Original author: Alex Xu, Research Partner at Mint Ventures.
1. Introduction
If one were to ask which L1 has developed the best business during this bull market cycle, most people would answer: Solana.
Whether in terms of active address numbers or fee income, Solana's market share in L1 has rapidly expanded:
Active address numbers: Solana's active address share grew from 3.48% to 56.83%, with a year-on-year growth of 1533%;
Monthly active address market share ratio for L1, data source: tokenterminal.
Costs: Solana's fee income share grew from 0.62% to 28.92%, with a year-on-year growth of 4564%.
Market share of L1 monthly fee income, data source: tokenterminal.
The Meme wave is the core driving force behind the rapid growth of various key indicators during this cycle of Solana. Besides Solana, projects like Raydium also benefit from the Meme wave. The activity of Meme transactions has contributed a massive amount to their trading and protocol revenue, and their prices have recently reached new highs in this round.
I will focus on another project benefiting from Solana's massive asset issuance: Metaplex.
This article will present and discuss the following four questions:
What is Metaplex's business positioning and business model? Does it have a moat?
How is Metaplex's business data, and how is its business development?
What is the background and funding situation of Metaplex's team, and how to evaluate the project team?
What is the current valuation level of Metaplex, and is there a margin of safety?
This article represents my periodic thoughts as of the time of publication, which may change in the future and is highly subjective, and may contain errors in facts, data, and reasoning logic. Criticism and further discussion from peers and readers are welcome, but this article does not constitute any investment advice.
The following is the main text.
2. Metaplex's Business Positioning and Business Model
The Metaplex protocol is a digital asset creation, sale, and management system built on Solana and supporting blockchains that adopt SVM (Solana Virtual Machine), providing developers, creators, and businesses with the tools and standards to build decentralized applications. The types of crypto assets supported by Metaplex include NFTs, FTs (fungible tokens), real-world assets (RWA), game assets, DePIN assets, and more.
Recently, Metaplex has also expanded its business horizontally into other foundational service areas of the Solana ecosystem, such as data indexing (Index) and data availability (DA) services.
In the long run, Metaplex is expected to become one of the most important multi-field foundational service projects in the Solana ecosystem.
2.1 Metaplex's Product Matrix
As an asset issuance, management, and standard system, Metaplex's service assets include both NFTs and fungible tokens. The products listed below constitute a comprehensive matrix serving the Solana ecosystem assets.
Core
Core is a new generation NFT standard on the Solana blockchain that adopts the 'single account design', which significantly reduces minting costs and computational power while supporting advanced plugins and mandatory royalty payments.
Background knowledge: Solana's account model
To understand the advantages of the 'single account design' architecture, it is necessary to first understand the account model of the Solana blockchain and the traditional storage methods for NFTs.
On the Solana blockchain, all state storage (such as token balances, NFT metadata, etc.) is associated with specific accounts. Each account can store a certain amount of data, and the size of the account is limited, requiring rent payments to maintain the storage of this data. Therefore, efficiently managing on-chain accounts and storing data is a key issue developers on Solana need to consider.
Traditional NFT Design
In traditional NFT design, each NFT typically has multiple accounts to store different pieces of information. For example, a typical NFT might involve the following accounts:
Main account: stores ownership information of NFTs (for example, who the current holder is).
Metadata account: stores metadata of NFTs (for example, name, description, image link, etc.).
Royalty account: stores information related to creator royalties.
This multi-account design, while flexible, can lead to some issues in practice:
Complexity: Managing and interacting with multiple accounts increases complexity, especially when frequent queries and data updates are needed.
Costs: Each account needs to pay rent to maintain its storage state; more accounts mean higher costs.
Performance: Operations involving multiple accounts may require more blockchain resources, affecting performance and transaction speed.
Advantages of 'Single Account Design'
In response to the above issues, Metaplex Core proposed the standard of 'single account design', which consolidates all NFT-related information (such as ownership, metadata, royalties, etc.) in one account. This simplifies account structure, reduces account costs, increases interaction efficiency, and enhances the scalability of NFTs. This design is particularly suitable for implementing large-scale NFT projects (like games, DePIN, etc.) on high-performance, low-cost blockchains like Solana.
