Original author: Alex Xu, Research Partner at Mint Ventures
1. Introduction
If one were to say which L1 has developed the best business during this bull market cycle, most people's answer would be: Solana.
Both in terms of active address counts and fee revenue, Solana's market share in L1 has rapidly expanded:
Active address count: The share of active addresses on Solana grew from 3.48% to 56.83%, a year-on-year increase of 1533%;
L1 monthly active address market share, data source: tokenterminal.
Costs: The share of Solana's fee revenue grew from 0.62% to 28.92%, a year-on-year increase of 4564%.
L1 monthly fee revenue market share, data source: tokenterminal.
The Meme wave is the core driving force behind the rapid growth of various core indicators in Solana during this cycle. In addition to Solana, other projects such as Raydium have also benefited from the Meme wave, as the vibrant meme trading contributed significantly to their trading and protocol revenue, with their prices also recently reaching new highs.
The author will focus on another project benefiting from the massive asset issuance on Solana: 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 the business developing?
How to evaluate the team background and funding situation of Metaplex?
What is Metaplex's current valuation level, and is there a safety margin?
This article reflects the author's phase of thinking as of publication time, and future changes may occur. The viewpoints are highly subjective and may contain errors in facts, data, or logical reasoning. 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, sales, and management system built on Solana and supporting SVM (Solana Virtual Machine) blockchains. It provides developers, creators, and businesses with tools and standards for building 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 horizontally expanded its business into other foundational service areas within the Solana ecosystem, such as data indexing (Index) and data availability (DA) services.
In the long term, 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 serves both NFTs and fungible tokens, and the products listed below constitute a comprehensive matrix serving Solana ecosystem assets.
Core
Core is a new generation NFT standard on the Solana blockchain, adopting a 'single account design' that greatly reduces minting costs and computational power while supporting advanced plugins and mandatory royalty payments.
Background knowledge: The account model of Solana.
To understand the advantages of the 'single account design,' it is necessary to first understand the account model of the Solana blockchain and the traditional NFT storage methods.
On the Solana blockchain, all state storage (e.g., token balances, NFT metadata, etc.) is associated with specific accounts. Each account can store a certain amount of data, and the size of accounts is limited, requiring rent to maintain this data. Therefore, efficiently managing on-chain accounts and stored data is a key issue that 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 (e.g., who the current holder is).
Metadata account: stores NFT metadata (e.g., 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 data queries and updates are needed.
Costs: Each account needs to pay rent to maintain its storage state, and more accounts mean higher costs.
Performance: Operations involving multiple accounts may require more blockchain resources, affecting performance and transaction speed.
Advantages of the 'single account design'
To address the issues mentioned above, Metaplex Core proposed the standard of 'single account design.' This design consolidates all information related to NFTs (such as ownership, metadata, royalties, etc.) into one account, simplifying the account structure, reducing account costs, improving interaction efficiency, and enhancing NFT scalability. This design is particularly suitable for implementing large-scale NFT projects (such as games, DePIN, etc.) on a high-performance, low-cost blockchain like Solana.
Bubblegum
Bubblegum is Metaplex's program for creating and managing compressed NFTs (cNFTs). By using compression technology, creators can mint a large number of NFTs at an extremely low cost; the cost to mint 100 million NFTs is only 500 SOL (achieving over a 99% cost reduction compared to traditional minting methods), providing unprecedented scalability and flexibility. It is precisely because of the introduction of Bubblegum technology that large-scale, low-cost NFT minting has become possible, prompting DePIN projects like Render and Helium to migrate 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 attached to fungible and non-fungible assets on Solana. Token Metadata is naturally important for information-rich NFTs, but in reality, most fungible token projects on Solana also need to use Token Metadata.
What many people do not know is that the largest Meme issuance platform on Solana currently relies on Metaplex's metadata services for all tokens created on Pump.fun. The biggest demand for Token Metadata is no longer from NFTs but from the massive issuance of Meme projects.
For Meme projects, using the Token Metadata program when issuing tokens has very obvious benefits:
First, ensure the standardization and compatibility of the issued tokens. By using Metaplex's Metadata service, these tokens will be more easily recognized by mainstream wallets (such as Phantom and Solflare), more easily displayed correctly on trading platforms along with their names, icons, and additional information, and seamlessly integrated into other Solana applications.
Secondly, provide on-chain storage and transparency. The Metaplex Metadata service stores the token's metadata on-chain, making the information and data about the tokens easier to verify and preventing tampering.
These additional pieces of information provide multi-dimensional material for the speculation of Memes, transforming memes from just a name and a string of contracts into material for the spread, remixing, and narrative of Memes.
