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DeFi Aggregation Protocol: Business and Bottom Line Beyond Technology
In the past two years, the number of DeFi cross-chain aggregation exchange protocols has grown exponentially.Project parties are all talking about “cross-chain liquidity”, “optimal routing” and “seamless exchange”, but those who can really stay in this track are often not those with the most dazzling technology, but those who understand operations and risk control.
The core of this type of agreement is actually “matching + settlement” – just in a decentralized form.Anything involving the flow, matching, exchange, and bridging of user assets essentially touches financial logic.Technology can solve efficiency problems, and compliance determines whether we can survive in the long term.
Recently, I have received inquiries from many DeFi projects:
Some people want to conduct code security audits because they are afraid of being hacked by hackers;
Some people ask about trademark registration and are worried about being “branded”;
Someone is raising money and wants to design plans and contracts;
Some people want to know whether a license is required and how to build a structure;
There are also people who are planning to establish a DAO foundation and issue governance tokens…
These issues may seem scattered, but there is actually only one theme behind them: “We want to grow bigger, but we want to avoid risks.”
Business model and profit path of DeFi cross-chain aggregation exchange agreement
The money-making logic of DeFi projects ultimately revolves around liquidity and trust.Combined with the current market conditions, it can be roughly divided into seven mainstream paths:
1. Fee model: basic and stable income
The most direct way is to charge a handling fee.Every time a user completes a cross-chain exchange, the platform automatically deducts a fee of 0.1% to 0.3%.The model is simple and the cash flow is clear, which is currently the most recognized profit logic.But note: Once there is legal currency exchange, stable currency settlement or centralized clearing in the agreement, in some jurisdictions (such as Hong Kong, the European Union, Singapore), it may be regarded as payment services or exchange business, and you need to apply for the corresponding PSA, CASP or VASP license.
2. Liquidity incentives and profit sharing: DeFi’s “semi-financial” gameplay
Attract LPs into the pool through token incentives, and then share dividends from transaction fees.This type of mechanism allows the platform to grow rapidly, but if the incentive structure relies too much on the token price,
It is easy for regulators to consider it as a “promise of income” and fall into the category of security offering.Therefore, the incentive model must be carefully calibrated – “utility reward” is fine, but “investment yield” must be very careful.
3. Cross-chain bridge and routing service fees: high technical threshold and higher risk
Cross-chain bridges are the “vital gate” of DeFi.If the protocol can integrate multi-chain liquidity and provide routing or bridging for other platforms, it can extract service fees from each “path matching”.This is the most technically demanding way to make money.But the risk is also the greatest.In the past year, multiple cross-chain bridges were hacked worth hundreds of millions of dollars. Compliance also involves the issue of “cross-border capital flows” – in the European Union, Singapore, the United Arab Emirates and other regions, if asset custody or settlement is involved, a crypto license or equivalent license is almost always required.
4. Token issuance and governance economy: the double-edged sword of financing and incentives
Many protocols want to “issue coins” from the beginning.No problem, but once the token has financing attributes, it’s not up to you.If you promise dividends, buybacks, or price gains, that’s security logic.The reasonable approach is:
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Establish an issuing entity in Cayman or BVI;
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Use a SAFT or subscription agreement to distinguish between “fundraising” and “governance”;
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Clarify the use function of the token in the ecosystem, rather than the return on investment.
This part is one of the most sensitive areas for supervision, especially for projects planning to be listed or financed.
5. Technology licensing and B-side services: asset-light, low-risk profit path
When the protocol is fully operational and liquidity is stable, you can turn to the B-side and provide SDK, API or white label services to allow other projects to access your aggregation functions.This is a typical “light compliance” model – essentially software licensing and technical services, no touching of funds, no custody of assets, low risk and high gross profit.However, if you participate in asset liquidation or custody during the service process, you may still be defined as a “Virtual Asset Service Provider (VASP).”
6. Aggregated income and derivatives layer: advanced gameplay, enter with caution
Some aggregation protocols further integrate lending, pledging, and arbitrage pools to form a compound income or leveraged income structure.Although this type of design can increase the rate of return, it will be regarded as an investment product or derivative in most jurisdictions.If you plan to go in this direction, prepare a compliance structure for asset management or derivatives licensing in advance.
7. Brand and ecological extension: the “slow variable” of long-term value
Some mature projects will monetize through brand extension – launching NFT series, developing cross-chain payment plug-ins, establishing a DAO governance ecosystem, and even integrating with RWA (real world assets).It may not necessarily make money in the short term, but it is the source of brand moat and long-term capital value.The premise is: your brand must be protected, so trademark registration and brand independence planning should be done as early as possible.
From Code to Law: Practical Compliance Essentials for DeFi Projects
The following things are the most easily overlooked but most critical parts when I recently consulted for DeFi project parties:
(1) Code security audit
The security of smart contracts is the lifeblood of DeFi projects.No matter how innovative the technology is, as long as there are loopholes in the contract, everything may be lost if it is hacked once.In the past year, many projects, including Euler, Nomad, and Multichain, have suffered tens of millions of asset losses due to smart contract vulnerabilities.At the compliance level, although code audits are not yet mandatory in most jurisdictions, “whether it has undergone a third-party security audit” has become an important assessment criterion for a project’s credibility when financing, listing on an exchange, or applying for a license.
