Author:ML
Compiled by: TechFlow
Executive Summary
Based on a 4-week rolling average, Banana Gun (BG) has an annualized revenue of approximately $52 million, of which approximately $21 million belongs to token holders (annual yield of 17%)
Despite significant growth momentum and structural tailwinds, $BANANA trades at a price-to-sales (P/S) ratio of only 4x, a conservative valuation
Fully diluted valuation issues are not serious: $BANANA is unlikely to see a supply shock in the foreseeable future due to team and financial allocations
The potential for vertical integration presents a huge opportunity, with the potential to triple annual revenue and earnings
The upcoming new products will further strengthen BG's competitive advantage and enable it to occupy a more advantageous position in the market competition
Although there are market, competition and regulatory risks, these are being effectively managed
Front-end Wars
Source: Flashbots
In the past 7 days, front-end trading platforms on Ethereum generated about $36 billion in trading volume (annualized to $185 billion). Among them, long-tail assets (i.e. non-ETH/BTC or anchored assets) accounted for 69% of the trading volume share (about $24.5 billion). The top front-end platforms in terms of trading volume include some familiar names: Uniswap (despite the front-end fees), Cowswap, and 1inch. However, BG also generated about $129 million in trading volume, accounting for about 5% of the long-tail asset trading volume.
I recently read an article written by Mason discussing the privatization of order flow and how the proliferation of altcoins has fueled the growth of TG bots. As this asset class continues to expand, traders have become more sophisticated, looking for ways to increase trading speed and circumvent MEV. Users of these bots are generally less price-sensitive and value speed and convenience of transactions more. Despite the high fees of 0.5% to 1% charged on transactions, we have observed a significant increase in the use of TG bots.
Source: whale_hunter
Analyzing the market dynamics of TG Robot, we found that 98% of the trading volume is concentrated on Ethereum and Solana. In the past 7 days, Trojan leads in trading volume ($325 million), mainly due to its dominance in Solana, while BG and Maestro have trading volumes of $167 million and $142 million, respectively.
Although BG's launch on SOL is similar to Trojan, I think Trojan's advantage mainly comes from a more effective referral program (tiered reward system) and airdrop activities. BG has taken root in the Ethereum ecosystem and formed its own community, which is closely related to its origin. It is worth noting that Maestro, which once dominated on Ethereum, is gradually losing market share, partly due to the existence of $BANANA tokens and the high success rate of BG's sniping operations (more on this later).
There are four important conclusions here:
The growing importance of building relationships with end users;
As users mature, improving transaction speed and execution efficiency becomes a trend;
Using TG bots for altcoin trading has become the norm;
Users of TG Bots are typically driven by incentives (such as token holder status, referral programs, rebates, and airdrops, etc.).
BG's profit model and user acquisition strategy
BG earns revenue by charging a 0.5% fee on manual buy/limit orders (Ethereum only) and a 1% fee on sniping or trading on all other supported chains. Based on a 4-week average, BG earns approximately $993,000 per week ($52 million annualized). 40% of this revenue is distributed to token holders, excluding the treasury, CEX balance, and half of the team tokens. Of the 3.4 million tokens in circulation, only 2.9 million are eligible to share in the revenue, which is an annual yield of approximately 17% at the time of writing.
To increase user loyalty, the team has designed a rebate program that rewards users with $BANANA for trading on the bot. Actual $BANANA rebates are calculated based on the USD value of fees paid and a discretionary multiplier. The program is partially supported by financial buybacks, reducing reliance on token issuance.
A Deeper Understanding of $BANANA’s Token Economics
The team holds 10% of the token supply, the first batch will be unlocked on September 14, 2025, and the remaining batch will be unlocked on September 14, 2031. Both batches of tokens will be unlocked linearly over a period of 3 years from the unlock date. The team is willing to accept such a long unlocking schedule because half of their tokens are eligible to participate in revenue distribution - this is a fair arrangement for them who need an incentive mechanism. This shows the team's high confidence because they can only get benefits when BG is profitable, so there is no need to profit by selling tokens.
Conclusion: The team’s incentives are aligned with the interests of token holders.
