![]() ![]() A protocol with $1B in un-incentivized TVL is likely a stronger indicator of true demand for the service than a protocol with $1B with all of the liquidity juiced up with high yields.Ī perfect example is Uniswap vs. That said, it’s important to recognize that with the introduction of yield farming, this metric can become more nuanced with ‘incentivized’ TVL and ‘un-incentivized’ TVL. It means people are actually willing to lock their capital into the protocol, trusting it to a degree, in return for whatever utility it serves ( like earning a yield, providing liquidity, or acting as collateral). Generally speaking, the more value locked in a protocol, the better. It represents the total amount of assets held by each protocol-which some could view this as a protocol’s Assets Under Management (AUM). Total value locked is one of the most widely known metrics in DeFi. The key takeaway? Knowing the supply schedule of the underlying asset and how it translates to its current valuations can be extremely helpful when taking long term positions ( especially for newly launched protocols)! 2. As a result, the market corrected itself towards more reasonable valuations. Recognizing this discrepancy could’ve saved you a fair amount of money as the valuation at time was irrational. That was higher than Ethereum at the time! If you remember Curve when it first released CRV, the token was trading at upwards of $15-20 and the FDV for the protocol was over $50B. This is especially true for newly launched protocols where circulating supplies tend to be a sliver of the total supply. As a result, investors should recognize that there could be a fair amount of inflationary sell pressure overtime as these new tokens come into the market. ![]() If there’s a large discrepancy between a protocol’s market cap and its FDV, it means there’s a significant amount of tokens yet to enter circulation. Understanding the difference between a protocol’s market cap and its fully diluted valuation (FDV)-the total market cap of the protocol if all tokens are in circulation-can be extremely valuable for those looking to take long term positions in an asset. Here’s what you should keep in mind: General Metrics 1. ![]() We now have a deeper understanding of how protocols operate, how they accrue value, and importantly, we now have the tools to analyze them and uncover new ( as well as old) valuation metrics.Īs such, we’re going to take some time today to review some general and sector-specific metrics that exist today as well as a few key ratios to consider when you’re researching a new protocol. We’re relearning, restructuring and reapplying old methodologies to this new paradigm.Īnd we’ve learned a lot over these few years. We’ve said it before: DeFi is speed-running thousands of years of traditional finance. ![]() Guest Writer: Lucas Campbell, Editor & Analyst for Bankless Token Valuation Metrics You Should Know Learn these token metrics, and you’ll be able to front-run the opportunity. In the last bull run, valuation metrics like these didn’t exist. There are plenty of qualitative aspects that you need to consider along with the metrics that we touch on below. Just because a P/S ratio is lower than one, doesn’t mean it’s necessarily a better buy and vice versa. But one thing to remember-markets these days are narrative driven. Today, Lucas dives into some token metrics you should know.Īll of these can serve as valuable gut checks for any prospective investment you’re looking to make. This alone allows us to apply the time-tested metrics of traditional finance to compare and contrast protocols against each other. Luckily, DeFi protocols are different-they have cash flows. Stock to flow, transaction fees, adjusted transaction volumes-there’s really no clear cut way to evaluate it. It still is for some assets.įor a non-cash flow generating assets, like Bitcoin, it’s actually quite hard. ![]()
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