Practical suggestions:
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Complete at least one formal report from a recognized audit agency (e.g. CertiK, SlowMist, PeckShield, Trail of Bits);
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Publicly disclose audit conclusions and vulnerability fixes in project documents or white papers;
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Major updates (such as contract migration, protocol upgrades) should be re-audited.
(2) Trademark and intellectual property protection
Many project teams believe that “DeFi is open source” and therefore ignore brand protection.But the reality is: the code can be open source, but the brand cannot run naked.After DeFi protocols become market-oriented, they often encounter problems such as logos being plagiarized, domain names being registered, and brands being misappropriated.Especially when the project obtains investment or exchange cooperation, brand infringement will become a very high potential risk point.
Practical suggestions:
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Register the trademark of the project name and logo in advance (it is recommended to apply simultaneously in major markets such as Hong Kong, Singapore, the European Union, and the United States);
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Register and protect official domain names to prevent phishing websites;
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Sign copyright transfer or use authorization agreements with external technical service providers and design teams to ensure that core assets belong to the project entity.
(3) Financing design and legal documents
Financing is the starting point for DeFi projects to scale up, and it is also the link that is most likely to be “stuck” by supervision.Whether it is equity financing, Token financing, or a hybrid model, we must first clarify the structure: what is the path of funds coming in, and what are the rights and interests in exchange.Common documents include: SAFT agreement, investment agreement, shareholders agreement, Term Sheet, Token Allocation table, etc.These documents are not only financing certificates, but also the basis for future DAO governance and investor rights.
Practical suggestions:
Clarify the stratification of “token financing” and “equity financing” during the financing stage to avoid overlapping rights;
When disclosing fundraising materials to the outside world, avoid using expressions such as “investment return” and “expected returns” to avoid triggering the identification of securities issuance.
(4) License and compliance obligations
Currently, most pure DeFi projects can still operate without a license.However, if any of the following situations exist, it is recommended to consider obtaining a license:
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Provides exchange of crypto assets and legal currency (payment/exchange license required);
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Escrow or transfer user funds (requires VASP permission);
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Promote investment products directly to users in specific jurisdictions.
Under the European MiCA, Singapore PSA, and Dubai VARA frameworks, these businesses will almost always be regulated.
(5) DAO and foundation structure
DAO (Decentralized Autonomous Organization) seems to be centerless, but legally it must have a “subject” that can sign contracts, pay taxes, and respond to lawsuits on its behalf.This is the meaning of establishing a foundation – not “in name”, but to implement governance into the legal world.
Common structures:
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Cayman Foundation Company: The most common DAO legal vehicle, flexible, no shareholders, and can set up a board of directors;
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BVI or Panama Foundation: suitable for projects with lighter governance levels and widely distributed members;
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Swiss Verein or Wyoming DAO LLC: Focus more on compliance disclosure and legal recognition.
(6) Token issuance and ecological governance
Token issuance is undoubtedly key in DeFi projects, but as regulations continue to develop, project parties must have a clearer understanding of the nature of tokens and how they are issued.In order to avoid tokens being recognized as securities, project parties need to pay attention to the following points when issuing:
Utility Tokens and Return on Investment
Tokens must be issued with their function clearly stated, and no return on investment can be promised.Tokens may be considered “securities” if their growth in value depends on the project’s commercial performance or promised returns.Project parties should ensure that the token is a utility token, such as a platform payment tool or governance tool, rather than an investment tool.
Compliance public offering
In some jurisdictions, public fundraising or token offerings (such as through airdrops, ICOs, etc.) must ensure that securities laws are not violated.If a token offering is considered a securities offering (i.e., provides a return on investment to public investors), the project will need to comply with the requirements of securities laws and obtain appropriate registrations or exemptions.
Mankiw Law Firm’s DeFi Legal Services Matrix
The legal support we provide for DeFi projects is usually divided into four levels:
1. Compliance planning and license layout
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Global VASP/payment license analysis
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Offshore structural design (Cayman, BVI, Panama, Singapore)
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Cross-border tax and legal liability firewall
2. Financing and legal documents
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Investment and financing structure design
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SAFT, SAFE, Token Agreement drafting and review
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DAO Foundation governance rules customization
3. Intellectual property and brand protection
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Trademark registration, LOGO protection
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Cooperation Agreement and Brand Authorization
4. Risk prevention and control and operational compliance
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Audit report compliance archiving
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AML/KYC policy development
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Smart Contract Security Statement and Disclaimer
Conclusion: The next stage of DeFi is “decentralized compliance”
The biggest misconception about DeFi in recent years is that “no one cares = safety”.But the opposite is true – no one cares, which only means that no one can save you if something goes wrong.Regulation will come sooner or later, but the reason why projects fail is often not due to sudden changes in policy, but because they step outside the line.When many protocols are blocked, inspected, or liquidated, the problem is not technical incompetence, but:
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Who is the real operator in the agreement?
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Whose money is it?
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Are the contract and the token white paper logically consistent?
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Is DAO’s “autonomy” just an excuse?
In the next few years, the DeFi projects that will really stick around may not necessarily be the most “decentralized,” but they must be made by those who know how to write both contracts and compliance logic.