Bubblegum
Bubblegum is Metaplex's program for creating and managing compressed NFTs (cNFTs). Through compression technology, creators can mint a large number of NFTs at an extremely low cost, with the cost of minting 100 million NFTs being only 500 SOL (achieving over 99% cost reduction compared to traditional minting methods), providing unprecedented scalability and flexibility. It is precisely because of the launch of Bubblegum technology that large-scale low-cost NFT minting has become possible, leading DePIN projects like Render and Helium to start migrating to Solana, and giving rise to innovative NFT platforms like DRiP. The following table lists examples of these three representatives' applications of Bubblegum.
Token Metadata
The Token Metadata program allows additional data to be appended to fungible and non-fungible assets on Solana. Token Metadata is naturally important for information-rich NFTs, but in practice, most fungible token projects on Solana also need to use Token Metadata.
Most people are unaware that the current largest Meme issuance platform on Solana, Pump.fun, creates all tokens reliant on Metaplex's metadata service. Now the biggest demand for Token Metadata comes not from NFTs, but from the massive issuance of Meme projects.
For Meme projects, using the Token Metadata program when issuing tokens has very obvious advantages:
First, it is essential to ensure the standardization and compatibility of the tokens issued. By using Metaplex's Metadata service, these tokens will be more easily recognized by mainstream wallets (such as Phantom, Solflare), and can also be correctly displayed on trading platforms with their names, icons, and other additional information, as well as seamlessly integrated into other Solana applications.
Secondly, it provides on-chain storage and transparency. The Metaplex Metadata service stores the metadata of tokens on-chain, making the token information and data easier to verify and preventing tampering.
Text associated with images provides multifaceted material for Meme speculation, transforming memes from a mere name and a string of contracts, to offering content for meme dissemination, secondary creation, and storytelling.
New Meme tokens continuously appearing on pump.fun, source: pump.fun.
With the continuous rise of the Meme craze on Solana, over 90% of Metaplex's protocol revenue has already come from fungible tokens (Meme). This reality contradicts the public perception that 'Metaplex is a foundational NFT protocol for the Solana ecosystem,' indicating a serious cognitive discrepancy.
Candy Machine
Metaplex's Candy Machine is the most commonly used NFT minting and issuance program on Solana, capable of efficiently, fairly, and transparently launching NFT collections.
Other Product Arrays
Metaplex's other services also include:
MPL-Hybrid: A hybrid NFT storage and management solution designed to combine the advantages of on-chain and off-chain storage, providing an efficient and economical storage method for NFTs, especially suitable for storing large files (such as high resolution) or NFTs that require dynamic updates.
Fusion: NFT merging feature that allows users to combine multiple NFTs into a new NFT, enhancing user interaction experience and providing more gameplay for NFT projects applicable to games, collectibles, and art projects.
Hydra: An efficient and scalable large-scale NFT minting solution, specifically designed for projects needing to mint a large number of NFTs (such as games, social platforms, or loyalty programs).
…
The current product list of Metaplex (asset services) is as follows:
Image source: Metaplex developer documentation Aura.
Aura
Additionally, in September, the Metaplex Foundation officially announced the launch of Metaplex Aura—a decentralized indexing and data availability network serving Solana and SVM (Solana Virtual Machine) (testnet). The indexing and data availability services provided by Aura enable Solana and other blockchain projects adopting the SVM standard to read asset data more efficiently and support batch operations at a lower cost, reducing operation costs by over 99%, as shown in the following image:
Cost comparison of large-scale asset operations before and after adopting Aura, source: Metaplex official Twitter.
When the product preview was released, Metaplex also listed the collaborative agreements supporting the product, many of which are well-known projects in the Solana ecosystem, and they will also be potential users of Aura in the future.
Source: Metaplex official Twitter.
From asset service systems to data indexing and data availability service protocols, with the horizontal expansion of services, Metaplex is evolving towards a full-stack foundational service platform for the Solana ecosystem.
2.2 Metaplex's Business Model
Metaplex's business model is simple and easy to understand, charging for providing on-chain asset-related services. Some services in the product array mentioned above are free, while others are charged.
Although Metaplex's direct partners are other projects on Solana, it's like a TOB expansion business, most of its fees come from small projects or retail users using large B-end projects, including creators of various fungible tokens and individual users minting NFTs.
In my opinion, charging decentralized users is a better business model compared to charging large collaborative projects on the B-end (like Pump.fun) because:
Small project users or retail users have a more emotional decision-making process and are less sensitive to price compared to B-end users, because the service fees of Metaplex account for a very low proportion of their total spending costs. The absolute fee paid by each small user is not high, but when the number is large enough, the total cost becomes quite considerable.
