Stables all at $1.01 today... would love a step by step guide in the paid sub of how to play arb opportunities for those of us who are still buy and HODL only noobs
One question. It seems like a more specific definition of FDV would be "market cap if all possible supply existed at today's price" (emphasis on last two words). I've never understood the point of using today's price - surely if you increase supply, you'd expect price to adjust downward.
Does anyone use something like "Fully Diluted Price" - the price if all possible supply existed at today's market cap?
Locked is a bit of a misnomer as funds can (usually) be withdrawn at any time. Means the total amount of customer funds deposited in protocol smart contracts. Converted to USD.
FDV / TVL ratio
Assuming some linear relationship between the capital a protocol is able to attract and the revenue it earns, comparing the FDV to TVL ratio between protocols in the same sector can be a useful guide to what is over/under valued.
Fees are tricky because sources vary from blockchain scrapes (Dune or The Graph) to the protocol's self-reporting (which may be irregular). Where possible we standardize on taking the most recent 90 days of revenue and annualizing it. But sometimes this is 3 calendar months for protocols which report monthly. And sometimes we're forced to extrapolate from a shorter range of data (newer protocols).
FDV / Fee ratio is useful if we're attempting to value or compare based on present value of future cash flows ignoring possible growth. This is probably fine for mature products like DEX.
Circulating vs Max Supply as a percentage is self explanatory and basically the same as Market Cap to FDV as FDV calculations exclude burned tokens. tl;dr be aware of low % as most supply hasn't been issued yet, check issuance / emission / unlock schedules.
Average monthly users is taken over the last 6 months where data is available, shorter period when it is not. Usually the source is blockchain scrapes and we take a conservative view of active users and try to avoid double counting. e.g for a borrow/lend platform we're counting the unique wallets borrowing each month, not adding also people who are lending. There's big dispersion in customer value, a whale could be worth 1000x ordinary users, and 1 wallet doesn't equal 1 person so its a rough metric.
Growth month on month is just the % change from this month to last. And revenue/user is a simple ratio - 3 months/90 days recent revenue annualized against last 3 months average users.
The comps table is becoming more difficult to maintain as everything goes multichain, we don't have scrapes for some of the Curve side chains so the volume and revenue is going to be understated. This is the best we can do for now, but since majority of volume is on ETH, Polygon the numbers shouldn't be off significantly, I'd estimate under 10%.
Thanks for reading and hope this answers your questions.
If you're enjoying catching up on our archives and have questions, please post as a reply to one of my comments. Otherwise I won't get the email notification and I don't often check all the old posts for new comments, there are just too many posts to get to.
Revenue and user figures come either from protocols own reporting or from TheGraph or Dune Analytics scrapes we are running. We had to build a lot of custom scrapes as many protocols don't provide the data we needed in their dashboards (or at all!).
Would love to have a link or feature for paid subs to access a weekly refresh of the comp table. Nice work.
agree would love a link to comp table. based on prices you keep it up to date so would love to be able to see it
Stellar post. Would be nice to see more of these explaining the others valuations metrics.
Here you go!
https://defieducation.substack.com/p/back-to-basics-market-cap-and-fdv/comment/4749084
Wondering if Defi education would look into Quant? QNT............
Thanks! That's very insightful. Can you also write a full guide on
- how to analyze the market cap and FDV
- how to compare between the relative valuations
- how to read the metrics and their implications
Thanks
Stables all at $1.01 today... would love a step by step guide in the paid sub of how to play arb opportunities for those of us who are still buy and HODL only noobs
For example, a good hot wallet besides Metamask to bridge to from Trezor/Ledger to take advantage of these opportunities
So you're saying buy the dip on Serum? Pretty sure that's what you're saying. LOL.
Good read - thanks chaps.
One question. It seems like a more specific definition of FDV would be "market cap if all possible supply existed at today's price" (emphasis on last two words). I've never understood the point of using today's price - surely if you increase supply, you'd expect price to adjust downward.
Does anyone use something like "Fully Diluted Price" - the price if all possible supply existed at today's market cap?
That's an interesting question - I'm not aware of any reasonably accurate way to forecast the effect of dilution on the price.
And yes also can we have a series explaining the other metrics on the table? This was such a good post! Thanks team
TVL= Total Value Locked
Locked is a bit of a misnomer as funds can (usually) be withdrawn at any time. Means the total amount of customer funds deposited in protocol smart contracts. Converted to USD.
FDV / TVL ratio
Assuming some linear relationship between the capital a protocol is able to attract and the revenue it earns, comparing the FDV to TVL ratio between protocols in the same sector can be a useful guide to what is over/under valued.
Fees are tricky because sources vary from blockchain scrapes (Dune or The Graph) to the protocol's self-reporting (which may be irregular). Where possible we standardize on taking the most recent 90 days of revenue and annualizing it. But sometimes this is 3 calendar months for protocols which report monthly. And sometimes we're forced to extrapolate from a shorter range of data (newer protocols).
FDV / Fee ratio is useful if we're attempting to value or compare based on present value of future cash flows ignoring possible growth. This is probably fine for mature products like DEX.
Circulating vs Max Supply as a percentage is self explanatory and basically the same as Market Cap to FDV as FDV calculations exclude burned tokens. tl;dr be aware of low % as most supply hasn't been issued yet, check issuance / emission / unlock schedules.
Average monthly users is taken over the last 6 months where data is available, shorter period when it is not. Usually the source is blockchain scrapes and we take a conservative view of active users and try to avoid double counting. e.g for a borrow/lend platform we're counting the unique wallets borrowing each month, not adding also people who are lending. There's big dispersion in customer value, a whale could be worth 1000x ordinary users, and 1 wallet doesn't equal 1 person so its a rough metric.
Growth month on month is just the % change from this month to last. And revenue/user is a simple ratio - 3 months/90 days recent revenue annualized against last 3 months average users.
The comps table is becoming more difficult to maintain as everything goes multichain, we don't have scrapes for some of the Curve side chains so the volume and revenue is going to be understated. This is the best we can do for now, but since majority of volume is on ETH, Polygon the numbers shouldn't be off significantly, I'd estimate under 10%.
Thanks for reading and hope this answers your questions.
If you're enjoying catching up on our archives and have questions, please post as a reply to one of my comments. Otherwise I won't get the email notification and I don't often check all the old posts for new comments, there are just too many posts to get to.
Replied in detail below but also worth checking out our glossary if you haven't seen it already https://defieducation.substack.com/p/new-to-defi-start-here-glossary-of
Great post! Is there anyway we can get the formulas for the table so that we can reproduce it ourselves?
Most information comes from Coingecko API.
Revenue and user figures come either from protocols own reporting or from TheGraph or Dune Analytics scrapes we are running. We had to build a lot of custom scrapes as many protocols don't provide the data we needed in their dashboards (or at all!).
Why does brain look so angry? 😂
COVID.