This article is reprinted with permission from Mankun Blockchain Law, author: Shao Jiadian, copyright belongs to the original author.

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 field are often not the ones with the flashiest technology, but those who understand operations and risk control.

The core of these protocols is actually "matching + settlement"—just in a decentralized form. Any flow, matching, exchange, or bridging involving user assets essentially touches on financial logic. Technology can solve efficiency problems, but compliance determines whether one can survive in the long run.

Recently, I have received numerous inquiries from DeFi projects:

Some want to conduct code security audits, fearing a hacker attack;

Some ask about trademark registration, worried about "brand hijacking";

Some are in the process of fundraising and need to design plans and contracts;

Some want to know if they need licenses and how to structure themselves;

Others are preparing to establish DAO foundations and issue governance tokens…

These questions may seem scattered, but they all revolve around one theme: "We want to grow, but we want to avoid risks."

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

1. Fee Model: Basic and Stable Income

The most direct way—charging fees. The platform automatically deducts 0.1% to 0.3% of the fee for each cross-chain exchange completed by users. This model is simple, with clear cash flow, and is currently the most recognized profit logic. However, be aware: if the protocol involves fiat currency exchange, stablecoin settlement, or centralized clearing, it may be considered a payment service or foreign exchange business in certain jurisdictions (such as Hong Kong, the EU, Singapore), requiring the application for corresponding PSA, CASP, or VASP licenses.

2. Liquidity Incentives and Profit Sharing: DeFi's "Semi-Financial" Play

Attracting LPs into the pool through token incentives and then sharing profits from transaction fees. This mechanism allows the platform to grow rapidly, but if the incentive structure overly relies on token prices, it may be viewed by regulators as having "promised returns," thus falling into the category of securities offerings. Therefore, the incentive model should be carefully worded—"utility rewards" are acceptable, but "investment yields" must be approached with caution.

3. Cross-Chain Bridge and Routing Service Fees: High Technical Barriers, 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 barrier to profitability. However, the risks are also the greatest. In the past year, several cross-chain bridges have been hacked for over a hundred million dollars, and compliance also involves issues of "cross-border capital flow"—in regions like the EU, Singapore, and the UAE, if asset custody or settlement is involved, almost all require crypto licenses or equivalent permissions.

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

Many protocols want to "issue tokens" from the start. That's fine, but once the tokens have financing attributes, it’s no longer solely up to you. If you promise dividends, buybacks, or price returns, that falls under securities logic. A reasonable approach is to:

• Establish an issuing entity in the Cayman Islands or BVI;
• Use SAFT or subscription agreements to distinguish between "fundraising" and "governance";
• Clearly define the token's functional use in the ecosystem, rather than investment returns.

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

5. Technical Licensing and B2B Services: A Light Asset, Low-Risk Profit Path

Once the protocol is running smoothly and liquidity is stable, it can shift to B2B, providing SDKs, APIs, or white-label services, allowing other projects to integrate your aggregation features. This is a typical "light compliance" model—essentially software licensing and technical services, not touching funds or holding assets, thus low risk and high gross profit. However, if you participate in asset clearing or custody during the service process, you may still be defined as a "Virtual Asset Service Provider (VASP)."

6. Aggregated Yield and Derivative Layers: Advanced Play, Enter with Caution

Some aggregation protocols further integrate lending, staking, and arbitrage pools to form composite or leveraged yield structures. While such designs can increase yields, they are often viewed as investment products or derivatives in most jurisdictions. If you plan to go in this direction, prepare a compliance structure for asset management or derivative licenses in advance.

7. Brand and Ecosystem Extension: Long-Term Value's "Slow Variable"

Some mature projects monetize through brand expansion—launching NFT series, developing cross-chain payment plugins, establishing DAO governance ecosystems, or even integrating with RWA (real-world assets). It may not necessarily be profitable in the short term, but this is the source of brand moat and long-term capital value. The prerequisite is: your brand must be protectable, so trademark registration and brand independence should be arranged early.

The following are a few things that I have found to be easily overlooked but crucial when consulting DeFi projects recently:

(1) Code Security Audit

The security of smart contracts is the lifeblood of DeFi projects. No matter how innovative the technology, if 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 tens of millions in asset losses due to smart contract vulnerabilities. From a compliance perspective, although most jurisdictions do not yet mandate code audits, "whether a third-party security audit has been conducted" has become an important evaluation criterion for project credibility during fundraising, listing, or license applications.