It should be noted that the original Treasury held 60% of the token supply (lockup transactions are available at this link), but after burning about 15% of the supply, this was revised to 45% in the document. According to the original plan, 250,000 tokens were unlocked each month for two years. Although the Treasury was scheduled to unlock 3.25 million tokens by October 2024, as of now, only 2 million net tokens have been extracted from the unlocking contract.
It is clear that given BG's huge revenue, continuing to drive product adoption does not need to rely on the release of tokens.
Viewpoint
There is huge revenue potential hidden in BG’s order flow.
Source: whale_hunter
As mentioned before, BG benefits from the growing preference for private execution and fast listing. According to Felipe’s research, BG wins about 88% of the rush orders, which makes it a natural monopoly in this market segment. This is partly due to the “high bribe culture” for the release of highly anticipated projects (see the query above).
Source: Arkham (Banana gun major trading counterparties ranked by capital outflow)
From BG's archives in Arkham, we can see that users paid nearly $100 million in priority fees (bribes) for grabbing orders, most of which went to titan. This is a bit strange because titan is a relatively new player (joined in April 2023) in the construction field and does not have a track record like the existing beaverbuild.
A deeper analysis revealed that despite Titan building only half as many blocks as BeaverBuild, it generated more profit than BeaverBuild. This suggests that BG may have some kind of “exclusive order flow arrangement” with Titan, which is not necessarily a bad thing.
Source: libMEV (data since merger)
The point is…what if BG kept the order flow to themselves? If they chose to become a block builder, BG’s annual revenue could easily triple overnight (assuming $ETH is $2.6K).
Imagine a world where $BANANA holders can earn an annualized yield of ~51% from revenue from front-end and blockchain construction.
We may not experience a supply shock
We are all too familiar with team strategies around major unlock events and oversupply. In the case of $BANANA, the locked supply will not hit the market until September 2025 (when treasury and team allocations will begin to release linearly).
I have good reason to believe that financial and team selling pressure will be minimal for the following reasons:
BG is very profitable and they can significantly increase their income if they decide to become a block builder
Strong revenues allow them to support growth and operations without selling unlocked treasury tokens
Underutilized treasury tokens further support this view
The culture and beliefs of the BG community are based on the vision of BG becoming a self-sufficient cash cow (e.g. long-term team lock-up period, team revenue sharing)
The team understands that selling a large amount of unlocked tokens would weaken the community's culture and belief in the long-term vision, which would seriously affect continued growth and adoption. I would not be surprised if the team chooses to re-lock their team and treasury tokens when they unlock next year.
If this happens, I expect the re-locked team tokens to be included in the revenue sharing pool (it is their right after all).
Strong narrative and fundamentals
Source: Brent
BG is a unique platform with both short-term positive factors and strong fundamentals. Recently, there has been a lot of discussion about whether funds will include Meme coins in their core portfolios. Here are my thoughts:
If the fund decides to invest in Meme coins, they will most likely choose blue chip coins due to size and liquidity constraints.
While they are unlikely to use tools like BG, this is positive for the Meme Coin market as a whole (driving prices and sentiment up)
This will lead to an increase in micro and small market cap Meme coins, thereby increasing user activity on tools like BG to seize these opportunities
If a fund is reluctant to invest in Memecoin directly but still wants to get involved in the space, it makes sense to buy projects like $BANANA as an alternative to Memecoin. This is similar to the "selling shovels during the gold rush" strategy and is suitable for funds that focus on theory and fundamentals.
Regarding fundamentals, $BANANA attracts investors who prefer high-quality assets at reasonable valuations. By smoothing the data using a 4-week rolling average, BG's annualized revenue (earnings) reaches $52 million ($21 million), and its price-to-sales ratio and price-to-earnings ratio are 4x and 8x, respectively. This is lower than the average of similar projects (decentralized exchanges are the closest category).
Their annualized revenue and earnings show ~4.5% weekly growth in year-to-date data. Interestingly, the P/S and P/E ratios have declined since January 2024 from 12.5x and 26.5x, respectively. This multiple compression is partially due to weakening growth prospects for ETH and SOL, but I believe $BANANA will regain a higher valuation because:
Investors will focus on large applications that can "master the entire technology stack" (such as Aave, Uniswap, Ethena, etc.)
