Title: The Value of Blockchain Investment
Author: Pi Ma, Founder of Continue Capital
The unexpected underperformance of the counterfeit market has raised doubts about the industry. In a complex environment with different stages of development, investment difficulty is inevitable. However, the fundamental problem lies in finding a business model for long-term sustainable development.
After ten years, I found that many people, even those who have been in the industry for a long time, do not understand why public chains have been dominating the TOP100 list for so long, and why the top public chains have attracted billions and tens of billions of funds, while your coins are only worth millions or tens of millions and have no market. I like to simplify complex things, so I try to analyze it from the first principle.
Starting from the first principle, “P = E * PE”, that is, “stock price = profit * valuation”, so in the long run, the factors that affect stock prices are only profit and valuation.
Firstly, valuation PE. This is more complicated, with many influencing factors, such as growth rate, interest rate, penetration rate, industry space, central bank liquidity, monopoly, etc., all of which are factors that determine the different valuations given to different stocks by people at a certain period. Idol Buffett said he doesn’t buy BTC because BTC has no cash flow (you can think of cash flow as profit). In the long run, I feel that most of what he said is correct, but in the above stock price formula, only profit E is considered, not valuation PE. Therefore, from another perspective, MEME/BTC are the same and can be attributed to the PE factor. As long as your MEME keeps attracting people to buy, your MEME can rise to a certain stage without creating cash flow, but there is an important premise: within a certain market value. The larger the market value, the more people you need to attract, and without continuous cash flow support, it is very difficult to sustain.
Secondly, profit E, which is what we mainly discuss. Profit comes from revenue, so for stock prices to rise, revenue must rise. Where does revenue come from? It comes from the business model, which is defined as a business activity that makes a profit by providing goods or services to others. Simply put, it is how your company makes money. In 2006, Duan Yongping spent $620,000 to buy Buffett’s lunch and asked him a question that had been bothering him for a long time: What is the most important thing for investment? Buffett’s answer was the business model. A company cannot sustain long-term development if it does not know how to make money. The core driving force behind the continuous rise of the seven sisters of the US stock market is profit, not other short-term factors.
In my opinion, there are only a few things in the blockchain space: block space fees; SWAP fees, including DEX/CEX; lending, interest rate differential; stablecoins, spread; MEV, parasitic on block space. Others are easy to understand, so let’s talk about block space fees.
In fact, what is very secretive is that the cryptocurrency industry has created a new business model: selling block space, that is, public chains charge block space fees based on GAS fees. Global consumers purchase access and storage rights to global computing/bandwidth resources based on the basic price of each transaction.
I didn’t understand a few words before, what is the “value” internet? We know that most of the information on the internet is free, such as pictures, text, videos, etc. One piece of information can be infinitely copied, so in the early days of the internet, people didn’t know how to make money. In the later exploration, the business model of the internet was gradually discovered, including SaaS subscription services, advertising, and transaction (e-commerce) revenue.
So where is the business model of the blockchain? I later figured out the value internet of the cryptocurrency industry, which is a paid internet. Every time you click, you need to pay GAS. The original intention of the blockchain was to solve the problem of currency attributes, which is very different from the free internet. You cannot use one dollar to infinitely copy and repeatedly pay it to others. The free internet cannot solve the currency problem. Therefore, in the process of extending from currency to public chains, its uniqueness lies in making consumers bear the cost of accessing block space. In the past few decades, enterprises have leased computing resources by themselves to pay AWS bills in order to provide products and services to customers and obtain fees for profit. In the application of the blockchain, this is great: users pay for the project’s operating costs. Every year, global consumers pay billions to tens of billions of dollars for GAS fees, which is the revenue of public chains. If the annual income is 10 billion, the 5% national bond yield, and the 20 times PE, it is a 200 billion market, and the 10 times PE is a 100 billion market, and the 50 times PE is a 500 billion market. Therefore, this is the fundamental reason for the huge public chain market.
For example, the current USDT issuance on TRX has reached 60 billion, occupying half of the entire USDT market. I looked at the annual income of TRX in 2023, which is about 400-500 million US dollars, of which 75% is USDT transfer income, which is a profit of 400 million US dollars. If we give a PE of 20 times, the valuation of 8 billion TRX is reasonable. Of course, this is not the point. The point is whether this data can be expanded tenfold or more in the next ten years. How much future incremental market share can SOL’s payment/open finance grab? I won’t go further into the topic of expansion.
You have to understand that I am just trying to explain why the public chain market is huge, that is, I have only explained the existing phenomenon that you are willing to pay for GAS fees. I have not gone further into why you have to pay GAS fees and why more people will pay GAS fees in the future. Is it the demand for transfer payments? The demand for getting rich (hoarding GAS)? The demand for entertainment (paying for a certain DAPP)? The demand for trading coins/commodities/stocks/SWAP? You have to know that if no one pays for GAS fees in the future, the public chain market will not exist. Therefore, many fancy terms are seen in the industry, which are difficult for ordinary people to understand. These abstract terms are often used for promotion, such as scalability, ZK technology, L2, UTXO, chain abstraction, modularization, homomorphic encryption, parallel EVM, etc. Because I did not participate in the early development of the internet, I did not know that these terms such as modularization and monolithic chain originated from internet technology until later. However, in the internet field, few people mention them, but they are often promoted as key points in the cryptocurrency industry. I am now very resistant to these narrative terms. Basically, after familiarizing myself with the basic concepts, I directly ask: How much revenue can this technology bring me? How much profit can it generate for me to buy back? Otherwise, where is the market fit of your technology? I can support long-term deep cultivation of basic technology/basic disciplines, but tell me how long it will take to get a clear business model? Two years, ten years, or twenty years? The more complex issues of how to expand revenue and market share, reduce costs, etc. that conform to the business development path are the key points you need to consider. Although I have chosen SOL , there are still tens of thousands of projects in the cryptocurrency industry, and it is difficult to see how to invest in their value. Seriously, invest.
