Metaplex is the foundational protocol for all types of assets in the Solana ecosystem and is a direct beneficiary of the Meme craze that has continued since the beginning of the year.
Author: Alex Xu
1. Introduction
If we were to name the best-performing Layer 1 during this bull market cycle, most people's answer would be Solana.
Whether in terms of active addresses or fee income, Solana's market share in Layer 1 has rapidly expanded:
Number of active addresses: The share of active addresses on Solana grew from 3.48% to 56.83%, a year-on-year increase of 1533%;
Market share of L1 monthly active address count, data source: tokenterminal.
Fees: Solana's fee income share grew from 0.62% to 28.92%, a year-on-year increase of 4564%.
L1 monthly fee income market share, data source: tokenterminal.
The Meme wave is the core driving force behind the rapid growth of various core metrics in this cycle of Solana. In addition to Solana, other projects like Raydium have also benefited from the Meme wave, with active Meme trading contributing a large volume of transactions and protocol revenue, and its price has recently reached a new high in this round.
I 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?
What is the background and financing situation of Metaplex's team, and how to evaluate the project team?
How is the current valuation level of Metaplex, and is there a margin of safety?
This article represents the author's stage thoughts as of publication and may change in the future. The views expressed are highly subjective and may contain errors in fact, 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, providing developers, creators, and enterprises with tools and standards for building decentralized applications. The types of crypto assets supported by Metaplex include NFTs, FT (fungible tokens), real-world assets (RWA), gaming assets, DePIN assets, etc.
Recently, Metaplex has also horizontally expanded its business into other foundational service areas of 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 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, with the products listed below constituting a comprehensive matrix serving the asset ecosystem of Solana.
Core
Core is the next-generation NFT standard on the Solana blockchain, adopting a 'single account design' that 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, one must first understand the account model of the Solana blockchain and the traditional storage methods of 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 the account is limited, requiring rent to maintain this data storage. Therefore, how to efficiently manage 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 information. For example, a typical NFT may involve the following accounts:
Main account: Stores ownership information of NFTs (e.g., who is the current holder).
Metadata account: Stores metadata of NFTs (e.g., name, description, image link, etc.).
Royalty account: Stores information related to creator royalties.
This multi-account design, while relatively flexible, can lead to some issues in actual operation:
Complexity: Managing and interacting with multiple accounts increases complexity, especially when frequent data queries and updates are needed.
Fees: Each account must pay rent to maintain its storage state, and more accounts mean higher fees.
Performance: Involving multiple accounts may require more blockchain resources during operations, affecting performance and transaction speed.
Advantages of the 'single account design'
In response to the above issues, Metaplex Core proposed a standard of "single account design," which centralizes all information related to NFTs (such as ownership, metadata, royalties, etc.) in one account. This simplifies the account structure, reduces account costs, improves interaction efficiency, and enhances 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 the program used by Metaplex to create and manage compressed NFTs (cNFTs). Through compression technology, creators can mint a large number of NFTs at a very low cost—minting 100 million NFTs costs only 500 SOL (achieving over 99% cost reduction compared to traditional minting methods), providing unprecedented scalability and flexibility. Due to the launch of Bubblegum technology, large-scale, low-cost NFT minting has become possible, enabling DePIN projects such as Render and Helium to migrate to Solana, and giving rise to innovative NFT platforms like DRiP. The following table lists examples of applications of Bubblegum by these three representatives.
Token Metadata
The Token Metadata program allows for additional data to be attached to fungible and non-fungible assets on Solana. Token Metadata is naturally important for information-rich NFTs, but in fact, most fungible token projects on Solana also need to use Token Metadata.
Most people are unaware that the largest Meme issuance platform on Solana, Pump.fun, relies on the metadata services of Metaplex for all tokens created on it. Currently, the largest demand for Token Metadata no longer comes from NFTs but from the massive issuance of Meme projects.
For Meme projects, using the Token Metadata program when issuing tokens has very clear benefits:
First, it ensures the standardization and compatibility of the issued tokens. Tokens using Metaplex's Metadata services will be more easily recognized by mainstream wallets (such as Phantom, Solflare) and displayed correctly on trading platforms with their names, icons, and other additional information, as well as being seamlessly integrated into other Solana applications.
Second, it provides on-chain storage and transparency. The Metaplex Metadata service stores the token's metadata on-chain, making the information and data of the token easier to verify and preventing tampering.
Image text and other additional information provide multi-dimensional material for Meme speculation, making memes more than just a name and a string of contracts, providing material for the spread, secondary creation, and narrative of memes.
