typically a 1% management and 10% of performance fee goes to the Sommelier platform (and consequently to SOMM stakers).
We can therefore compare Sommelier protocol revenue to an inflationary model using the argument that investors won’t differentiate between the two if holding either token earns the same returns. We can project what kinds of TVL are needed to generate meaningful staking returns.
The Sommelier protocol earns $25M in revenue to stakers under a variety of different scenarios.
Because SOMM staking revenue depends on strategy performance and TVL, we will consider two cases:
- Bull case
- Common case
In the bull case we assume that the average Sommelier strategy earns 50% revenue. The expectation is that the majority of Sommelier strategies will take directional bets on a variety of tokens. During a bull market the returns of a benchmark portfolio (consisting of e.g. ETH and BTC) easily reaches 50%, therefore we believe this number to be reasonable.
In the common case we assume an average return of 10% across Sommelier strategies.
We assume a 1% platform fee and 10% performance fee to the protocol.
- In the bull case where Sommelier strategies earn 50% returns on average, the protocol earns $25M in revenue on $416.67M TVL.
- In the common case where Sommelier strategies earn 10% returns on average, the protocol earns $25M in revenue on $1.25B TVL.
Assuming an average return of 50% across strategies (and a 1% management and 10% performance fee to the platform), we see that the Sommelier protocol reaches $25M revenue to stakers at a TVL of $416.67M.
In the common case of 10% average returns across Sommelier strategies, we see that $25M protocol revenue is achieved at a TVL of $1.25B.