2. Performance Value
The key metric determining the performance of any lending protocol is the value of supplied liquidity, also known as total value locked (TVL). Borrowing is a subset of TVL, which in effective lending protocols fluctuates with market demand between 25% and 45%, so all things being equal, greater TVL equals higher value in total borrowing.
Performance value relates to the correlation between a governance token’s implicit value and protocol performance, expressed as a range from none to high. High performance value occurs when a protocol captures a high proportion of the fee value created by its user interactions and imparts that value to its internal token economy via its governance token.
A governance token with no performance value is one in which the token’s utility is very limited, often solely voting rights. Such a token cannot reflect a long-term correlation between its value and protocol TVL, other than intermittently via sentiment or speculation. Current lending protocols exhibit low performance value, with commonly only a loose sentiment based correlation between token performance and protocol TVL.