Written by: Alivs, Mars Finance
Pumpfun, a meme coin issuance platform based on the Solana chain, is moving the balance of the crypto market at an astonishing speed. Since its launch in January 2024, it has quickly attracted the attention of investors and the enthusiasm of users with its unique joint curve pricing model and decentralized token issuance mechanism.
As of now, Pumpfun’s total revenue has exceeded 1.52 million SOL, equivalent to about 262 million US dollars, and in the past month, Pumpfun accounted for 70% of the Solana chain meme coin issuance. Pumpfun has surpassed most DeFi projects and become the fastest growing platform in the history of encryption.
However, just when everything seemed to be going smoothly, Pumpfun’s recent selling of coins has caused the market to think deeply - is there a deeper strategic layout behind the continued selling of Solana? And what does the move of SecondLane platform listing 1% of Pumpfun’s equity at a valuation of US$1.5 billion mean?
These issues may indicate that Pumpfun is about to reach a major turning point. In this article, we will use data and analysis to reveal the secrets behind Pumpfun and explore whether its current valuation is reasonable.
The rise and current status of Pumpfun
According to the latest data, Pumpfun’s total revenue has exceeded 1.52 million SOL, with cumulative revenue exceeding US$262 million. The platform has issued a total of 4.02 million tokens, of which Pumpfun accounted for 70% of the meme tokens issued on the Solana chain in the past month.
Overall, Pumpfun has become one of the fastest-growing applications in the history of the crypto economy, achieving $100 million in revenue in 217 days, a feat far exceeding traditional DeFi projects. Data shows that the second-ranked ENA took 251 days to reach this milestone, while traditional DeFi projects such as Curve (CRV) and Sushi took 350 days and 546 days respectively.
Team Background
The success of Pumpfun is inseparable from the youth and innovation of its founding team. The Pumpfun team did not initially focus on the issuance of meme coins, but tried multiple directions, starting with the NFT market. But after several attempts, they gradually turned to the meme coin market and quickly achieved success.
The Pumpfun team is from Europe, and the founding members are generally young. Among them, the CTO has only a high school education. However, this has not hindered their outstanding performance in the field of technology. With their keen product intuition and innovative thinking, they stand out in the Web3 field and eventually create a successful project like Pumpfun.
As many entrepreneurs say, the road to success is not crowded because most people cannot stick to it. The success of the Pumpfun team stems precisely from their transformation from ideas to actions and their ability to continuously solve difficulties in practice. It is this persistent persistence and technological innovation that has made Pumpfun a dark horse in today's crypto field.
Investor Background
Pumpfun has not only gained market recognition with its strong team capabilities, but also received support from well-known investors. Qiao Wang, co-founder of Alliance and a well-known crypto industry investor.
Alliance currently mainly invests in ultra-early-stage projects with valuations of several million US dollars, and Qiao Wang also received at least 1,000 times the return in this round of investment in Pumpfun.
Qiao Wang said that when they first invested in Pumpfun, the team had not yet clearly focused on the direction of meme coins. At that time, they tried many different directions and even planned to position it as a token launchpad.
Qiao Wang believes that Pumpfun has the potential to be like Zora (Zora is an NFT launchpad that has accumulated stable income for several years despite no token circulation). It was because of the unique innovative thinking of the Pumpfun team that Qiao Wang decided to invest. At that time, they did not foresee that Pumpfun would evolve into a project focusing on meme coins, but Pumpfun did exceed expectations and became the leader in the entire meme coin track.
Qiao Wang emphasized that for consumer projects like Pumpfun, the funding requirements are not high. Although Alliance only invested a few hundred thousand dollars, this amount of money is enough for consumer projects. In fact, too much money may become a bottleneck that hinders the development of the project. Today, Pumpfun's valuation has reached 100 times the initial investment, proving its huge market potential and investment value.
Pumpfun’s coin selling behavior and changes in the Solana market
Since Solana’s price hit a new high on November 22, Solana’s capital inflows have slowed down significantly. This phenomenon has been particularly significant in the past week. At the same time, the proportion of capital inflows into Ethereum has increased significantly. According to artemis data, more than 53% of Ethereum’s inflows in the past seven days came from Solana. Is this market reaction related to Pumpfun’s currency selling behavior?
According to Ember’s monitoring, pump.fun sold another 65,000 SOLs 7 hours ago, worth about $15.3 million.
So far, pump.fun has received a total of about 1.52 million SOL in fees. Nearly 200,000 SOL were sold in the past week, and their total sales volume was 1.137 million SOL (US$206 million), with an average price of about US$182.
However, as we have noticed, Pumpfun has been selling Solana recently, and this behavior may be an important signal for the flow of funds in the crypto market.
SOL/ETH continues to fall
Recently, Pumpfun launched a live broadcast function, combining the innovative model of token issuance and live broadcasting, which pushed the popularity of Pumpfun to a record high. On November 23, Pumpfun's single-day revenue reached 14.58 million US dollars, setting a record in the history of the platform. Subsequently, the platform suspended live broadcast activities, which also led the market to speculate whether Pumpfun's selling of coins is related to its upcoming strategic adjustments or funding needs.