New Meme tokens continuously refreshed on pump.fun, source: pump.fun
With the continued 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' and highlights a significant cognitive gap.
Candy Machine
Metaplex's Candy Machine is the most commonly used NFT minting and issuance program on Solana, enabling efficient, fair, and transparent launches of NFT collections.
Other product arrays
Metaplex's other services also include:
MPL-Hybrid: A hybrid NFT storage and management solution aimed at combining the advantages of on-chain and off-chain storage to provide an efficient and cost-effective storage method for NFTs, especially suitable for storing large files (such as high resolution) or NFTs requiring 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 designed specifically for projects that need to mint a large number of NFTs (such as games, social platforms, or loyalty programs).
……
The list of existing Metaplex products (asset service category) 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 (testing phase). The indexing and data availability services provided by Aura allow Solana and other blockchain projects adopting the SVM standard to read asset data more efficiently, supporting batch operations at a much lower cost, reducing operating costs by over 99%, as shown in the image below:
Cost comparison before and after using Aura for large-scale asset operations, source: Metaplex official Twitter.
When the product preview was released, Metaplex also listed the cooperative agreements supporting the product, many of which are well-known projects in the Solana ecosystem and will be potential users of Aura in the future.
Source: Metaplex official Twitter.
From an asset service system to data indexing and data availability service protocols, with horizontal expansion of services, Metaplex is evolving into 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 fees for providing on-chain asset-related services. Some of the services in the product array mentioned above are free, while others are chargeable.
Although Metaplex's direct partners are other projects on Solana, resembling a TOB (business-to-business) expanded business, most of its revenue comes from small projects or retail users utilizing large B-end projects, including project parties creating various fungible token projects and individual users minting NFTs.
In the author's view, charging dispersed users is a better business model compared to charging large cooperative projects on the B-end (such as Pump.fun) because:
Decision-making for small project users or retail users tends to be more emotional, and their sensitivity to price is not as high as that of B-end users. This is because the service price of Metaplex is very low in their total expenditure. While the absolute fees paid by each small user are not high, the total fees can be quite substantial when the number is large enough.
B-end projects can serve as distribution channels for its services, helping Metaplex's offerings reach more dispersed users, allowing Metaplex itself to avoid spending extra effort and costs on marketing and distribution.
The user base is more dispersed and less concentrated, making it difficult for foundational service providers like Metaplex to negotiate prices. Metaplex has the capacity to maintain product profit margins and even consider price increases at appropriate times.
Specifically, the charging standards for Metaplex products on Solana are as follows:
Image source: Metaplex developer documentation
It can be seen that, in fact, the absolute fee for users calling Metaplex's product services once is not expensive. For example, the fee for a user to mint an NFT is only 0.0015 SOL; for a Meme issuer to issue a project and use Token Metadata to add text and image descriptions to their Meme project, it only costs 0.01 SOL. Such costs are negligible compared to users' expected benefits.
Of course, it should be noted that the large-scale issuance of fungible tokens represented by Memes has, on the one hand, brought revenue to Metaplex. On the other hand, the sustainability of the Meme craze is questionable, which will also affect the sustainability of Metaplex's revenue. Even for a strong entity like Solana, the fluctuations in Meme popularity are quite significant. For instance, during the coldest week in September, the number of newly launched tokens on Dex was only about 1/3 of that during the peak in May, while this number surged tenfold again in mid-November.
The number of newly added token varieties on Solana Dex weekly, source: Dune.
2.3 Metaplex's moat
In the business world, a company's/project's moat may arise from various advantages, such as cost advantages from scale and geographical location, value accumulation from network effects, high user stickiness and premium capabilities from brand effects, competition barriers from administrative licenses and patents, etc.
Projects with strong moats manifest in the competitive landscape when later competitors find it difficult to catch up upon entering the same track, or face high comprehensive costs that far exceed their expected returns, leading to relatively few competitors in that track. Financially, this is reflected in the project's ability to maintain steady and gradual profitability, with marketing and development costs being relatively low compared to income.
In the Web3 field, there are not many projects with strong moats, such as Tether in the stablecoin space and Aave in the centralized lending space.
In the author's view, Metaplex is also a project with a moat, derived from 'high switching costs' and 'standard-setting.'
Firstly, when developers and users deeply rely on Metaplex's tools and protocols for asset issuance and management, any subsequent attempt to switch their project's assets to another protocol will inevitably face high time, technical, and economic costs.
