Author: Alex Xu
1. Introduction
If one were to say which L1 has developed the best during this bull market cycle, most people's answer would be: Solana.
Whether in active address numbers or fee income, Solana's market share in L1 has rapidly expanded:
Number of active addresses: The share of active addresses in Solana increased from 3.48% to 56.83%, a year-on-year increase of 1533%;
Market share of L1 monthly active addresses, data source: tokenterminal
Fees: Solana's fee revenue share increased from 0.62% to 28.92%, a year-on-year increase of 4564%.
Market share of L1 monthly fee revenue, data source: tokenterminal
The Meme wave is the core driving force behind the rapid growth of various key indicators in this cycle for Solana. Besides Solana, Dex platforms like Raydium, which also benefited from the Meme wave, experienced a surge in transactions and protocol revenue, and their prices have recently reached new highs.
This author will focus on another project that benefits from the massive asset issuance in 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 its business development?
What is Metaplex's team background and funding situation, and how to evaluate the project team?
What is the current valuation level of Metaplex, and is there any margin of safety?
This article represents the author's phase of thinking as of the publication date, which may change in the future, and the views are highly subjective and may contain errors in facts, data, and reasoning logic. Critiques and further discussions 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 blockchains that utilize SVM (Solana Virtual Machine). It provides developers, creators, and businesses with the tools and standards to build decentralized applications. The types of crypto assets supported by Metaplex include NFTs, FTs (homogeneous tokens), real-world assets (RWA), game assets, DePIN assets, and more.
Metaplex is also expanding horizontally into other basic service areas within 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-domain basic service projects within the Solana ecosystem.
2.1 Metaplex's Product Matrix
As an asset issuance, management, and standard system, Metaplex serves various assets, including NFTs and homogeneous tokens. The products listed below form a comprehensive matrix serving the Solana ecosystem's assets.
Core
Core is a new generation NFT standard on the Solana blockchain, adopting a '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 an account is limited, requiring rent to maintain this data storage. Therefore, efficient management of 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 may involve the following accounts:
Main Account: Stores NFT ownership information (for example, who the current holder is).
Metadata Account: Stores the metadata of NFTs (such as name, description, image link, etc.).
Royalty Account: Stores information related to creator royalties.
Although this multi-account design is flexible, it can bring some issues in practical operations:
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; more accounts mean higher fees.
Performance: Involving multiple accounts may require more blockchain resources during operations, affecting performance and transaction speed.
Advantages of 'Single Account Design'
Metaplex Core proposes a 'single account design' standard to address the above issues. The single account design centralizes all NFT-related information (such as ownership, metadata, royalties, etc.) in one account, simplifying account structure, reducing account costs, improving interaction efficiency, and enhancing the scalability of NFTs. This design is particularly suitable for implementing large-scale NFT projects (such as 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 large quantities of NFTs at an extremely low cost, with the minting cost for 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 introduction of Bubblegum technology that large-scale low-cost NFT minting has become possible, leading DePIN projects, including Render and Helium, to migrate to Solana, and giving birth to innovative NFT platforms like DRiP. The following table lists examples of these three representatives applying Bubblegum.
Token Metadata
The Token Metadata program allows for the addition of extra data to homogeneous and non-homogeneous assets on Solana. Token Metadata is naturally important for information-rich NFTs, but in reality, most homogeneous token projects on Solana also need to use Token Metadata.
What many people do not know is that currently, the largest Meme issuance platform on Solana, where all tokens created on pump.fun depend 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 Token Metadata programs when issuing tokens has very clear benefits:
First, it ensures the standardization and compatibility of its issued tokens. By using Metaplex's Metadata service, these tokens will be easily recognized by mainstream wallets (such as Phantom, Solflare), displayed correctly on trading platforms, and seamlessly integrated into other Solana applications.
Secondly, it provides on-chain storage and transparency. Metaplex Metadata service stores the metadata of tokens on-chain, making it easier to verify the information and data of tokens and preventing tampering.
The additional information attached to image text provides multidimensional material for the speculation of Memes, making memes no longer just a name and a string of contracts, but providing material for the dissemination, re-creation, and narrative of Memes.