If the Pumpfun team continues to sell Solana to obtain financial support, this may indicate that the platform is preparing for the next stage of expansion or adjustment. Although Pumpfun’s live broadcast has greatly increased the platform’s revenue and popularity in the short term, the continued sale of coins may also have a certain impact on the Solana market.
Considering that Solana’s price action is closely tied to Pumpfun’s fund flows, this behavior may reflect Pumpfun’s funding needs during expansion, while also suggesting that there may be expectations of certain changes in the market.
At the same time, SecondLane's move to sell Pumpfun's equity has also attracted widespread attention from the market. SecondLane listed 1% of Pumpfun's equity, with a valuation of $1.5 billion, which may be a reflection of Pumpfun's future development direction. Does the team's selling of coins and the upcoming equity sale indicate that Pumpfun is about to face some important changes or transformations? These issues deserve further discussion.
So, is the current valuation of Pumpfun products reasonable? Let's do some calculations.
DCF Analysis: PumpFun Current Valuation
Using the discounted cash flow (DCF) method to value PumpFun is a more traditional and in-depth evaluation method. This method predicts the company's future free cash flow (FCF) and then discounts it to the current value to derive the intrinsic valuation of the project.
In a project like PumpFun, we can view it as a platform-type protocol and predict future cash flows through the transaction fees it generates and the revenue from token issuance. Next, we will perform valuation analysis in the following steps.
Step 1: Estimate future cash flows
PumpFun's main sources of income include:
Token issuance fee: 1% transaction fee charged by the platform. This is the main source of income for PumpFun. Whenever a user purchases a token on the platform, the platform will charge a corresponding proportion of the fee.
Listing fee: The platform charges 6 SOL for listing each token when it is launched. This part of the income comes from the issuance and listing of each new meme coin project on the platform.
Potential other value-added services: such as additional token issuance, advertising or platform promotion, etc., may become additional sources of income in the future.
According to current data:
The cumulative revenue in 2024 is US$262 million, which includes revenue from token issuance and transaction fees.
Step 2: Set up different scenarios (optimistic, neutral, pessimistic)
Since the crypto market is highly volatile, factors such as revenue growth and Solana price fluctuations may affect PumpFun's future cash flow. Therefore, we set up three different scenarios for analysis:
Optimistic scenario: Assuming the market maintains high growth, Solana price rises, PumpFun can continue to attract a large number of users, and revenue growth rate is high. We assume revenue growth of 30%, Solana price of $350, and a discount rate of 14%.
The market is in a stage of rapid growth, investors are more optimistic about the future, and investment risks are lower, which means that the present value of future cash flows is higher in this scenario. A higher Solana price means an expansion of the market capital pool, and more investors are willing to participate in higher-priced meme coin investments, bringing more transactions and higher returns.
Neutral scenario: Assuming market growth slows, Solana prices stabilize, and PumpFun revenue maintains steady growth. We assume revenue growth of 0%, Solana price of $240, and a discount rate of 9%.
In the scenario of steady growth, investors have a relatively neutral outlook for the future and the risk is relatively moderate. At this time, although there are certain participants, due to the stability of the market, the flow of funds and the low sense of participation of investors, the driving effect on trading volume and revenue may be weak.
Pessimistic scenario: Assuming the market enters a downturn, Solana prices fall, and PumpFun revenue declines. We assume revenue growth of -30%, Solana price of $130, and a discount rate of 4%.
In the event of a market downturn or recession, investors may be more conservative about future returns, believing that future cash flows are more uncertain. When there are fewer market participants, the demand for meme coins may also drop sharply, so negative revenue growth may occur.
These three scenarios take into account different market environments and external risks, and can help us arrive at a more comprehensive valuation result.
Step 3: Calculate future cash flows
Based on the revenue growth rate under different scenarios, we calculate future revenue and discount it to the present.
Optimistic scenario (revenue growth of 30%, Solana price of $350, discount rate of 14%):
Neutral scenario: Solana price is $240, annual revenue growth is 0%, and the discount rate is 9%
Pessimistic scenario: Solana price is $130, annual revenue growth is -20%, and the discount rate is 4%
Now we have the discounted cash flows for our optimistic, neutral, and pessimistic scenarios.
Weighted DCF = 1/3 × high growth scenario DCF + 1/3 × volatile growth scenario DCF + 1/3 × recession scenario DCF = $1.068 billion
in conclusion:
Based on our discounted cash flow analysis, the weighted valuation is $1.068 billion.
SecondLane lists a 1% stake in Pump.fun for $15 million, implying an overall valuation of $1.5 billion for Pump.fun. From our discounted cash flow analysis, based on Pump.fun's current revenue level, market risks, and Solana's price volatility, its reasonable valuation range should be around $1 billion, or even lower in a pessimistic scenario.
Therefore, the $1.5 billion valuation is obviously too high and too optimistic, especially considering the volatility of the crypto market and the fact that Pump.fun's revenue growth is not sustainable. Under the current circumstances, the valuation given by SecondLane may be too high. If the market or revenue growth is not as expected in the future, investors may face a large valuation adjustment.
