TON: DeFi Landscape — Q1 2023 Update

This public article is the result of an internal report conducted by First Stage Labs.

Overview

While the number of wallets increased by 35.4%, MAU and transaction volume stalled in Q1 2023. The key DeFi metric, TVL, saw a 26-fold upsurge during that period. The rise is related to the launch of Megaton Finance and other new DEXs which we will discuss in the following sections.

Sources: TonApi.io, DeFillama, TonTech.io

The TON DeFi ecosystem currently has several competing DEXs and two new lending protocols, but no advanced capital efficiency tools such as yield optimizers or derivatives exchanges are there yet. Users can swap tokens, yield farm, provide liquidity, or make staking deposits in non-DEX protocols such as TonStake, Ton Whales or pTON.fi.

DeFi checklist:

DEX projects

Overview of the DEX projects on TON:

Source: Coinmarketcap

This quarter saw the launch of two new DeFi projects on TON: Megaton Finance and DeDust.

Megaton Finance

Megaton Finance is a DeFi platform developed by Ozys, a blockchain company with a strong record in the development of DeFi protocols. Megaton Finance is an AMM-based DEX on TON Mainnet offering revenue generation opportunities such as swap, yield farming, and dashboard. It will be integrated with Orbit Bridge which connects 18 mainnets.

Ozys has a long history of developing DeFi protocols, having built several like KLAYswap on Klaytn, Meshswap on Polygon, a cross-chain platform Orbit Bridge, and a lending protocol Belt Finance on Binance Smart Chain. With Megaton Finance, Ozys aims to further strengthen TON Ecosystem through integration with the TON-supported Orbit Bridge. Megaton Finance will also bring major crypto assets like ETH, BTC, USDT, and USDC to solidify the foundation of the TON Mainnet ecosystem.

TONcoin.Fund, the main incubator and accelerator for The Open Network (TON) has led a $1.5 million seed funding round for Megaton Finance in March. Megaton Finance secured strong backers early on, including Cypher Capital, First Stage Labs, Orbs, MEXC Ventures, and other strategic investors.

Megaton Finance plans to expand its financial offerings for TON holders and those interested in blockchain ecosystems. This includes features like swapping and yield farming, as well as advanced services such as lending, leverage farming, staking, governance, and more. The Ozys-developed Telegram chatbot function will also be integrated with the Megaton Finance protocol, allowing it to reach both current DeFi users and the 700 million Telegram users (based on MAU).

DeDust

DeDust is a DeFi platform developed by Scaleton for TON. The project is focused on providing tools for managing assets. It offers a full-featured DEX and portfolio estimation functionality.

The previous exchange project, Scaleton, was extensively revised and changed during the implementation process. DeDust is more than just a new version of Scaleton: While the previous DEX only worked with the contract of a trading pair, the new one allows users to import tokens and open listings after adding liquidity.

The team is currently working on auto-routing, which is meant to make the UX more smooth. There are also plans to release an SDK to allow other developers on TON to easily integrate the DEX into their products.

Presently, Scaleton positions itself as an ecosystem of three products: DeDust, Tonkite (a toolkit for developing dApps), and $SCALE (the native token of the ecosystem).

Megaton Finance currently contributes 92.57% of the TVL, followed by STON.fi and DeDust.

Source: DefiLlama. The chart only includes projects listed on DefiLlama.

Lending protocols

The first lending protocol, Tonpound, was launched on TON, while Evaa Protocol is currently in testnet:

Tonpound

Tonpound is the first lending protocol on TON designed to connect the network with the Ethereum blockchain. Currently, Tonpound offers borrowing and lending in six markets.

Tonpound allows lenders to earn funds by offering their assets to borrowers who pay interest. Interest rates for each asset are determined by supply and demand, with higher demand leading to higher interest rates. To borrow one asset, a user must deposit a greater amount of another asset as security. Tonpound continuously monitors asset prices through oracles. If the collateral value falls below a certain threshold, the position can be liquidated. Tonpound's wrapped TON (pTON) is a key feature attracting liquidity from both The Open Network and Ethereum blockchains. Users can earn TON node feeds and Supply APR simultaneously, boosting their profits from low-risk passive income.

Tonpound will implement a new system to track user involvement and gradually give the community more voting power. The Tonpound Participation Index token (TPI) will show how involved the community is. The token will only be given to the team and users who actively contribute to the protocol's development.

Evaa Finance

Evaa Finance released its Testnet V1 in March 2023, with a Mainnet launch planned for April. While only three assets are currently supported, the team also intends to add oBTC (Orbit Bridge BTC), tETH (Tonana Bridge ETH), and other tokens later.

Furthermore, the team will also be introducing a TON-native stablecoin in June 2023. The roadmap also includes the implementation of DAO governanceto give the community voting power.