New Meme tokens continuously appearing on pump.fun, source: pump.fun
As the Meme craze on Solana continues to heat up, over 90% of Metaplex's protocol revenue has already been contributed by homogeneous tokens (Meme). This reality contrasts sharply with the public perception of 'Metaplex as an NFT foundational protocol' and indicates a serious cognitive gap.
Candy Machine
Metaplex's Candy Machine is the most widely 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 efficient and economical storage methods for NFTs, particularly suitable for storing large files (such as high resolution) or NFTs that need dynamic updates.
Fusion: NFT merging function, allowing users to merge 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).
……
Metaplex already has the following product list (asset service category):
Image source: Metaplex Developer Documentation
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). Through the indexing and data availability services provided by Aura, Solana and other blockchain projects adopting the SVM standard can read asset data more efficiently and support batch operations at a lower cost, reducing operational costs by over 99%, as shown in the following figure:
After adopting Aura, the cost comparison for large-scale asset operations, source: Metaplex official Twitter
When the product preview was released, Metaplex also listed the cooperative protocols supporting the product, many of which are well-known projects in the Solana ecosystem and could potentially be future users of Aura.
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 into a full-stack basic service platform for the Solana ecosystem.
2.2 Metaplex's Business Model
Metaplex's business model is straightforward: it charges for providing on-chain asset-related services. Some services in the product array mentioned above are free, while others are chargeable.
Although Metaplex's direct partners are other projects on Solana, akin to a B2B business model, most of its fees come from small projects or retail users that utilize large B-end projects, including project parties creating various homogeneous tokens and individual users minting NFTs.
In the author's view, charging decentralized users is a better business model compared to charging large B-end projects (such as Pump.fun) because:
Users of small projects or retail users tend to make more emotional decisions and are less sensitive to price; for them, the service price of Metaplex constitutes a very low proportion of their total expenditure. While the absolute fees paid by each small user are not high, they become quite substantial when the number is large enough.
B-end projects can become distribution channels for its services, helping Metaplex's services reach more decentralized users without needing to spend additional effort and costs on marketing and channels.
The user base is more dispersed, with a lower concentration, making it difficult for basic service providers like Metaplex to negotiate prices. Metaplex has the ability to maintain its product margins and even raise prices 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 the absolute charge for users to call Metaplex's product services once is not expensive. For example, the fee for a user to mint an NFT is only 0.0015 SOL; a Meme issuer issuing a project only needs 0.01 SOL to use Token Metadata to add information such as graphics and text introductions to their Meme project. Such costs are negligible relative to users' expected returns.
Of course, it should be noted that the large-scale issuance of homogenous tokens represented by Memes brings income to Metaplex on one hand, while the sustainability of the Meme craze is questionable, which may also affect the sustainability of Metaplex's income. Even strong as Solana, the fluctuations in Meme popularity are significant; for instance, during one week in September, the number of newly launched tokens on Dex was only about 1/3 of that in the hottest time in May, while this number multiplied tenfold in mid-November.
Number of new token varieties added weekly on 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 due to scale and geographical location, value accumulation from network effects, and high user stickiness and premium capability from brand effects, as well as competitive barriers from administrative permissions and patents.
Projects with strong moats manifest in competitive landscapes when latecomers find it hard to catch up or face high overall costs of catching up, which far exceed their expected returns, resulting in relatively fewer competitors in that sector. Financially, this is reflected in the project having stable and gradual profitability, with marketing and development costs being a low proportion of revenue.
In the Web3 space, there are not many projects with strong moats, such as Tether in the stablecoin field and Aave in the centralized lending field.
In the author's view, Metaplex is also a project with a moat, and its moat comes from 'high switching costs' and 'standard-setting.'
Firstly, when developers and users become deeply reliant on Metaplex's tools and protocols for asset issuance and management, switching their project's assets to other protocols will inevitably face high time, technical, and economic costs.
Secondly, when Metaplex’s asset formats (including NFTs and FTs) become the prevailing standard within the Solana ecosystem, serving as a consensus for compatibility design among various infrastructures and applications within the ecosystem, this will also lead new developers and projects to prioritize the selection of Metaplex’s asset format due to its stronger ecological compatibility.
Thanks to Metaplex's moat, there are currently few projects within the Solana ecosystem that can compete on the same stage, ensuring Metaplex's strong profitability, which will be analyzed in the next section.