B-end projects can become distribution channels for their services, helping Metaplex's services reach more decentralized users, without requiring Metaplex to spend extra energy and costs on marketing and channels.
The user base is more decentralized, with low concentration, making it more challenging to negotiate with basic service providers like Metaplex. Metaplex has the ability to maintain product profitability and even raise prices when appropriate.
Specifically, the charging standards for Metaplex products on Solana are as follows:
Image source: Metaplex developer documentation.
It can be seen that the absolute fee for a user to call Metaplex's product services separately is not expensive. For example, the fee for users to mint an NFT is only 0.0015 SOL; for a Meme issuer issuing a project, adding image and text descriptions using Token Metadata costs only 0.01 SOL. Such costs are negligible compared to the expected benefits for users.
Of course, it should be noted that a large number of fungible tokens represented by Meme have brought income to Metaplex, but the sustainability of the Meme wave is questionable, which may also affect the sustainability of Metaplex's revenue. Even for Solana, the fluctuations in Meme heat are significant; during the coldest week in September, the number of newly listed tokens on Dex was only about 1/3 of that during the hottest time in May, while in mid-November, that number surged tenfold.
The number of new token varieties added weekly by Solana Dex, source: Dune.
2.3 Metaplex's Moat
In the business world, a company's/project's moat may come from various advantages, such as cost advantages from scale and geographical location, value accumulation from network effects, high user stickiness and premium ability from brand effects, and competitive barriers from administrative licenses and patents.
Projects with strong moats manifest in the competitive landscape as later competitors find it difficult to catch up when entering the same track, or the comprehensive costs of catching up are so high that they far exceed their expected returns, resulting in relatively fewer competitors in that track. Financially, this is reflected in the project's stable and gradually increasing profitability, with marketing and development costs representing a low proportion relative to income.
In the Web3 field, projects with strong moats are not common, like Tether in the stablecoin sector and Aave in the centralized lending sector.
In my view, Metaplex is also a project with a moat, and its moat comes from 'high switching costs' and 'standardization'.
Firstly, when developers and users rely deeply on Metaplex's tools and protocols for asset issuance and management, switching the project's assets to other protocols for management inevitably incurs high time, technical, and economic costs.
Secondly, when Metaplex's asset format (including NFTs and FT) becomes a widely accepted standard within the Solana ecosystem, serving as a consensus for compatibility design among various foundational infrastructures and applications, this will also become a primary consideration for new developers and projects when choosing asset service platforms with stronger ecosystem compatibility.
Thanks to Metaplex's moat, there are currently few projects in the Solana ecosystem that can compete with it, ensuring Metaplex's strong profitability, which will be analyzed in the next section.
In addition to asset services, Metaplex's data indexing and data availability services currently in testing are also expected to create a second business growth curve for Metaplex in the future. Considering that the target audience for this service overlaps significantly with Metaplex's existing customer base, its newly expanded business may be more easily accepted and experienced by existing cooperative customers.
3. Metaplex Business Data: PMF Fully Verified, Core Data Strong Growth
Metaplex's current core business is providing asset-related services. We can observe its active user numbers, the number of asset minting projects, and protocol revenue as the core indicators.
3.1 Metaplex Monthly Active Users
Metaplex's monthly active users refer to the number of unique addresses that have transacted with the Metaplex protocol in a month.
Metaplex Monthly Active Addresses, data source: Metaplex Public Dashboard, and the same below.
As of the date of writing (November 30, 2024), the latest number of monthly active users for Metaplex is 844,966, setting a new historical monthly high with a year-on-year growth of 253%.
3.2 Number of Assets Minted via Protocol
The number of assets minted via the protocol refers to the types of assets minted through the Metaplex protocol.
Number of types of assets minted monthly by Metaplex.
As of the date of writing (November 30, 2024), Metaplex's data has also set a historical high, with the total number of minted asset types exceeding 1.44 million in November.
It is worth noting that 94% of the assets are fungible tokens, and only 6% are NFTs. This data was still 18.6% to 81.4% in January this year, meaning that Metaplex's main business now mainly serves fungible token assets rather than NFT services. The majority of fungible asset issuance comes from the Meme craze.
Proportion of monthly asset minting types for Metaplex.
3.3 Protocol Revenue
Protocol revenue refers to the fees received by Metaplex for providing services.
