Understanding DeFi Aggregator Protocols in One Article: Mainstream Models and Profit Paths

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 teams are talking about “cross-chain liquidity”, “optimal routing”, and “seamless exchange”, but those that can truly survive in this space are often not the ones with the flashiest technology, but rather those who understand operations and risk control.

The core of this type of protocol is actually “matching + settlement”—just in a decentralized form. Whenever it involves the flow, matching, exchange, or bridging of user assets, it fundamentally touches on financial logic. Technology can solve efficiency issues, but compliance determines whether it can survive in the long term.

Recently, I have received a lot of inquiries about Decentralized Finance projects:

Some people want to conduct a code security audit, fearing to be completely hacked.

Someone asked about trademark registration, worried about being “brand-surfed”;

Someone is raising funds and needs to design a plan and contract;

Some people want to know if a license is needed and how to build the structure.

Some people are preparing to create 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, but we want to avoid risks.”

Business Model and Profit Path of DeFi Cross-Chain Aggregation Exchange Protocol

The profit logic of DeFi projects ultimately revolves around liquidity and trust. Based on the current market situation, it can be broadly divided into seven mainstream paths:

1. Fee Model: A basic and robust source of income

The most direct way is to charge a transaction fee. For every cross-chain exchange completed by users, the platform automatically deducts a fee of 0.1% to 0.3%. The model is simple and cash flow is clear, and it is currently the most recognized profit logic. But note: if the protocol includes fiat currency exchange, stablecoin settlement, or centralized clearing, it may be considered payment services or remittance business in certain jurisdictions (such as Hong Kong, the EU, and Singapore), and corresponding PSA, CASP, or VASP licenses may need to be applied for.

2. Liquidity Incentives and Profit Sharing: The “Semi-Financial” Play of Decentralized Finance

Attract LPs into the pool through token incentives, and then distribute dividends from transaction fees. This type of mechanism allows the platform to grow rapidly, but if the incentive structure overly relies on token prices,

It is easy to be regarded by regulators as having “profit promises,” thus falling into the category of Security Offering. Therefore, the incentive model should be clear—“utility reward” is acceptable, but “investment yield” must be approached with great caution.

3. Cross-chain bridge and routing service fees: high technical barriers and even higher risks.

Cross-chain bridges are the “lifeline” of DeFi. If a 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 highest technical threshold for profitability, but also carries the greatest risk. Over the past year, multiple cross-chain bridges have been hacked for over a hundred million dollars, and compliance also involves issues of “cross-border capital flows”—in regions such as the EU, Singapore, and the UAE, if it involves asset custody or settlement, it almost always requires a crypto license or equivalent permission.

4. Token Issuance and Governance Economics: A Double-Edged Sword of Financing and Incentives

Many protocols want to “issue tokens” from the very beginning. That's fine, but once the tokens have financing attributes, it is no longer up to you to decide. If you promise dividends, buybacks, or price gains, then that is the logic of securities. A reasonable approach is:

• Establishing the issuing entity in the Cayman Islands or BVI;
• Use SAFT or subscription agreements to distinguish between “fundraising” and “governance”;
• Clearly define the usage functions of tokens in the ecosystem, rather than investment returns.

This area is one of the most sensitive for regulation, especially for projects planning to go public or raise funds.

5. Technology Licensing and B-end Services: Light Assets, Low Risk Profit Path

Once the protocol runs smoothly and liquidity stabilizes, you can turn to the B side, providing SDKs, APIs, or white-label services to allow other projects to integrate your aggregation features. This is a typical “light compliance” model — essentially software licensing and technical services, without touching funds, not holding assets, with low risk and high gross margins. However, if you participate in asset settlement or custody during the service process, you may still be defined as a “Virtual Asset Service Provider (VASP).”

6. Aggregated Returns and Derivatives Layer: Advanced Gameplay, Enter with Caution

Some aggregation protocols further integrate lending, staking, and arbitrage pools to form compound return or leveraged return structures. Although this type of design can improve yield, it is often regarded as an investment product or derivative in most jurisdictions. If you plan to go in this direction, prepare a compliance framework for asset management or derivative licensing in advance.

7. Brand and Ecological Extension: The “Slow Variable” of Long-term Value

Some mature projects monetize through brand extension—launching NFT series, developing cross-chain payment plugins, establishing DAO governance ecosystems, and even integrating with RWA (real-world assets). They may not make money in the short term, but this is the source of the brand's moat and long-term capital value. The prerequisite is: your brand must be protected, so trademark registration and brand independence layout should be done as early as possible.

From Code to Law: Practical Compliance Points for DeFi Projects

The following few things are the most easily overlooked yet crucial parts when I recently consulted for DeFi projects:

(1) Code Security Audit

The security of smart contracts is the lifeblood of DeFi projects. No matter how innovative the technology, as long as there are vulnerabilities in the contracts, a single hack could lead to total loss. In the past year, several projects, including Euler, Nomad, and Multichain, have suffered losses of millions in assets due to smart contract vulnerabilities. On the compliance front, although most jurisdictions do not yet mandate code audits, “whether a third-party security audit has been conducted” has become an important assessment criterion for the credibility of projects during fundraising, listing, or license applications.

