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Economic, Financial, and Community Growth Metrics and Conclusion - Part 3
Leveraging a Structured Valuation Framework, utilizing Data-Driven Insights, and discerning Risk vs. Opportunity for informed crypto investment.
Hi! My name is Kevin Wang. During the day, I devote my time and energy to my role as a product manager. However, when night falls, I am the mastermind behind tulsk.io. My mission is to assist you in delving into the world of startups, with a special emphasis on user experience, product management, and personal growth strategies that can elevate your upcoming business. My goal is to provide insights and guidance to entrepreneurs as they traverse the early stages of their business journeys.
Structured Valuation Framework:
Adopting a structured framework with factors like Economic Value, Utility Value, and Speculative or Store of Value enhances rational and informed crypto value investing, mirroring traditional equity valuation methods.
Utilizing platforms like Token Terminal, Artemis, and Dune Analytics for financial and on-chain data underpins data-driven decision-making in crypto value investing.
Risk v.s. Opportunity:
Low MC (Low Market Capitalization) and High FDV (High Fully Diluted Valuation) could indicate a discrepancy between the current market valuation and the potential future valuation.
Valuation Principles in Crypto Analysis
In my pursuit of a more scientific methodology to ascertain the intrinsic value of crypto, I aim to transcend a narrative-based assessment of a project's growth potential.
In part two of my article, I explored a SocialFi and Decentralized Social Media using utility metrics, covering aspects like user activation and transaction volume to evaluate the current growth state of the project.
However, I stumbled upon an intriguing post by Sonya Kim, who shared her approach on the factors influencing token prices in blockchain networks, drawing a parallel to value drivers in equities. Below is a condensed version of her insights in X:
Token prices are swayed by three primary factors:
Economic Value (derived from protocol fees),
Utility Value (demand for consumption), and
Speculative or Store of Value (based on social consensus).
In the realm of traditional equity valuation, three value drivers are acknowledged:
Multiple Expansion, and
Share Count Reduction.
The expected return from equities is deduced by multiplying these three factors. A parallel approach can be tailored to blockchain's Layer 1 (L1) networks by considering:
Growth in Transaction Volume (measured in dollars),
Network Value to Transactions (NVT) ratio (akin to the Price to Earnings ratio in equities), and
Token Supply Growth.
This framework lays the groundwork for a more organized and analytical evaluation of a project's value and growth trajectory, moving beyond mere narrative judgments.
Additionally, following the outlined framework above, I delved deeper into the analysis by breaking it down into associated metrics. Download the full version here.
How can I collect the data? Essentially, there are three platforms I would recommend to query data from, and they are partially free.
Focus: Financial Metrics and Performance Analysis
Data Offered: Provides financial data such as revenue, P/E ratios, and other financial metrics of blockchain projects.
Differential Factor: Primarily focused on providing financial analytics which are crucial for investors to evaluate the performance of crypto assets over time.
Focus: Digital Asset Management
Data Offered: While the primary focus is on asset management, it may provide data regarding the assets being managed, such as their performance, transaction history, and holdings distribution.
Differential Factor: Diverges from pure analytics and emphasizes on tools and features for managing, tracking, and securing crypto assets.
Focus: On-chain Data Querying and Visualization
Data Offered: Provides on-chain data which can be queried and visualized to analyze blockchain project metrics, user behaviors, and other on-chain activities.
Differential Factor: Enables users to create custom queries and visualizations, fostering a collaborative environment for analyzing and sharing blockchain data.
Summary of Differences:
Type of Data: Token Terminal focuses on financial metrics, Artemis on asset management data, while Dune Analytics provides on-chain data analytics.
Usage: Token Terminal is more geared towards investors looking for financial analytics, Artemis caters to individuals or entities managing digital assets, and Dune Analytics is for those interested in diving deep into on-chain data analysis.
Customization: Dune Analytics offers a level of customization in querying and visualizing data, unlike the other two platforms which may have a more standardized presentation of data.
Risk: MC vs FDV
The juxtaposition of Low MC (Low Market Capitalization) and High FDV (High Fully Diluted Valuation) could indicate a discrepancy between the current market valuation and the potential future valuation of a cryptocurrency or blockchain project.
This scenario could arise in early-stage projects where a small portion of the total token supply is currently in circulation, but a large number of tokens are planned for future release. Such a scenario might represent both opportunities and risks for investors and stakeholders, warranting a thorough analysis of the project’s fundamentals and tokenomics.
Crypto is arguably advancing towards a phase of maturity, enabling analysts to assess the fundamental value of projects.
Blockchains act as a fundamental infrastructure that facilitates seamless value transfer over the internet. Similarly, DApps, built on blockchains, resemble internet-native businesses, each boasting distinct revenue models, cost structures, competitive advantages, capital allocation strategies, and valuations.
Building upon this three-fold framework—comprising Economic Value, Utility Value, and Speculative or Store of Value—the subsequent segmentation into related metrics further sharpens the evaluative lens through which a project's potential and performance can be assessed.
Part 3: Economic, Financial, and Community Growth Metrics and Conclusion(this post)
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