Secondly, when Metaplex's asset formats (including NFTs and FTs) become a common standard within the Solana ecosystem and become a consensus for compatibility design with various infrastructures and applications in the ecosystem, this will also become a primary consideration for new developers and projects when choosing an asset service platform, preferring the more ecosystem-compatible Metaplex asset format.
Thanks to Metaplex's moat, there are currently few projects within 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, the data indexing and data availability services currently being tested by Metaplex are also expected to create a second business growth curve for Metaplex in the future. Considering that the target audience for these services overlaps significantly with Metaplex's existing customer base, the new business expansion may be more easily accepted and experienced by already cooperating clients.
3. Metaplex business data: PMF has been fully verified, and core data shows strong growth.
Metaplex's core business currently revolves around providing asset-related services. We can observe its active user count, the number of asset minting projects, and protocol revenue as key indicators.
3.1 Metaplex Monthly Active Users
Metaplex monthly active users refer to the independent addresses that have executed transactions with the Metaplex protocol each month.
Metaplex monthly active addresses, data source: Metaplex Public Dashboard, same below.
As of the date of writing (November 30, 2024), the latest monthly active user count for Metaplex is 844,966, setting a new monthly historical high, with a year-on-year growth of 253%.
3.2 Number of Assets Minted Through the Protocol
The number of assets minted through the protocol refers to the types of assets minted through the Metaplex protocol.
The number of monthly asset minting types by Metaplex
As of the date of writing (November 30, 2024), this data from Metaplex also set a historical high, with over 1.44 million different types of assets minted in November.
Notably, 94% of the assets are fungible tokens, with only 6% being NFTs. This data was 18.6% for NFTs and 81.4% for fungible tokens in January of this year. This indicates that in terms of business volume, Metaplex's main business is now fungible token asset services rather than NFT services. Most of the issuance of fungible assets comes from the Meme craze.
Proportion of monthly asset minting types for Metaplex
3.3 Protocol Revenue
Protocol revenue refers to the payments received by Metaplex for providing services.
Metaplex monthly protocol revenue
As of the date of writing (November 30, 2024), Metaplex's monthly protocol revenue has reached $3.3 million, also 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 use project tokens to exchange for protocol revenue, Metaplex's business income is quite organic and does not involve direct token subsidies, representing a typical project that has realized PMF (Product-Market Fit).
From the data in this section, we can see:
As a foundational asset protocol, Metaplex directly benefits from the development of the Solana ecosystem, with its core metrics rising alongside Solana's core metrics, especially protocol revenue.
Metaplex benefits from the activity of both NFTs and FTs, not merely being an 'NFT asset service protocol.' After the Meme wave, if more active tracks emerge in Solana, such as DePIN, games, and RWAs, the demand space for Metaplex will be further expanded.
Metaplex's business demand is organic, and it can generate income 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: Ecosystem OGs Close to Solana's Core Circle
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 Symbol Systems program (which focuses on the design of human-computer interaction systems), Stephen Hess is also one of the earliest employees of Solana (he joined just a year after Solana's launch). 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 team member of the first version of the Solana NFT standard, which eventually evolved into Metaplex.
In January 2022, shortly after Metaplex was founded, it secured $46 million in strategic investment from institutions such as Multicoin, Jump, and Alameda. Based on the 10.2% share corresponding to the strategic round financing in the token distribution table, it can be estimated that this round of $46 million financing valued Metaplex at about $450 million at that time, which is still a relatively high initial valuation even during a bull market.
Just as Metaplex was about to celebrate its one-year anniversary, in November 2022, FTX collapsed due to massive financial write-offs. Although Metaplex's financial situation was not directly affected by the FTX crash, Stephen Hess quickly announced layoffs on Twitter, preparing for the impending recession in the Solana ecosystem. In hindsight, his actions were very correct, demonstrating a clear understanding of the future and a disciplined approach to cost control, unlike many Web3 teams that spend extravagantly.
According to Metaplex's current LinkedIn information, the team size is over ten people, still quite lean. However, from the monthly project work reports released, this lean team shows strong delivery capabilities and ambition in product development and iteration, achieving high efficiency.
Metaplex's monthly work report, source: official blog.
Looking back at the work history of Metaplex's founder and the project's development history, Metaplex basically meets the author's comprehensive concept of an excellent Web3 team.
Core members have educational, work skills, and experience backgrounds that match the entrepreneurial project, with no credit blemishes.
Close to the core circles of the public chain ecosystem, with smooth communication channels, and product concepts recognized by the public chain ecosystem community.
Good product intuition (minimal detours), diligent work, and good delivery of results.
Have cost control awareness and do not spend money recklessly.
