Written by: Alivs, Mars Finance
Pumpfun, a meme coin issuing platform based on the Solana chain, is rapidly shifting the balance of the cryptocurrency market at an astonishing speed. Since its launch in January 2024, it has quickly attracted investors' attention and users' enthusiasm with its unique joint curve pricing model and decentralized token issuance mechanism.
Pumpfun's total revenue has exceeded 1.52 million SOL, and in the past month, Pumpfun accounted for 70% of the meme coin issuance on the Solana chain. Pumpfun has surpassed most DeFi projects to become the fastest-growing platform in crypto history.
However, just when everything seemed to be going smoothly, Pumpfun's recent selling behavior sparked deep reflection in the market—behind the continuous selling of Solana, is there a deeper strategic layout? And what does SecondLane's move to list 1% of Pumpfun's equity at a valuation of $1.5 billion mean?
These questions may foreshadow a significant turning point for Pumpfun. In this article, we will uncover the hidden secrets behind Pumpfun through data and analysis, and explore whether its current valuation is reasonable.
The rise and current situation of Pumpfun
According to the latest data, Pumpfun's total income has exceeded 1.52 million SOL, with cumulative income exceeding $262 million. The platform has issued a total of 4.02 million tokens, of which Pumpfun accounted for as much as 70% of the meme coin 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 just 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 like Curve (CRV) and Sushi took 350 days and 546 days, respectively.
Team background
Pumpfun's success cannot be separated from the youth and innovative ability of its founding team. The Pumpfun team initially did not focus on issuing meme coins but tried various directions, initially working on the NFT market. However, after several attempts, they gradually shifted towards the meme coin market and quickly achieved success.
The Pumpfun team comes from Europe, and the founding members are generally quite young, with the CTO's education level even being only high school. However, this has not hindered their outstanding performance in the technical field. They have stood out in the Web3 space with their keen product intuition and innovative thinking, ultimately creating a successful project like Pumpfun.
As many entrepreneurs say, the road to success is not crowded because most people can't stick with it. The success of the Pumpfun team stems from their ability to transform ideas into action and continually solve difficulties in practice. It is this persistent determination and technological innovation that has made Pumpfun a dark horse in the crypto field today.
Investor background
Pumpfun has not only gained market recognition through its strong team capabilities but has also received support from well-known investors. Qiao Wang, co-founder of Alliance and a prominent investor in the crypto industry.
Alliance currently mainly invests in ultra-early projects valued at several million dollars, and Qiao Wang has also achieved at least a 1000x return in this round of investment in Pumpfun.
Qiao Wang mentioned that when they initially invested in Pumpfun, the team had not yet clearly focused on the direction of meme coins. They had tried several different directions and even once 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, although it has no circulating tokens, has accumulated stable income over the years). It was precisely because he saw that Pumpfun’s team had 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 track.
Qiao Wang emphasized that for consumer projects like Pumpfun, the demand for funding is not high. Although Alliance only invested a few hundred thousand dollars, this amount is already sufficient for consumer projects. In fact, excessive funding may become a bottleneck hindering project development. Now, Pumpfun's valuation has reached 100 times the initial investment, proving its enormous market potential and investment value.
Pumpfun's selling behavior and changes in the Solana market
Since the price of Solana reached a new high on November 22, the inflow of funds into Solana has significantly slowed, a phenomenon that has been particularly evident in the past week, while the proportion of funds flowing into Ethereum has noticeably increased. According to artemis data, over 53% of the funds flowing into Ethereum in the past 7 days came from Solana. Is this market reaction related to Pumpfun's 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 earned approximately 1.52 million SOL in fee income. In the past week alone, they sold nearly 200,000 SOL, while their total sales amount to 1.137 million SOL ($206 million), with an average price of around $182.
However, as we have noticed, Pumpfun has been continuously selling Solana recently, and this behavior may be a significant signal of cash flow in the cryptocurrency market.
SOL/ETH continues to decline
Recently, Pumpfun launched a live streaming feature, combining token issuance with an innovative live streaming sales model, which has pushed Pumpfun's popularity to a historical high. On November 23, Pumpfun's daily revenue once reached $14.58 million, setting a historical record for the platform. Subsequently, the platform suspended live streaming activities, leading the market to speculate whether Pumpfun's selling behavior is related to its upcoming strategic adjustments or funding needs.
If the Pumpfun team is continuously selling Solana to obtain funding support, this may suggest that the platform is preparing for the next phase of expansion or adjustment. Although Pumpfun's live streaming has significantly increased the platform's income and visibility in the short term, continued selling behavior may also impact the Solana market.
