Written by: Alivs, Mars Finance
Pumpfun, a meme coin issuance platform based on the Solana chain, is shaking 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 users with a unique joint curve pricing model and decentralized token issuance mechanism.
Pumpfun's total revenue has surpassed 1.52 million SOL, and in the past month, Pumpfun accounted for 70% of meme coin issuance on the Solana chain. Pumpfun has surpassed the vast majority of DeFi projects, becoming the fastest-growing platform in crypto history.
However, just when everything seemed to be going smoothly, Pumpfun's recent coin-selling actions have sparked deep market reflections—behind the continued sale of Solana, is there a deeper strategic layout hidden? And what does the action of SecondLane platform listing 1% equity of Pumpfun at a valuation of $1.5 billion mean?
These questions may suggest that Pumpfun is about to face a significant turning point. In this article, we will reveal the hidden secrets behind Pumpfun through data and analysis 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 $262 million. The platform has issued a total of 4.02 million tokens, of which, in the past month, Pumpfun accounted for as much as 70% of the meme coin tokens issued on the Solana chain.
Overall, Pumpfun has become one of the fastest-growing applications in the history of the crypto economy, achieving $100 million in revenue in just 217 days, a feat that far exceeds traditional DeFi projects. Data shows that the second-ranking ENA took 251 days to reach this milestone, while traditional DeFi projects like Curve (CRV) and Sushi took 350 days and 546 days, respectively.
Team background
Pumpfun's success is inseparable from the youth and innovation ability of its founding team. The Pumpfun team initially did not focus on issuing meme coins but tried multiple directions, starting with the NFT market. However, after several attempts, they gradually shifted to the meme coin market and quickly achieved success.
The Pumpfun team comes from Europe, with generally younger founding members, among whom the CTO's education level is even only at high school. However, this has not hindered their outstanding performance in the technology field. With their keen product intuition and innovative thinking, they have stood out in the Web3 domain and ultimately created a successful project like Pumpfun.
As many entrepreneurs say, the road to success is not crowded because most people cannot persevere. The success of the Pumpfun team comes precisely from their ability to translate ideas into action and continuously solve difficulties in practice. It is this enduring persistence and technological innovation that has made Pumpfun a dark horse in the crypto field today.
Investor background
Pumpfun not only gained market recognition through its strong team capabilities but also received support from well-known investors. Qiao Wang, co-founder of Alliance and a well-known investor in the crypto industry.
Alliance currently mainly invests in ultra-early-stage projects valued at several million dollars, and Qiao Wang has also achieved at least a 1000-fold return in this round of investment in Pumpfun.
Qiao Wang mentioned that when he initially invested in Pumpfun, the team had not yet clearly focused on the direction of meme coins. At that time, they tried multiple different directions and even once planned to position it as a token launchpad.
Qiao Wang believes that Pumpfun has the potential like Zora (Zora is an NFT launchpad, despite not having token circulation, it has accumulated stable income over several years). It was precisely because he saw the Pumpfun team's unique innovative thinking that Qiao Wang decided to invest. At that time, they did not foresee that Pumpfun would evolve into a project focused on meme coins, but Pumpfun did exceed expectations and became a leader in the entire meme coin sector.
Qiao Wang emphasized that consumer projects like Pumpfun do not require much funding. Although Alliance only invested several hundred thousand dollars, this amount is sufficient for consumer projects. In fact, excessive funding may instead become a bottleneck that hinders project development. Today, Pumpfun's valuation has reached 100 times the initial investment, proving its immense 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, the inflow of funds into Solana has noticeably slowed down, a phenomenon that has been particularly significant in the past week, while the proportion of funds flowing into Ethereum has significantly increased. According to Artemis data, more than 53% of the funds flowing into Ethereum in the past 7 days have come from Solana. Is this market reaction related to Pumpfun's coin-selling behavior?
According to Yu Jin monitoring, pump.fun sold 65,000 SOL again 7 hours ago, worth approximately $15.3 million
So far, pump.fun has generated approximately 1.52 million SOL in total fee revenue. In the past week, nearly 200,000 SOL have been sold, while their total sales amount to 1.137 million SOL (approximately $206 million), with an average price of about $182.
However, as we have noted, Pumpfun's recent continuous selling of Solana may be an important signal of liquidity flow in the crypto market.
SOL/ETH continues to decline
Recently, Pumpfun launched its live streaming feature, combining token issuance and live commerce in an innovative model, which has pushed Pumpfun's popularity to an all-time high. On November 23, Pumpfun's daily revenue reached $14.58 million, setting a historical record for the platform. Subsequently, the platform paused its live streaming activities, prompting the market to speculate whether Pumpfun's coin-selling behavior is related to its upcoming strategic adjustments or funding needs.
If Pumpfun's team continuously sells Solana to obtain funding support, it may suggest that the platform is preparing for the next stage of expansion or adjustment. Although Pumpfun's live broadcasting has significantly increased the platform's revenue and visibility in the short term, the ongoing coin-selling behavior may also have a certain impact on the Solana market.