Practical Advice:

• Complete at least one formal report issued by a recognized auditing institution (such as CertiK, SlowMist, PeckShield, Trail of Bits);
• Publicly disclose audit conclusions and vulnerability fix status in project documentation or white papers;
• 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 thus overlook brand protection. But the reality is: the code can be open source, but the brand cannot be left bare. After DeFi protocols move towards commercialization, they often encounter issues such as logo plagiarism, domain name squatting, and brand imitation theft. Especially when a project receives investment or collaborates with exchanges, brand infringement can become a very high potential risk point.

Practical advice:

• Register the trademark for the project name and logo in advance (it is recommended to apply simultaneously in major markets such as Hong Kong, Singapore, the EU, and the US);
• File and protect the official domain name to prevent phishing websites;
• Sign copyright transfer or licensing 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, and it is also the stage most easily “choked” by regulation. Whether it is equity financing, Token financing, or a hybrid model, it is necessary to clarify structurally: what is the path of incoming funds, and what are the rights being exchanged. Common documents include: SAFT protocol, investment agreements, shareholder agreements, Term Sheet, Token Allocation table, etc. These documents are not only proof of financing but also the basis for future DAO governance and investor rights.

Practical advice:

Clearly delineate between “token financing” and “equity financing” in the financing stage to avoid overlapping rights;

Avoid using terms like “investment return” and “expected yield” when disclosing fundraising materials to the outside, to prevent triggering the recognition of securities issuance.

(4) Licenses and Compliance Obligations

Currently, most pure DeFi projects can still operate without a license. However, if any of the following situations exist, it is advisable to consider obtaining a license:

• Provide exchange of crypto assets with fiat currencies (requires payment / exchange license);
• Custody or transit of user funds (requires VASP permission);
• Directly promote investment products to users within a specific jurisdiction.

Under the European MiCA, Singapore PSA, and Dubai VARA frameworks, these businesses are almost all subject to regulation.

(5) DAO and Foundation Structure

A DAO (Decentralized Autonomous Organization) appears to have no center, but legally it must have an entity that can represent it in contracts, taxation, and legal proceedings. This is the significance of establishing a foundation - not just for “name only”, but to bring governance into the legal realm.

Common Structure:

• Cayman Foundation Company: The most common legal entity for DAOs, flexible, no shareholders, and can establish a board of directors;
• BVI or Panama foundations: Suitable for projects with lighter governance levels and a wide distribution of members;
• Swiss Verein or Wyoming DAO LLC: Focus more on compliance disclosure and legal recognition.

(6) Token Issuance and Ecological Governance

Token issuance is undoubtedly crucial in DeFi projects, but as regulations continue to evolve, project teams must have a clearer understanding of the nature and issuance methods of tokens. To avoid tokens being classified as securities, project teams need to pay attention to the following points during issuance:

Functional Tokens and Investment Returns

When issuing tokens, their functions must be clearly defined, and investment returns cannot be promised. If the value of a token's growth relies on the project's commercial performance or promised returns, the token may be considered a “security.” 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.

compliant public offering

In certain jurisdictions, public fundraising or public token offerings (such as through airdrops, ICOs, etc.) must ensure that they do not violate securities laws. If the token issuance is considered a securities issuance (i.e., providing investment returns to public investors), the project must comply with the requirements of securities laws and undergo appropriate registration or exemption.

Mankun Law Firm's Decentralized Finance Legal Service Matrix

The legal support we provide for DeFi projects is typically divided into four levels:

1. Compliance Planning and License Layout

• Global VASP/ Payment License Analysis
• Offshore Structure Design (Cayman, BVI, Panama, Singapore)
• Cross-border tax and legal liability firewall

2. Financing and Legal Documents

• Investment and Financing Structure Design
• Drafting and Reviewing SAFT, SAFE, and Token Agreements
• DAO Foundation Governance Rules Customization

3. Intellectual Property and Brand Protection

• Trademark registration, LOGO protection
• Cooperation Protocol and Brand Authorization

4. Risk Control and Operational Compliance

• Compliance audit report archive
• AML/KYC policy formulation
• Smart Contract Security Statement and Disclaimer

Conclusion: The next phase of Decentralized Finance is “Decentralized Compliance”

The biggest illusion in DeFi over the past few years is that “no one is in charge = safe.” But the reality is quite the opposite—no one in charge only means that if something goes wrong, no one can save you. Regulation will eventually come, but the reasons for project failures are often not due to sudden policy changes, but rather crossing the line themselves. Many protocols have been shut down, investigated, or liquidated, and the issue is not that the technology is inadequate, but rather:

• Who is the real operator in the protocol?
• Whose money is it anyway?
• Do the contract and token whitepaper have logical coherence?
• Is the “autonomy” of the DAO just an excuse?

In the coming years, the DeFi projects that can truly survive may not necessarily be the most “decentralized”, but they will certainly be those created by people who understand how to write contracts and compliance logic.