Extraction or Value? $PUMP Token

Level 3 - Virgin DeFi Analyst

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Today’s post will cover the ongoing evolution of the crypto market. If you’ve been around for multiple crypto cycles you will have seen crypto rotate through various technological and narrative developments ranging from the original cypherpunk thesis to tokenized art, memes, DeFi, stablecoins, and much more.

The 2024 crypto landscape was largely defined by valueless 'memes' and the rise of Hyperliquid—two phenomena that couldn’t be more different. Memecoins are valueless coins with zero expectation of profit. Hyperliquid is a cash flowing protocol that distributes value to tokens 24/7. And yet, both Hyperliquid and Pump Fun found product-market-fit among crypto participants.

Below is an excerpt from our paid substack in April 2025 covering our most recent views on the future of memecoins.

“Memecoins did show some strength (Fartcoin and Popcat) but frankly, we did not buy any of them beyond a very short-term trade. The case for memecoins has become significantly weaker as the marginal mass retail buyers everyone expected over the last year never arrived. Most of the recurring value is captured by the trading tools that facilitate memecoin activity (PumpFun, Photon, etc.), so if there is an opportunity in the future to buy a token with good tokenomics of a leading trading tool we would consider getting exposure this way. Memecoins are unlikely to go away, but we do not anticipate extreme returns from hereon out for the category as a whole. In other words, the inefficiencies have been grinded out and “asset” selection even in memecoins is the only way to perform well. The “Solana trenches” will likely provide some opportunities in future risk-on periods, but we believe the game has become too well understood to be worth our time.”

Pump Fun, a memecoin launchpad and DEX, is rumored to be conducting a token presale aimed at raising $1 billion with a valuation of $4 billion.

Such events typically occur late in a cycle, marking the tail end of a dominant narrative.

If Pump raises anywhere near this amount of capital from the crypto market, it will be a mass extinction event for the Solana blockchain which is already underperforming as the memecoin narrative has fizzled out over the last 6 months. We believe many major players have hedged or exited their SOL received from the Galaxy sale. As we’ve stated since early 2024, memecoins on Solana are similar to the NFT craze on Ethereum back in 2021. As these speculative assets were better understood, the market became increasingly -EV for the average retail participant.

Over time, more and more participants come to realize the negative expected value of their participation (or simply run out of money) and they leave the “game” to never return. This results in a situation where increasingly more informed participants are fighting each other over a depleting pie. It’s a speculative “death spiral” the crypto space has experienced many times since inception.

Is $Pump Worth Investing In?

All that said, we will discuss the valuation at a high level. Note that we have not received any official information on the PUMP token as of time of writing. Any details released so far are just rumors.

We’ll preface by saying we don’t like presales. Unless you have some specific edge on the launch dynamics or you are able to get in at a private valuation that is much lower than the public raise, it’s best to avoid presales.

Generally speaking, if a company could raise at sufficiently attractive terms from institutions they would not turn to the unsophisticated public (who nearly always get bad terms). You especially want to avoid presales that every market participant is aware of, can access, and is priced to perfection. The $1 billion would also come directly from the pockets of Pump Fun’s users, which could act as a cannibalizing effect. Despite this negative overhang, there are some nuances that could make the Pump token interesting.

First and foremost, fees. In the last twelve months, Pump Fun has generated a whopping $730 million in fees (~$675M in protocol revenue).

Cumulative Pump Fun and PumpSwap fees since inception | Source: DeFiLlama June 3, 2025

At a $4 billion valuation this would imply a ~5.9x revenue multiple. This valuation would be considered cheap in crypto no matter how you cut it. However, there is one big missing detail.

What portion of these fees will be value that is captured by tokenholders?

If the Pump team keeps all the revenue in perpetuity and it’s a valueless token with infinite supply dump on day one, the underlying fees are less important and there may be no valuation at which you’d want to own the token. If >90% of fees are distributed like they are in the case of HYPE, then the valuation seems quite reasonable even if forward earnings are lower than Pump’s peak earnings. Our guess is that the large capital raise of $1B is intended to compensate the team in lieu of forward revenue and we would expect a portion of fees to be distributed to tokenholders. If we were to do a complete guess based on our gut we would anticipate 25-50% of fees are distributed or used for buybacks.

At 25% fee distribution a $4 billion valuation becomes much less attractive. We anticipate memecoin volumes and pumpfun’s fees will never regain their peak. If we assume Pump maintains $1 million a day in revenue and none of that is internally generated washtrading or launches (both big assumptions) and a 25% fee distribution, this would imply a ~40x multiple — not as interesting for investing in unless you are extremely bullish on the token launch meta and Pump’s ability to maintain a competitive lead.

Infinite Tokens, Few Worth Owning

If there’s a case to be made for the PUMP token, the main one is that there are such few tokens in crypto worth owning on a fundamental basis, the token could go up simply due to the lack of alternative tokens to own. HYPE is a decent (albeit imperfect) comparable because both Hyperliquid and Pump Fun have achieved product-market-fit in crypto and generate 7 figures a day in revenue. To be clear, we are far more bullish on the future of perps markets, the Hyperliquid blockchain, and the dynamics of the HYPE token launch. However, there is a ton of capital in crypto that is looking for a place to go beyond memecoins and “insider cabal” altcoins that are driven up purely via market making agreements and VC funds seeking exit liquidity.

The downside is the launch dynamics. If everyone who wants to buy is able to do so at $4 billion (a $1 billion raise is huge), who will be left to buy when the token inevitably launches? Given their track record, we think it’s more likely that pigs will fly than Pump using all the money they raise and all their revenue to do token buybacks.

Concluding Thoughts

There are not enough details on the PUMP token to make a clearcut bull or bear case yet. There is enough nuance to fade crypto Twitter’s knee jerk reaction around an investment being a horrible idea. If the rumors are true, we will be parsing through the details around tokenomics. As the token launch approaches, we will update paid subscribers on exactly how we intend to trade it or invest.

Below are our key considerations.

For Investing in $Pump:

1. Valuation relative to revenue: At a $4 billion valuation, the revenue multiple for Pump Fun is relatively cheap (~5.9x), which would be considered an attractive entry point in the crypto space, particularly given the revenue. Caveat: Subject to token value capture.

2. Product-Market Fit: One of the few projects to successfully achieve product-market-fit, generate consistent revenue, and maintain a competitive lead.

3. Lack of investment alternatives: In a market with few fundamentally sound tokens, $Pump could see upward price movement simply due to the scarcity of high-quality tokens, especially if it’s seen as a legitimate alternative to more speculative assets.

Against Investing in $Pump:

1. Presale dynamics and terms: Presales generally offer poor terms to public investors, especially when the capital raise is large ($1 billion). Who will be left to buy post launch?

2. Uncertain tokenomics: There is a major unknown regarding how much of the generated fees will be distributed to token holders. If the team retains most of the revenue, the token may have little long-term value, making the valuation untenable.

3. Revenue sustainability concerns: Pump Fun's peak revenue may not be sustainable, and assuming a 25% fee distribution and $1 million / day in revenue, the investment becomes significantly less attractive at a 40x revenue multiple. Memecoin trading volumes would need to show renewed strength.

4. Revenue blackbox: There’s a possibility that Pump’s daily revenue figures are significantly overstated if the platform operates some portion of launches or washtrades. However, this is purely speculative on our part.

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Until next time..

Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are opinions from an anonymous group of cartoon animals with Wall Street and Software backgrounds.

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