There are some upcoming growth catalysts (discussed in the next section) that the market has not yet priced in for potential upside to revenue and earnings
New growth drivers
There are several exciting catalysts, including:
Webapp (expected to be launched in Q3 2024): A browser trading terminal optimized for professional users, providing an on-chain trading experience similar to centralized exchanges
White label product: BG will integrate with dextools (and possibly other platforms) to increase order flow (more frontends means better distribution)
Others: App stores (such as moonshot), more blockchain support, increased use cases for Banana points, etc.
I believe the future of TG trading robots is cross-platform, and having a sophisticated webapp with a good user experience will lower the barrier for users to adopt these tools. In addition, white label products will become an effective way to obtain more order flow, which may convert users into loyal users of the BG platform.
These initiatives provide strong differentiation in a relatively homogenous market, and I believe BG is on the right path to continue growing market share.
risk
On-chain activity is decreasing on the ETH and EVM chains
Since the beginning of 2024, the activity on the SOL chain has surpassed that of ETH. As this trend is likely to continue in the future, this is not good for BG. Although BG has already gained some influence on SOL, it still faces fierce competition from competitors such as photon, bonkbot, and trojan. However, I believe that the upcoming webapp and app store will be unique and can effectively reduce risks.
Competition from incumbents in the high-end market
While projects like Uniswap Labs focus on growing volume in the high-end market (i.e. intent-driven execution of large orders), we cannot ignore the competitive threat that could arise if BG grows too fast. However, given that micro-asset volume accounts for a small portion of overall on-chain volume, the probability of this happening should be low.
Meme coins may lose market popularity
Source: DefiSquared
Every bull cycle has its themes, and we have seen speculative rises and falls in subcategories such as DeFi, L1, NFT, etc. So far, the hot spot of this cycle is Meme coins, which has brought great benefits to BG. But nothing is eternal - if the market finds a new speculative hot spot, Meme coins may lose their appeal. However, I don't think this will happen in the short term.
Regulatory Risk: Potential Enforcement Actions by the SEC
Since 2023, the SEC has filed lawsuits against more than 40 crypto companies, alleging securities violations. However, the SEC usually targets platforms and exchanges that have large token trading volumes and have securities characteristics, such as Crypto.com, Robinhood, Consensys, Uniswap, Kraken, and Binance. Although this risk cannot be ignored, given the relatively small scale of BG's operations, the probability of this risk occurring is low.
Simple valuation analysis
I will describe my bear, base, and bull scenarios based on the following assumptions:
Bearish: New competitors from high-end market incumbents (such as Uniswap) enter, ETH on-chain activity decreases, and Trojans continue to dominate SOL market share, leading to a significant decline in growth.
Baseline: Growth is slightly lower than 4.5% YTD, maintaining current market share on ETH and SOL, with no shitcoin boom on supported chains (excluding ETH/SOL).
Bull run: BG becomes a block builder, growth plans pay off, BG becomes the market leader on all chains, and some shitcoin craze appears on supported chains (excluding ETH/SOL).
Note: To avoid being too speculative, I have not considered the expansion of the price-to-sales multiple.
in conclusion
Banana Gun ($BANANA) presents an attractive opportunity in the growing trading bot market. BG demonstrates growth potential at a reasonable price with its advantages in terms of private order flow, trading speed, solid fundamentals, no oversupply, and attractive valuation. In addition, BG has a number of upcoming catalysts that will make it stand out in the trading bot space. While there are regulatory and competitive risks, these risks are manageable and effectively mitigated at BG's current scale. Despite market challenges, BG's innovative strategy and strong fundamentals show the potential to outperform for the foreseeable future.
Disclaimer: The information in this research report is provided for informational purposes only and should not be considered financial advice. The author may hold or trade assets discussed in this article and may benefit from price appreciation. This report does not guarantee its accuracy, completeness or timeliness, and investing involves risk, including possible loss of principal. Readers should independently verify all information before making any investment decisions. The author, publisher and related parties are not responsible for any losses, damages or expenses resulting from the use of this information. This report does not meet specific regulatory requirements, may contain third-party information of unknown reliability, and includes forward-looking statements based on assumptions that may not be realized, and does not constitute an offer to buy or sell securities. By accessing this report, you agree to these terms.
