November 04, 2024 | Read Online

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"The value of all Wares arise from their Use; things of no use, have no value."

— Nicholas Barbon (1690)

When I asked two of crypto's best investors at Permissionless whether anything in crypto might be recognizable as a value investment, I got a good laugh: "If you're a value investor you might as well leave the room," Tushar Jain told me.

"You're at the wrong conference," Joe McCann added.

Despite crypto's reputation for being untethered to valuation in any traditional sense, that wasn't necessarily the response I was expecting, if only because crypto finally seems to be producing some real, easily measurable revenue.

Consider, for example, the above chart from Blockworks Research on the "real economic value" generated by Solana.

The towering bar to the right shows that during the week of Oct. 21, crypto users paid a record $55 million to access the Solana blockchain.

Just for fun, we could annualize that weekly haul to $2.9 billion and conclude that Solana's SOL token now trades on 26x earnings — pretty reasonable if you think current activity levels are sustainable and insanely cheap and if you think crypto is the future of finance.

As traditional valuation methods go, annualizing one week of revenue is even more laughable than my question at Permissionless, of course.

But it might at least be evidence that there's now enough real revenue in crypto that we can start applying traditional metrics to it and look for things that might qualify as traditional value.

So far, the closest thing I've come across is Raydium. The Solana-based crypto exchange currently yields 11% (via token buybacks), according to Blockworks Research analyst Marc Arjoon, plus an additional 3.7% of yield (net of issuance) for holders who choose to stake their tokens.

This is not investment advice. Marc cautions that Raydium's revenue is volatile and I would additionally caution that crypto exchanges probably don't have much of a business moat.

But in TradFi, value stocks are value for a reason, so these are not disqualifying caveats.

If nothing else, Raydium's 14.7% real-yield is proof of concept that 1) people will pay to use blockchains, 2) protocols can be profitable and 3) profits can be returned to token holders.

These are minimum requirements for crypto protocols to be "investable" and it's not always been clear that they are, so this is welcome news, I think.

I don't expect this to attract a rush of traditional investors into crypto, however.

Raydium is a crypto protocol that enables people to trade crypto, so the profits it generates have a self-referential quality that seems intuitively unsustainable.

How sustainable can it possibly be, for example, that people will pay $389,000 in fees to trade just $19 million of the memecoin Pnut, as they have on Raydium over the last 24 hours?

If Robinhood charged a similar 20% commission to trade memestocks, it would attract an avalanche of competition, if not a congressional inquiry (even if most of those fees went to market makers, as is the case with Raydium).

But there's also some recent evidence that crypto isn't just for trading crypto, as neatly summarized on this slide from the latest monthly presentation to subscribers:

The TL;DR here is that revenue is trending higher for several prominent DePIN projects.

I find that noteworthy because unlike most crypto projects where revenue is self-referentially a function of the demand for crypto, DePIN revenue is uncorrelated to anything in or even out of the crypto market.

Helium is finding demand for its mobile network, Render is brokering more GPU rentals, Hivemapper is selling more map data, and GEODNET is creating a market for centimeter-precise GPS.

These are all examples of crypto-enabling services that have nothing to do with crypto.

(There are also lots of fun, earlier-stage DePIN projects building businesses unrelated to crypto, like Quakecore.com, which detects earthquakes and other natural disasters.)

The fact that many DePINS are simultaneously seeing rising demand is a hopeful indicator that we can escape the circular logic of "crypto is for trading crypto" that often makes the industry seem like an unsustainable ouroboros — the proverbial snake eating its own tail.

Not that there's anything wrong with trading crypto, which is not only good entertainment, but also a good business.

It may even turn out to be a sustainable one — the most promising thing about this current surge of activity on Solana is that I can't really tell you what's behind it.

Previous such surges in crypto activity had a single, easily identifiable source: WIF, ORE, some hot NFT mint, or sundry other inexplicable manias that seemed destined to have the approximate lifespan of a fruitfly.

This time around, though, there doesn't seem to be one particular mania behind the manic trading activity — and that makes it seem more sustainable to me.

The most recent memecoin successes, Goat and Pnut, are also presumably fads, but the demand to trade these fads feels increasingly structural — it's no longer news that some new memecoin is driving activity on Solana because there's always some new memecoin driving activity on Solana.

Similarly, there may now be enough early successes in DePIN that you don't hear about the new ones as much as you previously would have.

We're still a long way off from any of these attracting the attention of traditional value investors.

But the idea that it might is no longer a laughing matter.

— Byron Gilliam

Brought to you by:

MANTRA Chain's mainnet has officially launched, marking a significant step towards their vision of becoming the preferred ledger of record for tokenized RWAs. While features of the Mainnet will continue to develop, users can already access the following notable activities:

Bridge $OM from ERC-20 to Mainnet to gain access to future RWA drops
Stake $OM to help secure the network and earn onchain staking rewards
Earn KARMA by completing new missions on mainnet

While 2024 has been a landmark year for MANTRA, including strategic collaborations with UAE real estate giant MAG and Zand Bank, the launch of the Mainnet will open the door for significant movement in the real-world asset space.

Read full article

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