[Final] Unboxing BendDAO #06 - Full Financial Statements
In our previous newsletters, we have discussed various aspects of BendDAO's financial operations, including the balance sheet, income statement, and risk management measures. We have also explained how the protocol hedges against these risks. Having covered these topics comprehensively, we now present the official financial statements for BendDAO in a traditional finance format. This report will serve as a summary of our previous analyses. We hope this report will help BendDAO and its users make informed decisions and guide the protocol in the most appropriate direction.
Disclaimer
The information provided in this report is solely for informational purposes and is not intended to serve as financial or investment advice. Additionally, the financial statements included in this report have not undergone a thorough third-party financial audit, which means errors may misrepresent the financial statements. We cannot be held responsible for any financial losses or negative outcomes that may result from relying on the data provided in this report. By reading this report, you acknowledge that the statements made do not provide any representation, warranty, or guarantee regarding any subject, and you are responsible for conducting your own research. Furthermore, you agree to release any claims, causes of action, or disputes against Yearn Finance, the creators of this report, and its contributors. THIS REPORT IS NOT INTENDED TO PROVIDE ADVICE FOR ANY PURPOSE.
Table of Contents
1. BendDAO overview
2. General Principles
3. Income Statement (Quarterly)
4. Balance Sheet (Quarterly)
5. Sources
6. Notes to financial statements
7. Absence of Cash Flow Statement for BendDAO (Quarterly)
BendDAO overview
BendDAO is a P2Pool NFT lending protocol that functions similarly to a commercial bank in traditional finance. Since its official launch on March 23rd, 2022, it has emerged as a leading platform in this space. The protocol operates by accepting ETH deposits from users, which, in addition to the ETH deposited by BendDAO at launch, becomes the pool of money for borrowers to borrow against their collateralized NFTs. When borrowers repay their interest, BendDAO uses the proceeds to reward depositors, who earn interest on their ETH deposits. BendDAO's revenue comes from charging borrowers higher interest rates than the interest it pays out to depositors.
General Principles
The financial statement is structured based on an accrual-based accounting method.
The fiscal year for BendDAO starts from 03/23/2022 and ends on the last day of the calendar year, 12/31/2022. Figures are displayed in ETH and rounded to the nearest hundredth decimal.
Non-ETH assets(BEND, APE) are converted to ETH by obtaining closing prices from internally stored floor prices in the market (coinmarketcap).
The values within the financial statement takes account of only BendDAO’s service (Lending and Staking). If you would like to see the financial statement including the team’s revenue/expenses, please contact us at unboxinglabs23@gmail.com
*Note that there may be immaterial arithmetic errors in the tables presented, due to rounding. Please reach out to unboxinglabs23@gmail.com, for any suggestions regarding errors.
Income Statement (Quarterly)
The primary source of revenue for BendDAO is through depositing and borrowing activities. We can then focus on looking at the interest income account and the interest expense account, where interest income refers to the interest earned by BendDAO from borrowers, while interest expense refers to the interest paid by BendDAO to depositors.
Based on the income statement:
Operating Income (from lending service) increased on an average of 10.88% quarter by quarter in 2022 with 22-4Q being the most profitable quarter:
22-1Q: 1.1 ETH
22-2Q: 201.6 ETH
22-3Q: 279.3 ETH
22-4Q: 284.8 ETH
Revaluation Gain/Loss account is the gain/loss that comes from revaluation of the BEND token when it changes.
BEND Revaluation Gain/Loss covers a large portion of the “Other Income and Loss” account. We can see the overall profit decreased at the end of Q4 from the price of BEND falling from Q3 to Q4.
Reward expense refers to the incentive provided to depositors and borrowers with $BEND carried at its market value.
By coming up with a net income for each quarter in this manner, this is transferred to Retained Earnings.
Net Income
22-1Q: 294,440.6 ETH
22-2Q: 202,877.3 ETH
22-3Q: 94,743.7 ETH
22-4Q: -277,417.3 ETH
Balance Sheet (Quarterly)
*Note that BendDAO raised 3000 ETH through the Initial Fair-launch Offering (IFO). Please refer to notes[2] for more info regarding the IFO.
Based on the balance sheet:
Cash(ETH) increased steadily quarter by quarter until 3Q but slightly decreased in 4Q. This can be attributed to the increase in the deposited amount. Refer to the notes[3] for a detailed explanation.
Loan Receivable (made of principal receivable and interest receivable) for 2022, was the largest at end of 22-2Q with 16,494.86 ETH(principal payable) and 468.42 ETH(interest payable).
To see what kind of risk is involved with the loan receivable account, refer to notes[4].
Brokerage fee receivable and Cash (APE) are accounts related to APE staking which BendDAO started in December, 2022.
The fee income (coming from when APE is staked) is recognized as Brokerage Fee Receivable.
The fee (APE) is recognized as Cash (APE) when the user claims the reward.
Deposit payable (made of Principal Payable and Interest Payable) for 2022, was the largest at the end of 22-4Q with 44,973.03 ETH(principal payable) and 398.80 ETH(interest payable).
To see what kind of risk is involved with the deposit payable account, refer to notes[5].
Retained earnings account recognizes quarter-over-quarter net income on the Balance Sheet with 3Q being the largest with 592,061.58 ETH.
Sources
If you’d like to play around with the raw data that composes the F/S above, click here.
Notes to financial statements
[1]: Unboxing BendDAO #02: Decomposing BendDAO’s Revenue Stream
[2]: The ultimate guide to understanding the BendDAO protocol
[3]: Based on the graph below, we can see that from March 2022 to January 2023, the number of unique depositors consistently increased from 44 to 365.
[4]: Quarterly loan grading that indicates the healthiness of the loan receivables.
Unboxing BendDAO #05 Understanding Risks - Part 3 deep-dive on the Borrowing Side
[5]: Deposit payable depositor concentration that indicates the riskiness of withdrawal for depositors and liquidity of BendDAO.
Unboxing BendDAO #04 Understanding the Risks - Part 2 deep-dive on Utilization Risk
Absence of Cash Flow Statement for BendDAO
The cash flow is one of the three main components of standard financial statements. Here are two specific reasons why a company uses cash flow:
To track the genuine liquidity: An accrual basis accounting involves a lot of assumptions/judgments which can be mismatched with the actual liquidity of the company.
To distinguish profit and loss from non-operating activities
For BendDAO, these are the two reasons why the cash flow statement is not needed:
BendDAO’s interest receivable portion of the liquidity pool is not large enough to cause a significant change to BendDAO’s liquidity pool.
BendDAO’s profit-loss from non-operating activities is not large enough to cause a significant change to BendDAO’s liquidity pool.
For those who still want to see the cash flow statement of BendDAO, please contact us at unboxinglabs23@gmail.com.