Considering that Solana's price trend is closely related to Pumpfun's cash flow, this behavior may reflect Pumpfun's capital needs during its expansion process, while also suggesting that there may be certain expectations of changes in the market.
At the same time, SecondLane's move to offer Pumpfun equity has also attracted widespread attention in the market. SecondLane listed 1% of Pumpfun's equity at a valuation of $1.5 billion, which may reflect Pumpfun's future development direction. Does the team's selling behavior and the upcoming equity sale indicate that Pumpfun is about to face some important change or transformation? These questions deserve further exploration.
So, is the current valuation of Pumpfun's product reasonable? Let's calculate.
Discounted cash flow (DCF) analysis: PumpFun's current valuation
Using the discounted cash flow (DCF) method for PumpFun's valuation is a more traditional and in-depth assessment method. This method predicts the company's future free cash flows (FCF) and then discounts them to their current value to arrive at the project's intrinsic valuation.
In projects like PumpFun, we can view it as a platform protocol that generates future cash flows through transaction fees and token issuance income. Next, we will conduct the valuation analysis following these steps.
Step 1: Estimate future cash flows
PumpFun's main sources of income include:
Token issuance fee: a 1% transaction fee charged by the platform. This is the main source of income for PumpFun, as the platform charges the corresponding percentage fee whenever a user purchases tokens on the platform.
Listing fee: a 6 SOL listing fee charged by the platform for each token launch. 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 token issuance, advertising, or platform promotion, which may become additional sources of income in the future.
According to current data:
The 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 the valuation analysis of Pumpfun, we must consider the uniqueness of the cryptocurrency market. Unlike traditional financial markets, the cryptocurrency market experiences severe fluctuations in bull and bear cycles, and these cycles usually do not exceed four years. Therefore, in this discounted cash flow (DCF) analysis, we adopt a cash flow forecast cycle of four years. This assumption is based on the periodic fluctuations of the cryptocurrency market and the changes in market expectations for future returns, which will help more accurately assess Pumpfun's valuation under different market conditions.
Additionally, due to the significant volatility of the cryptocurrency market, factors such as income growth and Solana price fluctuations may affect PumpFun's future cash flows. Therefore, we set three different scenarios for analysis:
Optimistic scenario: Assuming the market continues to grow rapidly, Solana's price rises, and PumpFun can continue to attract a large number of users, with a high income growth rate. We assume that income growth is 30%, Solana's price is $350, and the discount rate is 14%.
The market is in a phase of rapid growth, investors have relatively optimistic expectations for the future, and the investment risk is low, which means that the present value of future cash flows is higher in this scenario. A higher price for Solana means an expansion of the market pool, and more investors are willing to participate in meme coin investments at higher price points, leading to more transactions and higher returns.
Neutral scenario: Assuming market growth slows, Solana's price stabilizes, and PumpFun's income maintains steady growth. We assume that income growth is 0%, Solana's price is $240, and the discount rate is 9%.
In a scenario of steady growth, investors have relatively neutral expectations for the future, and risks are moderate. At this time, although there are some participants, due to the stability of the market, the flow of funds and the participation of investors are relatively low, which may weaken the driving effect on transaction volume and income.
Pessimistic scenario: Assuming the market enters a downturn, Solana's price falls, and PumpFun's income declines. We assume that income growth is -30%, Solana's price is $130, and the discount rate is 4%.
In a market downturn or recession, investors may take a more conservative view of future returns, believing that the uncertainty of future cash flows is greater. When market participants decrease, the demand for meme coins may also sharply decline, 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 the revenue growth rates under different scenarios, we calculate future revenues and discount them to the present.
Optimistic scenario (income growth 30%, Solana price $350, discount rate 14%):
Neutral scenario: Solana price at $240, annual income growth at 0%, discount rate at 9%
Pessimistic scenario: Solana price at $130, annual income growth at -20%, discount rate at 4%
Now we have the discounted cash flows for the optimistic scenario, neutral scenario, and pessimistic scenario.
Weighted DCF = 1/3×high growth scenario DCF + 1/3×volatility growth scenario DCF + 1/3×recession scenario DCF = $1.068 billion
Conclusion:
According to our discounted cash flow analysis, the weighted valuation is $1.068 billion.
SecondLane listed 1% of Pump.fun's equity at a price of $15 million, implying an overall valuation of Pump.fun at $1.5 billion. Based on our discounted cash flow analysis, considering Pump.fun's current income level, market risks, 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, a valuation of $1.5 billion is clearly too high and overly optimistic, especially considering the volatility of the cryptocurrency market and the non-sustainability of Pump.fun's income growth. In the current situation, the valuation given by SecondLane may carry a high risk, and if market or income growth falls short of expectations in the future, investors may face significant valuation adjustments.