Secured top-tier VC investments and has excellent comprehensive business resources.
Additionally, on September 9, 2024, The Block revealed that renowned institutions such as Pantera Capital and ParaFi Capital purchased a large number of Metaplex (MPLX) tokens from Wave Digital Assets this year. These tokens were initially held by FTX, with a comprehensive purchase cost of approximately $0.20-$0.25 (with certain lock-up conditions).
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 white paper.
The specific token distribution is as follows:
Creators and early supporters: 21.9%, of which 50% will be distributed in the form of airdrops within a year (the first airdrop starts 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%, with 50% released one year after the first airdrop (September 2022) and the remaining 50% released monthly in the following year;
Partner Everstake: 10%, locked for two years (lock-up until September 2024), with linear release over one year, currently unlocking;
Metaplex Studios: 9.75%, locked for one year (lock-up until September 2023), releasing linearly over two years, currently unlocking;
Community airdrop: 5.4%, released immediately;
Founding advisors: 3.34%, locked for one year, linear release over one year, fully unlocked;
Founding partners: 3.1%, locked for one year, linear release over one year, fully unlocked.
According to the currently provided circulation data, the circulation rate of MPLX is 75.6%, with most already in circulation, especially the investors' shares, which have basically achieved circulation with little unlock pressure.
Among the total supply, the portion labeled 'unreleased' mainly comes from shares controlled by Metaplex DAO and the Metaplex Foundation, tokens held by the treasury, and the unreleased portions of Everstake and Metaplex Studios.
5.2 Token Utility
Currently, the main utility of MPLX is governance voting. Additionally, starting in March 2024, Metaplex announced that it would use 50% of protocol revenue for token buybacks (including accumulated historical protocol revenue), with the repurchased tokens entering the treasury for ecological development of the protocol.
The protocol officially began to buy back tokens starting in June 2024, and has since used 10,000 SOL per month to buy back the MPLX token, continuing for five months now.
Due to the rapid increase in protocol revenue, next month Metaplex will raise 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 aforementioned Aura function. After the official launch of the Aura function, MPLX is expected to become the staking asset for Aura nodes, capturing the revenue generated by Aura.
5.3 Protocol Valuation
In measuring Metaplex's valuation, we still use comparative valuation methods. However, considering that there are no competing projects in the same track as Metaplex in Solana, I ultimately chose Raydium, which also belongs to the Solana ecosystem and has similarly benefited from the Meme craze this year with a significant increase in protocol revenue, as a reference for comparative valuation.
In terms of protocol revenue and market capitalization comparison, Metaplex's valuation is slightly higher.
However, it should be emphasized that although the two projects have some commonalities, they are still two tracks within the same ecosystem, with significant differences in business positioning. The above valuation comparisons only have certain reference value.
5.4 Potential Driving Factors and Risks
Overall, Metaplex's advantages are quite apparent:
Positioned upstream in the asset service track, mastering asset standard-setting authority and directly benefiting from the prosperity of the Solana ecosystem.
Product PMF has been fully validated, achieving positive cash flow without reliance on token subsidies, and has a relatively clear business moat.
On the basis of existing business, actively expand a second growth curve.
The team's overall quality is good, close to the core circles of the ecosystem, diligent and progressive, with cost control awareness.
The token has a buyback mechanism, and the project's absolute market capitalization is relatively low (circulating market cap of 260 million+, FDV of 350 million+), making it relatively light.
Potential upward drivers for Metaplex's market capitalization in the future include:
In addition to Memes, other active tracks have emerged within the Solana ecosystem, further expanding the asset issuance market, whether it be DePIN, games, RWAs, or NFTs, which have already cooled for a long time.
Metaplex can launch on larger trading platforms, such as Binance or Coinbase, to achieve better liquidity premiums (considering the quality of the project and its relatively low market cap, I think this is worth the listing team's consideration, 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 full capability to raise prices; even if raised by 100%, the asset creation fees paid to Metaplex still account for a very low percentage for users, making it negligible.
Of course, Metaplex also faces some potential risks and challenges, such as:
The decline of the Solana Meme craze has quickly reduced the number of assets minted and decreased 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 provide Metaplex with sustainable long-term income.
Summary
Contrary to the perception of most investors that 'Metaplex is an NFT asset protocol', in reality, Metaplex serves as a foundational protocol for all types of assets within the Solana ecosystem and has been a direct beneficiary of the Meme craze continuing from the beginning of the year until now.
If the Solana ecosystem continues to look promising in the future, then Metaplex, occupying the 'upstream ecological position' of 'asset issuance and management', is worth our long-term attention.