Considering the price trends of Solana are closely related to Pumpfun's liquidity flow, this behavior may reflect Pumpfun's funding needs during its expansion process, while also suggesting that there may be certain expected changes in the market.
Meanwhile, SecondLane platform's move to divest Pumpfun equity has also drawn widespread market attention. SecondLane has listed 1% equity of Pumpfun, valuing it at $1.5 billion, which may reflect Pumpfun's future development direction. Does the team's coin-selling behavior and the upcoming equity sale indicate that Pumpfun is about to face some significant changes or transformations? These questions are worth further exploration.
So, is the current valuation of Pumpfun's product reasonable? Let's calculate it.
Discounted Cash Flow (DCF) Analysis: PumpFun Current Valuation
Using the discounted cash flow method (Discounted Cash Flow, DCF) to value PumpFun is a more traditional and in-depth assessment method. This method forecasts the company's future free cash flow (FCF) and then discounts it to present value to derive the project's intrinsic valuation.
In projects like PumpFun, we can see it as a platform protocol that predicts future cash flows based on the transaction fees and income from token issuance it generates. Next, we will follow these steps to conduct the valuation analysis.
Step 1: Estimate future cash flows
The main sources of income for PumpFun include:
Token issuance fee: A 1% transaction fee charged by the platform. This is the primary source of income for PumpFun, as the platform charges a corresponding percentage fee whenever users purchase tokens on the platform.
Listing fee: A 6 SOL listing fee charged by the platform for each token launched. This income comes from the issuance and listing of each new meme coin project on the platform.
Potential other value-added services: Such as token issuance, advertising, or platform promotion, which may become additional sources of revenue in the future.
According to current data:
Cumulative revenue for 2024 is $262 million, which includes income from token issuance and transaction fees.
Step 2: Set different scenario analyses (optimistic, neutral, pessimistic)
When conducting a valuation analysis of Pumpfun, we must consider the uniqueness of the cryptocurrency market. Unlike traditional financial markets, the crypto market experiences severe fluctuations in bull and bear cycles, typically not exceeding four years. Therefore, in this cash flow discount (DCF) analysis, we used a cash flow forecast with a four-year cycle. This assumption is based on the periodic fluctuations of the crypto market and the changing expectations of future returns, which will help to more accurately assess Pumpfun's valuation under different market conditions.
Additionally, due to the significant volatility of the crypto market, factors like revenue growth and Solana price fluctuations can affect PumpFun's future cash flows. Therefore, we set three different scenarios for analysis:
Optimistic scenario: Assuming the market maintains rapid growth, Solana's price rises, and PumpFun can continue to attract a large number of users with a high revenue growth rate. We assume a revenue growth of 30%, Solana price of $350, and a discount rate of 14%.
The market is in a high-growth phase, and investors have a relatively optimistic expectation for the future, with low investment risks, which means that the present value of future cash flows is relatively high in this scenario. A higher Solana price means an expansion of the market liquidity pool, with more investors willing to participate in higher-priced meme coin investments, leading to more transactions and higher returns.
Neutral scenario: Assuming market growth slows, Solana's price stabilizes, and PumpFun's revenue maintains steady growth. We assume revenue growth of 0%, Solana price of $240, and a discount rate of 9%.
In a robust growth scenario, investors have a relatively neutral expectation for the future, with risks being moderate. At this time, although there are some participants, due to the stability of the market, the liquidity of funds and the participation of investors may be lower, potentially weakening the impact on transaction volume and revenue.
Pessimistic scenario: Assuming the market enters a downturn, Solana's price drops, and PumpFun's revenue declines. We assume revenue growth of -30%, Solana price of $130, and a discount rate of 4%.
In a market downturn or recession, investors may hold a more conservative attitude towards future returns, believing that future cash flow uncertainty is greater. When market participants decrease, the demand for meme coins may also plummet, potentially leading to negative revenue growth.
These three scenarios consider different market environments and external risks, helping us arrive at a more comprehensive valuation result.
Step 3: Calculate future cash flows
Based on different revenue growth rates under different scenarios, we calculate future revenues and discount them to the present.
Optimistic scenario (30% revenue growth, Solana price $350, discount rate 14%):
Neutral scenario: Solana price at $240, annual revenue growth at 0%, discount rate 9%
Pessimistic scenario: Solana price at $130, annual revenue growth at -20%, discount rate 4%
Now we have the discounted cash flows for the 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
Conclusion:
According to our cash flow discount analysis, the weighted valuation is $1.068 billion.
SecondLane listed 1% equity of Pump.fun at a price of $15 million, implying an overall valuation of Pump.fun at $1.5 billion. From our cash flow discount analysis, based on Pump.fun's current revenue level, market risk, and Solana's price fluctuations, its reasonable valuation range should be around $1 billion, and it may be even lower in a pessimistic scenario.
Therefore, the valuation of $1.5 billion is clearly too high and overly optimistic, especially considering the volatility of the crypto market and that Pump.fun's revenue growth does not exhibit sustainability. Under current conditions, the valuation given by SecondLane may carry a high risk, and if the market or revenue growth falls short of expectations, investors may face significant valuation adjustments.