Practical advice:

• Complete at least one formal report from a recognized auditing agency (such as CertiK, SlowMist, PeckShield, Trail of Bits);
• Publicly disclose audit conclusions and vulnerability remediation in project documentation or white papers;
• Re-audit for significant updates (such as contract migration or protocol upgrades).

(2) Trademark and Intellectual Property Protection

Many project teams believe "DeFi is open source," thus neglecting brand protection. But the reality is: code can be open source, but brands cannot run naked. After DeFi protocols move towards commercialization, they often encounter issues such as logo plagiarism, domain name hijacking, and brand imitation. Especially when projects receive investment or collaborate with exchanges, brand infringement can become a significant potential risk.

Practical advice:

• Register trademarks for project names and logos in advance (recommended to apply simultaneously in major markets such as Hong Kong, Singapore, the EU, and the US);
• File and protect official domain names to prevent phishing websites;
• Sign copyright transfer or usage authorization agreements with external technical service providers and design teams to ensure 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 regulators. Whether it is equity financing, token financing, or a hybrid model, the structure must first clarify: what is the path for funds to come in, and what rights are exchanged? Common documents include: SAFT agreements, investment agreements, shareholder agreements, term sheets, token allocation tables, etc. These documents are not only proof of financing but also the basis for future DAO governance and investor rights.

Practical advice:

• Clearly distinguish between "token financing" and "equity financing" during the fundraising phase to avoid overlapping rights;
• Avoid using terms like "investment returns" or "expected yields" when disclosing fundraising materials to prevent triggering securities issuance recognition.

(4) Licenses and Compliance Obligations

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

• Providing crypto asset and fiat currency exchange (requires payment/foreign exchange license);
• Custody or transferring user funds (requires VASP license);
• Directly promoting investment products to users within specific jurisdictions.

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

(5) DAO and Foundation Structure

DAOs (Decentralized Autonomous Organizations) may seem decentralized, but legally there must be an entity that can represent it for signing contracts, paying taxes, and responding to lawsuits. This is the significance of establishing a foundation—not just for "name only," but to ground governance in the legal world.

Common structures:

• Cayman Foundation Company: The most common legal vehicle for DAOs, flexible, with no shareholders, and a board of directors can be established;
• BVI or Panama Foundation: Suitable for projects with lighter governance levels and widely distributed members;
• Swiss Verein or Wyoming DAO LLC: More focused on compliance disclosure and legal recognition.

(6) Token Issuance and Ecosystem Governance

Token issuance is undoubtedly key in DeFi projects, but with the continuous development of regulations, 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 vs. Investment Returns

The functionality of tokens must be clearly defined at the time of issuance, and investment returns cannot be promised. If the value of the token's growth relies on the project's business performance or promised returns, the token may be considered a "security." Project teams should ensure that tokens are utility tokens, such as platform payment tools or governance tools, rather than investment tools.

• Compliance Public Offerings

In certain jurisdictions, public fundraising or public token offerings (such as through airdrops, ICOs, etc.) must ensure compliance with securities laws. If the token issuance is viewed as a securities offering (i.e., providing investment returns to public investors), the project must comply with securities law requirements, including appropriate registration or exemptions.

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

1. Financing and Legal Documents

• Investment and financing structure design
• Drafting and reviewing SAFT, SAFE, Token Agreements
• Customizing DAO foundation governance rules

1. Intellectual Property and Brand Protection

• Trademark registration, logo protection
• Cooperation agreements and brand licensing

1. Risk Prevention and Operational Compliance

• Compliance archiving of audit reports
• AML/KYC policy formulation
• Smart contract security statements and disclaimers

The biggest illusion in DeFi over the past few years is that "no one is managing = safe." But the reality is quite the opposite—no one managing simply means that if something goes wrong, no one can save you. Regulation will eventually come, but the reasons projects fail are often not due to sudden policy changes, but because they crossed the line themselves. Many protocols are shut down, investigated, or liquidated not because the technology is inadequate, but because:

• Who is the real operator in the protocol?
• Whose money is it really?
• Do the contracts and token white papers have logical coherence?
• Is the DAO's "autonomy" 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 run by people who understand both how to write contracts and how to write compliance logic.

Related Reading: "The Crypto Winter Has Arrived"—Mark Yusko Analyzes Possible Future Directions

Original text: “A Complete Guide to DeFi Aggregators: Core Models, Revenue Paths, and Compliance Challenges”

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