New Meme tokens continuously appearing on pump.fun, source: pump.fun.
With the ongoing rise of the Meme craze on Solana, over 90% of Metaplex's protocol revenue has already been contributed by fungible tokens (Meme), which sharply contrasts with the widespread perception of "Metaplex as a foundational NFT protocol" and indicates a serious cognitive gap.
Candy Machine
Metaplex's Candy Machine is the most commonly used NFT minting and issuance program on Solana, capable of efficiently, fairly, and transparently launching NFT collections.
Other Product Arrays
Other services from Metaplex include:
MPL-Hybrid: A hybrid NFT storage and management solution designed to combine the advantages of on-chain and off-chain storage, providing an efficient and economical storage method for NFTs, especially suitable for storing large files (such as high-resolution) or NFT projects that require dynamic updates.
Fusion: An NFT merging feature that allows users to combine multiple NFTs into a new NFT, enhancing user interaction and providing more gameplay options for NFT projects, applicable to games, collectibles, and art projects.
Hydra: An efficient, scalable large-scale NFT minting solution, specifically designed 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 services):
Image source: Metaplex Developer Documentation
Aura
Additionally, in September, the Metaplex Foundation officially launched Metaplex Aura—a decentralized indexing and data availability network serving Solana and SVM (testnet). 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 and support batch operations at a lower cost, reducing operational costs by more than 99%, as shown in the figure below.
Cost comparison before and after adopting Aura for large-scale asset operations, source: Metaplex Official Twitter.
When announcing product previews, Metaplex also listed cooperation agreements supporting the product, many of which are well-known projects in the Solana ecosystem, which may also become potential users of Aura in the future.
Source: Metaplex Official Twitter
From asset service systems to data indexing and data availability service protocols, as services horizontally expand, Metaplex is developing 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: it charges for providing services related to on-chain assets. Some services in the aforementioned product array are free, while others are charged.
Although Metaplex's direct cooperation targets are other projects on Solana, resembling a B2B business expansion, most of its revenue comes from small projects or retail users using large B-end projects, including project parties issuing various fungible tokens and individual users minting NFTs.
In my view, charging decentralized users is a better business model compared to charging large B-end projects (e.g., Pump.fun) because:
The decision-making of small project users or retail users is more emotional, and their sensitivity to price is not as high as that of B-end users. This is because the service prices of Metaplex represent a very small proportion of their total expenditure, and while the absolute fees paid by each small user may not be high, when the number is sufficiently large, the total cost can be quite substantial.
B-end projects can become distribution channels for its services, helping Metaplex's services reach more decentralized users without incurring additional effort and costs in marketing and promotion.
The user base is more decentralized, with a low concentration level, making it difficult to negotiate prices with foundational service providers like Metaplex. Metaplex has the capability to maintain product profit margins and even raise prices when appropriate.
Specifically, the charging standards for Metaplex products on Solana are as follows:
Image source: Metaplex Developer Documentation
It can be seen that the absolute fees for users calling Metaplex's product services separately are not high. For example, the fee for a user to mint an NFT is only 0.0015 SOL; for a meme issuer adding text and image descriptions to their meme project using Token Metadata, it costs only 0.01 SOL. Such costs are negligible relative to users' expected benefits, or can basically be ignored.
Of course, it should be noted that the large-scale issuance of fungible tokens represented by Memes has, on one hand, brought revenue to Metaplex, while on the other hand, the sustainability of the Meme craze is questionable, which may also affect the sustainability of Metaplex's income. Even for Solana, the fluctuations in Meme popularity are considerable; during the coldest week of September, the number of new tokens listed on Dex was only about one-third of that during the peak in May, while this number surged tenfold again in mid-November.
The 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 derive from various aspects of advantage, such as scale, cost advantages from geographical location, value accumulation from network effects, high user stickiness and premium ability from brand effects, and competitive barriers from administrative franchises and patents.
Projects with strong moats manifest in competition as later competitors find it difficult to catch up when entering the same track, or the comprehensive cost of catching up is very high, far exceeding their expected returns, leading to fewer competitors in that track. Financially, this means that the project has a steadily increasing profitability, with marketing and development costs relative to income being low.
In the Web3 field, projects with strong moats are not many, such as Tether in the stablecoin field and Aave in the centralized lending field.
In my view, Metaplex also belongs to projects with a moat, and its moat comes from 'high switching costs' and 'setting standards'.
First, when developers and users become deeply reliant on Metaplex's tools and protocols for asset issuance and management, they will inevitably face high time, technical, and economic costs when wanting to switch their project's assets to another protocol for management.