In addition to asset services, Metaplex is also testing data indexing and data availability services, which are 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, the expansion of new business may be more easily accepted and experienced by existing cooperative clients.
3. Metaplex Business Data: PMF Fully Verified, Core Data Strong Growth
Currently, Metaplex's core business is providing asset-related services. We can observe its active user numbers, the number of asset minting projects, and protocol revenue as key indicators.
3.1 Metaplex Monthly Active Users
Metaplex monthly active users refer to independent addresses that have transacted with the Metaplex protocol each month.
Metaplex monthly active addresses, data source: Metaplex Public Dashboard, the same below
As of the date of writing (November 30, 2024), Metaplex's latest monthly active user count is 844,966, reaching a historical monthly record, a year-on-year increase 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 via the Metaplex protocol.
Metaplex monthly asset minting types
As of the date of writing (November 30, 2024), Metaplex's data also set a historical record, with the total minted asset types in November exceeding 1.44 million.
It is worth noting that 94% of the assets are homogeneous tokens, with only 6% being NFTs. This data was 18.6% for NFTs vs. 81.4% for homogeneous tokens in January of this year, indicating that in terms of business volume, Metaplex's main business has now shifted to homogeneous token asset services, rather than NFT services. The majority of the issuance of homogeneous assets has come from the Meme craze.
Proportion of monthly asset minting types in Metaplex
3.3 Protocol Revenue
Protocol revenue refers to the fees that Metaplex receives for providing services.
Metaplex Monthly Protocol Revenue
As of the date of writing (November 30, 2024), Metaplex's monthly protocol revenue reached 3.3 million US dollars, also setting a historical record.
It should be noted that, unlike many projects in the Web3 world that rely on token subsidies to drive product demand by spending project tokens in exchange for protocol revenue, Metaplex's business revenue is quite organic and does not involve direct token subsidies, making it a typical project that achieves PMF (Product-Market Fit).
From the data in this subsection, we can see:
As an underlying asset protocol, Metaplex directly benefits from the ecological development of Solana, with its core indicators rising in sync with Solana's core indicators, particularly protocol revenue.
Metaplex benefits from the active engagement of both NFTs and FTs, and is not merely an 'NFT asset service protocol.' After the Meme phase, if Solana can emerge with more active sectors, such as Depin, gaming, and RWA, the demand for Metaplex will further open up.
The business demand for Metaplex is organic, and 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 its tokens.
4. Metaplex Team: Close to the Core Circle of Solana Ecosystem OGs
Stephen Hess
The founder of Metaplex is Stephen Hess, who is also the chair 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 when Solana had just launched for a year). At that time, Solana co-founder Raj invited him to join Solana as head of the product department. During his tenure, he participated in the work related to Solana Stake Pools (Solana's staking system), the SPL governance system, and the development of Wormhole. He was also a team member of the first version of the Solana NFT standard, which eventually evolved into Metaplex.
In January 2022, not long after Metaplex's establishment, it secured a strategic investment of $46 million from institutions like Multicoin, Jump, and Alameda. Based on the 10.2% share corresponding to strategic round financing in the token allocation table, it can be estimated that the valuation of Metaplex at that time for this $46 million financing was around $450 million, which was quite high even during the bull market for a first-round valuation.
Just as Metaplex was about to celebrate its first anniversary, in November 2022, FTX collapsed due to huge financial liabilities. Although Metaplex's financial status was not directly affected by the FTX crash, Stephen Hess quickly announced a layoff decision on Twitter, preparing for the impending downturn in the Solana ecosystem. In hindsight, his actions at that time proved to be very correct, demonstrating a clear understanding of the future and avoiding the expenditure habits of many Web3 teams.
According to Metaplex's current LinkedIn information, the team size is over 10, still quite streamlined, but from its monthly project work reports, this streamlined team demonstrates strong delivery capabilities and ambition in product iteration and new product development.
Metaplex's monthly work report, source: official blog
Looking back at the work history of Metaplex's founders and the project's development history, Metaplex basically aligns with the author's comprehensive concept of an excellent Web3 team.
Core members possess educational, work skills, and experience backgrounds that match the entrepreneurial project, with no credit blemishes.
Close to the core circle of the public chain ecosystem, with smooth communication channels, product concepts recognized by the public chain ecosystem community.