Staking

pTON.fi is a new staking protocol that was launched in March and now complements the two existing protocols, TonStake and Ton Whales. Unlike TonStake and Ton Whales, pTON allows users to earn liquid rewards.

pTON.fi

pTON.fi is a project that offers the first staking solution for TON on the Ethereum blockchain via its own bridge. It enables users to easily stake TON and earn rewards from node fees without having to lock their assets. This is accomplished by minting stTON on the Ethereum blockchain at a 1:1 ratio to TON. stTON can always be burned to retrieve the native TON tokens. It can also be wrapped into pTON to provide users with additional trading and borrowing power on the Ethereum chain.

Bridges

TON Foundation has commissioned RSquad Labs to develop a token bridge that will enable cross-chain transfers of tokens minted on Ethereum or BNB Smart Chain blockchains to TON and vice versa. The upcoming token bridge is expected to increase the utility and broaden the appeal of The Open Network to a wider range of users and use cases.

The new bridge will upgrade the existing bridge.ton.org and complement Orbit Bridge.

Launchpads

There are currently two launchpads on TON:

Source: Cryptorank.io

In March Megaton Finance completed a Community Incentive program on Tonstarter with 17,918 participants, 1,100 of which were selected as winners and shared a pool of $500,000.

TON vs Peers

The growth in TVL on TON vastly outpaced its peers in Q1 2023.

Sources: DefiLlama, First Stage Labs

The TVL experienced a spike first on February 16, when Megaton Finance was launched, and then on March 10, which is also associated with the rapid increase in trading volume on Megaton Finance.

Source: DefiLlama. The chart only includes projects listed on DefiLlama.

While the TVL is still not comparable to networks like Polygon or Solana in absolute values, the 24-hour volume is keeping up with Aptos. The difference in TVL is still significant:

Source: DefiLlama

Currently, TON has the highest TVL concentration in its top protocol by DeFi dominance (Megaton Finance) compared to peers, with Aptos and Near coming next. This suggests that the DeFi ecosystem is still in its early stages of development, as the competitive landscape remains sparse.

A similar situation exists in Aptos, where the deployment of PancakeSwap led to an immediate surge in TVL. However, TVL shares have yet to become more evenly distributed among competing protocols.

Sources: DefiLlama, First Stage Labs. Data as of 27.03.23.

The TVL ratio (market cap/TVL) also correlates with the maturity of the network. This indicates that emerging alts are currently drawing more interest from investors compared to more established networks. Therefore, TON can currently be viewed as overvalued if we take TVL as a measure of the fair value of the network.

Sources: DefiLlama, CoinMarketCap, First Stage Labs

Notably, the TVL ratio of TON experienced a 26-fold decrease compared to Q4 2022, but still significantly exceeded the valuation of its counterparts.

Sources: DefiLlama, CoinMarketCap, First Stage Labs

It is clear that the market is pricing in a lot of growth in TON given the current modest TVL values. We are pleased to see recent developments in TON, including the deployment of a new DEX which contributes a large portion of the trading volume and TVL, as well as the implementation of new bridges and lending protocols. These represent a significant increase in real value that is following the market valuations, but still has a long way to go. As the TVL increases, we are likely to see more conservative valuations that are closer to those of our peers.

A mature DeFi ecosystem with various complex tools for improved capital efficiency is still a few steps away at the moment.

The developers are still taking efforts to bring a single bridge standard that will improve interoperability and connectivity between different DeFi protocols, increasing liquidity and trading volumes, and in return promoting liquidity flows from one protocol to another.

Recent concerns about the safety of common stablecoins, namely, the short-term depegging of USDC and regulatory pressure on BUSD, make it clear that the DeFi ecosystem of TON would greatly benefit from its own decentralized and reliable stablecoin. The native stablecoin would not only improve volumes and liquidity in existing protocols, but also provide utility for people interested in performing international payments, paying for services, or storing assets in non-national currency, thus boosting adoption.

Once the base layer for DeFi is fully established, we are looking forward to see the first lending protocol reach one of the top positions by TVL within the network. This would serve as a starting point for other capital efficiency solutions, such as autocompounders and derivatives exchanges. The first protocols are already emerging, but none have achieved widespread adoption within the network yet.

DeFi ecosystem of TON continues to evolve and mature, it is likely that we will see a more even distribution of TVL across competitive protocols, which will promote healthier competition and sustainability.

TLDR:

• A new AMM-based DEX, Megaton Finance, was launched causing the TVL in TON to spike from $0.52m in Q4 2022 to $13.83m in Q1 2023. Megaton Finance is contributing 93.11% of the TVL in TON.
• First lending protocol, Tonpound, was launched in March. Another lending protocol on TON, Evaa Finance, is currently in testnet.
• The first liquid staking protocol, pTON.fi, was also launched in March.
• A new bridge was released shortly before we prepared this report: A bridge by Rsquad Labs is meant to complement bridge.ton.org. The upcoming token bridge introduces the possibility of exposing TON to a wider range of users and use cases.
• TON is overvalued compared to its peers, but demonstrates an outstripping growth in TVL.

What to Build on TON Now?

We are looking forward to seeing:

• TON-native collaterized stablecoin
• More lending protocols
• More decentralized exchanges
• DEX aggregators
• Autocompounders/yield optimizers