Secondly, when Metaplex's asset formats (including NFTs and FTs) become the standard within the Solana ecosystem, forming a consensus for compatibility design among various infrastructures and applications within the ecosystem, this will also lead to new developers and projects prioritizing the selection of Metaplex asset formats with stronger ecological compatibility.
Thanks to Metaplex's moat, there are currently few projects in the Solana ecosystem that can compete with it, ensuring Metaplex's strong profitability, which will be analyzed in the next section.
Beyond 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, its new expansion business may be more easily accepted and experienced by existing cooperative customers.
3. Metaplex Business Data: PMF Fully Verified, Core Data Strong Growth
Metaplex's core business is currently providing asset-related services. We can observe its core metrics including active user count, the number of asset minting projects, and protocol revenue.
3.1 Metaplex Monthly Active Users
Metaplex monthly active users refer to unique addresses that have transacted with the Metaplex protocol each month.
Metaplex monthly active addresses, data source: Metaplex Public Dashboard, and the same below.
As of the date of this writing (November 30, 2024), the latest monthly active user count for Metaplex is 844,966, reaching a historical monthly high with a year-on-year increase of 253%.
3.2 The Number of Assets Minted through the Protocol
The number of assets minted through the protocol refers to the types of assets minted using the Metaplex protocol.
Metaplex Monthly Asset Minting Type Count
As of the date of this writing (November 30, 2024), the data of Metaplex has also reached a historical high, with the total number of minted asset types exceeding 1.44 million in November.
It is worth noting that 94% of the assets are fungible tokens, with only 6% being NFTs. This figure was 18.6% for NFTs and 81.4% for fungible tokens in January this year, indicating that, in terms of business volume, Metaplex's primary business now is the service of fungible token assets rather than NFT services. Most of the issuance of fungible assets comes from the Meme craze.
Proportion of monthly asset minting types in Metaplex.
3.3 Protocol Revenue
Protocol revenue refers to the fees received by Metaplex for providing services.
Metaplex Monthly Protocol Revenue
As of the date of this writing (November 30, 2024), Metaplex's monthly protocol revenue has reached $3.3 million, also hitting a historical high.
It should be noted that unlike many projects in the Web3 world that rely on token subsidies to drive product demand and exchange project tokens for protocol revenue, Metaplex's business income is quite organic and does not involve direct token subsidies, making it a typical project that has achieved PMF (Product-Market Fit).
From the data in this subsection, we can see:
As the underlying asset protocol, Metaplex directly benefits from the development of the Solana ecosystem, with its core metrics rising in tandem with Solana's core metrics, especially protocol revenue.
Metaplex benefits from the activity of both NFTs and fungible tokens, and is not just an 'NFT asset service protocol'. After the Meme craze, if Solana can generate more active sectors, such as DePIN, gaming, and RWA, the demand space for Metaplex will be further opened.
The business demand for Metaplex is organic and does not rely on token subsidies to generate revenue.
Next, let's examine the team behind the Metaplex project and the situation of the project token.
4. Metaplex Team: Ecosystem OG Close to the Solana 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 Symbolic 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 the head of the product department. During his tenure, his work included 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 its establishment, Metaplex secured a strategic investment of $46 million from institutions like Multicoin, Jump, and Alameda. Based on the 10.2% share corresponding to the strategic round financing in the token allocation table, it is estimated that this round of $46 million financing valued Metaplex at around $450 million at that time, which is a relatively high first-round valuation even during a bull market.
Just as Metaplex was about to celebrate its first anniversary, in November 2022, FTX collapsed due to massive financial losses. Although Metaplex's financial situation was not directly affected by the FTX collapse, Stephen Hess quickly announced a layoff decision on Twitter, preparing for the impending recession in the Solana ecosystem. In hindsight, his actions at that time proved to be very correct, demonstrating a clear understanding of the future and maintaining a cost control habit that many Web3 teams lack.
According to Metaplex's current LinkedIn information, the team consists of more than 10 people, still quite streamlined, but from the monthly project work reports they release, this streamlined team shows strong delivery capability and initiative 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 my 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 dialogue channels, and product concepts recognized by the public chain ecosystem community.
Good product intuition (less trial and error), diligent work, and good delivery results.
Awareness of cost control, avoiding wasteful spending.
Secured top-tier VC investments, possessing excellent comprehensive business resources.
In addition, 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, which were originally held by FTX, with a combined purchase cost of approximately $0.20-0.25 (with certain lock-up terms).