Metaplex Monthly Protocol Revenue
As of the date of writing (November 30, 2024), Metaplex's monthly agreement revenue has reached $3.3 million, setting a new historical high.
It should be noted that, unlike many projects in the Web3 world that rely on token subsidies to drive product demand and exchange project tokens for protocol revenue, Metaplex's business revenue is quite organic and does not involve direct token subsidies, making it a typical project that has achieved PMF (Product-Market Fit).
Through the data in this section, we can see:
As a foundational asset protocol, Metaplex directly benefits from the development of Solana's ecosystem, and its core indicators rise in sync with Solana's core indicators, especially protocol revenue.
Metaplex benefits from the activity of both NFTs and FTs and is not just an 'NFT asset service protocol.' After the Meme craze, if more active tracks emerge in Solana, such as Depin, games, and RWA, the demand space for Metaplex will be further opened.
The business demand for Metaplex is organic, as it can generate revenue without relying on token subsidies.
Next, let's take a look at the team behind the Metaplex project and the situation of the project tokens.
4. Metaplex Team: Close to the Core Circle of Solana's Ecosystem OG
Stephen Hess
The founder of Metaplex is Stephen Hess, who is also the chairman of the Metaplex Foundation. He founded Metaplex Studios in November 2021.
As a graduate of Stanford's Symbolic Systems program (which focuses on the design of human-computer interaction systems), Stephen Hess is also one of Solana's earliest employees (he joined when Solana had just launched for a year). At that time, Solana co-founder Raj invited him to join Solana as the head of the product department. During his tenure, he participated in the development of Solana Stake Pools (Solana's staking system), the SPL governance system, and Wormhole. He was also a member of the team for the first version of the Solana NFT standard, which ultimately evolved into Metaplex.
In January 2022, shortly after Metaplex was established, it secured strategic investments totaling $46 million from institutions such as Multicoin, Jump, and Alameda. Based on the 10.2% share corresponding to the strategic round financing in the token allocation table, it can be estimated that this round of $46 million investment corresponded to a valuation of about $450 million, which is quite a high first-round primary valuation even during a bull market.
Just as Metaplex was about to celebrate its first anniversary, in November 2022, FTX collapsed due to massive financial losses. Although Metaplex's financial situation was not directly affected by the FTX collapse, Stephen Hess quickly announced layoffs on Twitter, preparing for the impending downturn in the Solana ecosystem. It has since proven that his approach was very correct, showing a clear understanding of the future, and he does not have the habits of many Web3 teams that spend extravagantly on cost control.
According to Metaplex's current LinkedIn information, the team consists of more than 10 members and remains quite streamlined. However, from the monthly project work reports they release, this streamlined team demonstrates strong delivery capabilities and ambition in product development, with high efficiency in product iterations and new product development.
Metaplex's monthly work report, source: official blog.
Reviewing the work history of Metaplex's founder and the project's development history, Metaplex basically aligns with my comprehensive idea of an excellent Web3 team:
Core members have educational, work skills, and experience backgrounds that match the entrepreneurial project, with no credit violations.
Close to the core circle of the public chain ecosystem, with open dialogue channels, the product concept is recognized by the public chain ecosystem community.
Good product intuition (less trial and error), diligent work, and good delivery results.
Have cost control awareness and do not spend recklessly.
Secured investment from top-tier VCs and possesses excellent comprehensive business resources.
Additionally, on September 9, 2024, The Block revealed that well-known institutions such as Pantera Capital and ParaFi Capital purchased a large number of Metaplex (MPLX) tokens from Wave Digital Assets this year, which were originally held by FTX, with a combined cost of approximately $0.2-$0.25 (with certain lock-up terms).
5. MPLX: Token Utility and Valuation Level
5.1 Basic Token Information
Metaplex's protocol token is MPLX, with a total supply of 1 billion.
Image source: project whitepaper.
The specific token allocation is as follows:
Creators and early supporters hold 21.9%, of which 50% will be distributed in the form of airdrops within a year (the first airdrop began in September 2022), and the remaining 50% will be released monthly in the following year.
