Dear Bankless players,
Our analysis tools are constantly improving.
A year ago, the industry hardly understood how to value crypto capital assets. Our concepts of price-earnings ratio (P/E) and price-to-sales ratio (P/S) are still on the surface.
But now we have done it. Now we can understand the value flow of DeFi protocol and encrypted capital assets more deeply than ever before.
Which agreement is the user most willing to pay for?
Where does most of Maker’s revenue come from?
How does Aave compare to other markets?
In terms of revenue generation, which agreement has the cheapest valuation?
We now have these answers. Therefore, when the mainstream financial community notices these issues in this crypto bull market cycle, they will see some familiar valuation models.
But as always, you have already seized their opportunity first here.
Let us learn how to use Token Terminal to analyze encrypted assets.
What is Token Terminal?
Token Terminal is a data analysis platform that provides traditional financial indicators of encrypted assets.
We believe that blockchain and blockchain-based applications are conceptually similar to traditional market companies. They are Internet-native markets, which are usually completely digital-the revenue generated by the service is shared by the project’s users (supplier participants) and owners (Token holders).
In some cases, income can only be distributed to one party, as is the case with projects such as Uniswap and Ethereum. Supplier participants (liquidity providers and miners, respectively) earn all the income .
It is worth noting that most of the current crypto projects are backed by some risky assets, and their costs and expenditures are still recorded off-chain (but exceptions like Year do exist), which is why we initially decided Mainly focus on the reasons for income rather than income.
Once more projects start to record their costs and expenditures on the chain, we will also be able to provide an accurate price-to-earnings ratio (P/E) .
Original indicators provided in Terminal
Here is an overview of all the different indicators currently in Ternimal:
- Market value-what is the valuation of a project? Calculated based on the total Token supply released by the project.
- Price-to-sales ratio (P/S)-how to evaluate the income of the project? What is the relationship between the value of a project and its income? The calculation method is the market value of the project divided by the annualized income. Annualized income is a forward-looking income estimate, calculated based on a simple 30-day moving average.
- Token transaction volume to market value ratio (VOL/MC)-How efficient is the price discovery of the project’s native Token? The calculation method is the daily trading volume of the project’s native token divided by its market value.
- Total Value Lock (TVL)-How much funds are deposited into the smart contract of the project? The calculation method is the liquidity deposited in the project’s smart contract (exchange) or the difference between deposited assets and borrowed assets (lent).
- Gross merchandise volume (GMV, Gross merchandise volume) — What is the demand for project services? Calculated based on the transaction (exchange) or loan (lending) volume of the project.
- Revenue – How much did the user pay for the service of a project? The calculation method is GMV * rate of return. Currently, revenue refers to the total cost paid by project users. If so, we also include data on how the total revenue is distributed between the users (provider participants) and the owners (Token holders) of the agreement.
- Charge rate-how much does it cost to use the service of a project? Refers to the fees charged on GMV, which can be transaction fees (exchange) or interest rates (borrowing).
How to get the most benefit from the chart?
When browsing the diagrams of a single project, one often writes:
- The start date of the project’s native token.
- Potential Token reward distribution date, and
- The date when the new asset (trading pool or lending market) is included in the project platform.
These events are usually clearly visible in GMV and revenue composition charts. For example, the introduction of Token rewards can temporarily increase the demand for project services (increase its GMV).
Chart
The comparison table focuses on the current value and is based on the peer group of the project (other DeFi projects currently listed on Token Terminal) . In addition, they include monthly changes and compound monthly growth rates (CMGR) over longer periods. When looking at the chart, you may wish to think about what reasons can be used to explain the monthly upward or downward trend? Is this change consistent with the project’s peers or the opposite, and why?
Historical chart
Historical charts can provide a deeper understanding of the development of a project over a period of time.
In historical charts, it is very useful to look for patterns (stability, fluctuation, one-time peak or decline, correlation with peer groups, etc.) and basic events that can explain these patterns (such as the launch of Token incentives). Through the switch function, users can focus the view on the project or peer group (DeFi average).
Composition and standardization chart
The composition diagram reveals the basic dynamics of a project’s business.
For GMV, which trading pools or lending markets have the highest utilization rate? In terms of acceptance rates, which transaction pools or loan markets charge the highest or lowest fees? Regarding revenue, which transaction pools or lending markets generate the most fees?
The standardized version of the composition diagram shows how the relationship between different trading pools or lending markets has changed over time. Through the switch function, users can focus their view on a specific transaction pool or lending market .
Charts with multiple trading pools or lending markets
For projects with multiple different GMV and revenue components, we have selected the 9 components with the most GMV and revenue in the relevant time period (ie 30 days, 180 days or since launch), in addition to an “other” category. A large “other” category would indicate that the trading pool or the long tail of the lending market has generated significant GMV or revenue, and vice versa.
The switch function allows users to focus their view on a specific transaction pool or lending market.
to sum up
Although DeFi is a new thing, we are beginning to deepen our understanding of this emerging asset class .
Look at the DeFi protocol from the perspective of the digital native market. They are completely license-free, and anyone can access the services they provide anywhere and on both sides of the market (supply and demand).
And we just unlocked the first stage. As projects continue to mature and report their costs and expenditures on the chain (check Yearn’s quarterly financial reports), we can develop the metrics and methods we use to compare these agreements, allowing us to better understand the supporting systems assets.
A year ago, we did not have these tools. Now we have.
And it will only get better in the future.