5. MPLX: Token Utility and Valuation Level
5.1 Token Basic Information
Metaplex's protocol token is MPLX, with a total supply of 1 billion.
Image source: Project White Paper
Specific token allocation is as follows:
Creators and early supporters 21.9%, with 50% distributed in the form of airdrops within one year (the first airdrop started in September 2022), and the remaining 50% released monthly over the next year;
Metaplex DAO 16%, with no lock-up, distributed according to DAO proposals;
Metaplex Foundation 20.31%, with no lock-up;
Strategic round 10.2%, with 50% released after the first airdrop (September 2022) one year later, and the remaining 50% unlocked monthly over the next 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%, immediately released;
Founding advisors account for 3.34%, locked for one year, released linearly over one year, fully unlocked;
Founding partners 3.1%, locked for one year, released linearly over one year, fully unlocked.
According to the current circulation data provided by the official, the circulation rate of MPLX is 75.6%, with most already in circulation, especially the investors' share, which has basically achieved circulation, with little unlocking pressure.
Among the total supply, the 'unlisted' portion mainly comes from the shares controlled by the Metaplex DAO and the Metaplex Foundation, tokens held in the treasury, and the locked portions of Everstake and Metaplex Studios.
5.2 Token Utility
Currently, the utility of MPLX is mainly governance voting. Additionally, Metaplex announced in March 2024 that it would use 50% of protocol revenue for token buybacks (including historically accumulated protocol revenue), with repurchased tokens entering the treasury for ecosystem development.
The protocol officially began repurchasing tokens in June 2024, with repurchases of 10,000 SOL of MPLX tokens each month for the past five months.
Due to the rapid increase in protocol revenue, Metaplex will raise the monthly buyback amount from 10,000 SOL to 12,000 SOL next month.
Besides governance and buybacks, the next scenario for MPLX will be activated by the Aura functionality mentioned above. After Aura is officially launched, MPLX is expected to become a staking asset for Aura nodes, capturing the income generated by Aura.
5.3 Protocol Valuation
When measuring Metaplex's valuation, we still use comparative valuation methods. However, given that there are no comparable competing projects in the same track within Solana, I ultimately chose Raydium, which is also part of the Solana ecosystem and has similarly benefited from the Meme craze this year, resulting in a significant increase in protocol revenue and also has a buyback mechanism, as the reference for comparative valuation.
From the comparison between protocol revenue and protocol market value, Metaplex's valuation appears to be higher.
However, it should be emphasized that although the two projects have some commonalities, they are still two tracks within the same ecosystem, and their business positioning differs significantly. The above valuation comparisons are only of certain reference value.
5.4 Potential Driving Factors and Risks
Overall, the advantages of Metaplex are evident:
Positioned in the upstream ecological niche of asset services, holding the power to set asset standards, and 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 possessing a relatively clear business moat.
Actively expanding a second growth curve based on existing business.
The team's overall quality is good, they are close to the core circle of the ecosystem, diligent and enterprising, and have cost control awareness.
The token has a buyback mechanism, and the project's absolute market value is relatively low (circulating market value of over $260 million, FDV of over $350 million), making it relatively light.
Potential upward driving forces for Metaplex's market value in the future include:
In addition to Memes, other active sectors have emerged in the Solana ecosystem, further expanding the market for asset issuance, whether it's DePIN, gaming, RWA, or NFTs that have been dormant for a long time.
Metaplex could list on larger trading platforms like Binance or Coinbase to gain better liquidity premiums (given the project's quality and relatively low market cap, I think it would be worthwhile for listing teams to consider; projects with real business needs and positive cash flow are scarce in the market).
Directly increasing service fees. Currently, the fee base is relatively low, and the project has complete capacity to raise prices. Even if prices are raised by 100%, the asset creation fees paid to Metaplex would still represent a negligible proportion of total expenditure for users.
Of course, Metaplex also faces some potential risks and challenges, such as:
As the Solana Meme craze fades, the number of asset minting declines rapidly, leading to reduced business revenue.
Metaplex's current revenue is collected as a one-time fee based on the types of assets created. Projects with relatively fixed asset types cannot bring sustained income to Metaplex in the long term.
Summary
Contrary to the impression held by most investors that 'Metaplex is an NFT asset protocol', Metaplex is actually a foundational protocol serving all types of assets in the Solana ecosystem and is a direct beneficiary of the Meme craze that has continued since the beginning of the year.
If the Solana ecosystem continues to look promising in the future, Metaplex, which occupies the upstream ecological position of 'asset issuance and management', is worth our long-term attention.