Metaplex DAO 16%, no lock-up, distributed according to DAO proposals;
Metaplex Foundation 20.31%, no lock-up;
Strategic round 10.2%, of which 50% will be released after one year from the first airdrop (September 2022) and the remaining 50% will be unlocked monthly in the following year;
Partner Everstake 10%, locked for two years (locked until September 2024), linear release over one year, currently unlocking;
Metaplex Studios 9.75%, locked for one year (locked until September 2023), linear release over two years, currently unlocking;
Community airdrop 5.4%, released immediately;
Founding advisors hold 3.34%, locked for one year, released linearly over one year, all unlocked;
Founding partners hold 3.1%, locked for one year, released linearly over one year, all unlocked.
According to the current official circulation data provided, MPLX has a circulation rate of 75.6%, with most already in circulation, especially the investors' shares, which have basically achieved circulation with minimal unlocking pressure.
The portion of the total supply that is 'unreleased' primarily comes from shares controlled by Metaplex DAO and Metaplex Foundation, tokens held by the treasury, as well as the unallocated portions of Everstake and Metaplex Studios.
5.2 Token Utility
Currently, the utility of MPLX mainly lies in governance voting. In addition, Metaplex announced in March 2024 that it would use 50% of protocol revenue for token buybacks (including historically accumulated protocol revenue), with the repurchased tokens entering the treasury for protocol ecosystem development.
The protocol officially began repurchasing tokens in June 2024, and has since repurchased MPLX tokens with 10,000 SOL every month, continuing for 5 months to date.
Due to the rapid rise in protocol revenue, next month Metaplex will increase the monthly amount for protocol buybacks from 10,000 SOL to 12,000 SOL.
Aside from governance and buybacks, the next scenario for MPLX will be activated by the Aura feature mentioned above. After Aura's official launch, MPLX is expected to become the staking asset for Aura nodes, capturing the profits generated by Aura.
5.3 Protocol Valuation
When assessing Metaplex's valuation, we still use comparative valuation methods. However, considering that there are no competing projects in the same track as Metaplex on Solana, I ultimately chose Raydium, which also belongs to the Solana ecosystem and has similarly benefited from the Meme wave this year with a significant increase in protocol revenue and also has a buyback mechanism, as a reference for comparative valuation.
From the comparison of protocol revenue and market capitalization, Metaplex's valuation is slightly higher.
However, it should be emphasized that although the two projects have some commonalities, they are still two tracks of one ecosystem, with significant differences in business positioning. The above valuation comparison only has certain reference value.
5.4 Potential Driving Factors and Risks
Overall, Metaplex's advantages are evident:
Positioned in the upstream ecological niche of the asset service track, holding the power to set asset standards, directly benefiting from the prosperity of the Solana ecosystem.
Product PMF has been fully validated, achieving positive cash flow without relying on token subsidies, and possesses a relatively clear business moat.
Actively expand a second growth curve based on existing business.
The team's overall quality is good, closely aligned with the core circle of the ecosystem, diligent and enterprising, with cost control awareness.
Tokens have a buyback mechanism, and the project's absolute market cap is also relatively low (circulating market cap of over 260 million, FD V of over 350 million), making the market cap relatively light.
Potential upward driving factors for Metaplex's market capitalization in the future include:
Beyond Meme, other active tracks have emerged in the Solana ecosystem, further expanding the asset issuance market, whether in Depin, games, RWA, or the long-dormant NFTs.
Metaplex could be listed on larger trading platforms, such as Binance or Coinbase, to gain better liquidity premiums (considering the quality of the project and the relatively low market cap, I think it's worthwhile for listing teams to consider, as projects with real business needs and positive cash flow are scarce in the market).
Directly increase service fees. Currently, the base fee is relatively low, and the project has complete pricing capability. Even if fees were raised by 100%, the asset creation fees paid to Metaplex would still represent a very low proportion for users, which can be ignored.
Of course, Metaplex also faces some potential risks and challenges, such as:
The decline of the Solana Meme craze has led to a rapid decrease in asset minting numbers and a reduction in business revenue.
Currently, Metaplex's revenue is charged as a one-time fee based on the types of assets created. Projects with relatively fixed asset types cannot bring sustained revenue to Metaplex in the long term.
Summary
Contrary to the impression that 'Metaplex is an NFT asset protocol' held by most investors, Metaplex is actually a foundational protocol serving all types of assets in the Solana ecosystem and is a direct beneficiary of the Meme craze that has persisted since the beginning of the year.
If we continue to be optimistic about the Solana ecosystem in the future, Metaplex, occupying the 'upstream ecological niche' of 'asset issuance and management,' deserves our long-term attention.