Good product intuition (less detours), diligent work, and good delivery of results.
Has a cost control awareness and does not waste money.
Secured investment from top-tier VCs, possessing excellent comprehensive business resources.
Additionally, on September 9, 2024, The Block revealed that well-known institutions, including 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 $0.2-$0.25 (subject to certain lock-up terms).
5. MPLX: Token Utility and Valuation Level
5.1 Token Basic Information
The protocol token of Metaplex is MPLX, with a total supply of 1 billion.
Image source: Project Whitepaper
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 one year (the first airdrop started 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 initial airdrop (September 2022), and the remaining 50% unlocked monthly over the following year;
Partner Everstake 10%, locked for two years (lock-up until September 2024), released linearly over one year, currently unlocking;
Metaplex Studios 9.75%, locked for one year (lock-up until September 2023), released linearly 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, fully unlocked;
Founding Partner 3.1%, locked for one year, released linearly over one year, fully unlocked.
According to the currently provided liquidity data, MPLX's liquidity rate is 75.6%, with most of it already in circulation, especially for investor shares, which have basically achieved circulation, resulting in less unlocking pressure.
Of the total, the 'uncirculated' portion mainly comes from the shares controlled by Metaplex DAO and the Metaplex Foundation, tokens held by the treasury, and the unlocked portions of Everstake and Metaplex Studios.
5.2 Token Utility
Currently, the main utility of MPLX is for governance voting. In addition, Metaplex announced in March 2024 that it will use 50% of its protocol revenue for token buybacks (including historically accumulated protocol revenue), and the repurchased tokens will enter the treasury for the development of the protocol ecosystem.
The token buyback protocol officially began in June 2024, with 10,000 SOL used for the buyback of MPLX tokens every month since then, and this has continued for five months.
Due to the rapid increase in protocol revenue, Metaplex will raise the monthly amount for protocol buybacks from 10,000 SOL to 12,000 SOL next month.
Aside from governance and buybacks, the next scenario for MPLX will be activated by the Aura functionality mentioned above. Once the Aura functionality is officially launched, MPLX is expected to become a staking asset for Aura nodes, capturing the yields generated by Aura.
5.3 Protocol Valuation
When measuring the valuation of Metaplex, we still use comparative valuation methods, but considering that there are no comparable competing projects in the same track on Solana, the author ultimately chose Raydium, which also belongs to the Solana ecosystem and similarly benefited from the Meme craze this year, as a reference for comparative valuation.
From the comparison of protocol revenue and the market value of the protocol, Metaplex has a higher valuation.
However, it needs to be emphasized that while the two projects share some commonalities, they are still two different 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, the advantages of Metaplex are obvious:
Located in the upstream ecological niche of the asset service track, holding the asset standard-setting power, 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 clear business moat.
On the basis of existing business, actively expanding a second growth curve.
The team's overall quality is good, closely connected to the core circle of the ecosystem, diligent and enterprising, with a cost control consciousness.
The token has a buyback mechanism, and the project's absolute market value is relatively low (circulating market value of over 260 million, FDV over 350 million), with a relatively light market cap.
Potential upward driving forces for Metaplex's market value in the future include:
In addition to Memes, other active sectors are emerging in the Solana ecosystem, further expanding the asset issuance market, whether in Depin, gaming, RWA, or the NFTs that have been cold for a long time.
Metaplex can go live 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, the author believes it is worth the listing teams’ 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 the capacity to raise prices; even with a 100% increase, the asset creation costs paid to Metaplex would still constitute a very low proportion for users, making it negligible.
Of course, Metaplex also faces some potential risks and challenges, such as:
The decline of the Solana Meme craze, leading to a rapid decrease in asset minting volumes and a reduction in business revenue.
Metaplex's current revenue is charged as a one-time fee based on the types of assets created; projects with relatively fixed asset types cannot provide sustained revenue to Metaplex in the long term.
Summary
Contrary to the perception of most investors that 'Metaplex is an NFT asset protocol,' Metaplex actually serves as a foundational protocol for all types of assets within the Solana ecosystem and is a direct beneficiary of the ongoing Meme craze since the beginning of the year.
If one continues to have a positive outlook on the Solana ecosystem in the future, Metaplex, which occupies the 'asset issuance and management' upstream ecological position, deserves our long-term attention.
