Original Title: (A Hidden Gem of Solana's Summer: Is Metaplex, Quietly Profiting in the Meme Craze, Undervalued?)
Original Author: Alex Xu, Mint Ventures
1. Introduction
If one were to ask which L1 has developed the best business during this bullish market cycle, most people would answer: Solana.
Whether in terms of active address numbers or fee income, Solana's market share in L1 has rapidly expanded:
The number of active addresses: Solana's active address share grew from 3.48% to 56.83%, a year-on-year increase of 1533%;
L1 Monthly Active Address Market Share, 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 Revenue Market Share, Data Source: TokenTerminal
The meme craze is the core driving force behind the rapid growth of various key metrics in Solana during this cycle. In addition to Solana, other projects such as Raydium have also benefited from the meme craze. The activity of meme trading has contributed massive trading volume and protocol income, and its price has also reached new highs recently.
I 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 the business developing?
· What is Metaplex's team background and financing situation, and how to evaluate the project team?
· What is the current valuation level of Metaplex, and is there a margin of safety?
This article reflects my stage thinking as of publication, which may change in the future, and the views expressed are highly subjective and may contain errors in facts, data, or reasoning logic. 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, sale, and management system built on Solana and supporting SVM (Solana Virtual Machine), providing developers, creators, and businesses with tools and standards for building 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 horizontally expanding 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's service objects include both NFTs and homogeneous tokens. The products listed below constitute a comprehensive matrix serving the assets of the Solana ecosystem.
Core
Core is a new 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 'single account design', one must first understand the account model of the Solana blockchain and the traditional storage method 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 the storage of this data. Therefore, efficiently managing accounts and storage data on the blockchain is a key issue that developers on Solana need to consider.
Traditional NFT Design
In traditional NFT design, each NFT usually has multiple accounts to store different information. For example, a typical NFT might involve the following accounts:
1. Master account: Stores NFT ownership information (such as who the current holder is).
2. Metadata account: Stores the metadata of the NFT (such as name, description, image link, etc.).
3. Royalty account: Stores information related to creator royalties.
This multi-account design, while more flexible, can lead to some issues in practical operations:
· Complexity: Managing and interacting with multiple accounts increases complexity, especially when frequent queries and data updates are required.
· Costs: Each account needs to pay rent to maintain its storage status, and more accounts mean higher costs.
· Performance: Due to the involvement of multiple accounts, operations may require more blockchain resources, affecting performance and transaction speed.
Advantages of 'Single Account Design'
Metaplex Core proposed 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.) into one account, simplifying the 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 a high-performance, low-cost blockchain 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 an extremely low cost, with the cost of minting 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 due to the launch of Bubblegum technology that large-scale low-cost NFT minting has become possible, prompting 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 the applications of Bubblegum by these three representatives.
Token Metadata
The Token Metadata program allows for the attachment of additional data to homogeneous and non-homogeneous assets on Solana. Token Metadata is naturally important for information-rich NFTs, but in fact, most homogeneous token projects on Solana also need to use Token Metadata.
Most people do not realize that currently, the largest meme issuance platform on Solana, Pump.fun, relies on Metaplex's metadata service for all tokens created. The greatest demand for token metadata is now not coming from NFTs but from the massive issuance of meme projects.
For meme projects, using the Token Metadata program during token issuance has very clear 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, Solflare), and will be displayed correctly on trading platforms with their names, icons, and other additional information, as well as 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 token's information and data easier to verify and preventing tampering.
· The additional information, such as images and text, provides multi-dimensional materials for meme speculation, making memes more than just a name and a string of contracts, providing materials for meme dissemination, remakes, and narratives.
New meme tokens continuously appearing on pump.fun.
With the continued rise of the meme craze on Solana, over 90% of Metaplex's protocol income has already been contributed by homogeneous tokens (memes). This reality contradicts the public perception that 'Metaplex is a foundational NFT protocol for the Solana ecosystem' and indicates a serious cognitive disconnect.
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 of 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 images) or NFTs that require dynamic updates.
Fusion: An NFT merging feature that allows users to merge 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 and scalable large-scale NFT minting solution designed for projects that need to mint large quantities of NFTs (such as games, social platforms, or loyalty programs). …
Metaplex currently has the following product list (asset service category):
Image Source: Metaplex Developer Documentation
Aura
In addition, in September, the Metaplex Foundation officially announced the launch of Metaplex Aura—a decentralized indexing and data availability network for Solana and SVM services (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 over 99%, as shown in the figure below:
After adopting Aura, a comparison of the costs of large-scale asset operations before and after, source: Metaplex Official Twitter
When the product preview was released, Metaplex also listed the cooperative agreements supporting this product, many of which are well-known projects in the Solana ecosystem, and they will also be potential users of Aura in the future.
Source: Metaplex Official Twitter
From asset service systems to data indexing and data availability service agreements, as services expand horizontally, 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, charging for providing on-chain asset-related services. Some services in the product array mentioned above are free while others charge.
Although Metaplex's direct cooperation targets are other projects on Solana, resembling a TOB expansion business, most of its fees come from small projects or retail users utilizing large B-side projects, including creators of various homogeneous token projects and individual users minting NFTs.
In my opinion, charging dispersed users is a better business model compared to charging large B-side cooperation projects (like 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-side users, because the service price of Metaplex is a low proportion of their total spending costs. Each small user pays a low absolute fee, but when the number is large enough, the total fee becomes considerable.
· B-side projects can become distribution channels for its services, helping Metaplex reach more dispersed users without needing to spend extra effort and cost on marketing and channels.
· The user base is more dispersed with a low concentration, making it difficult for service providers like Metaplex to negotiate prices, giving Metaplex the ability to maintain product profit 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 a user to call Metaplex's product services individually is not expensive, for example, the cost for a user to mint an NFT is only 0.0015 SOL; for a meme issuer issuing a project to add textual and image descriptions to their meme project using Token Metadata, it costs only 0.01 SOL. Such costs are negligible compared to users' expected benefits.
Of course, it should be noted that the large issuance of homogeneous tokens represented by memes has, on one hand, brought revenue to Metaplex, but on the other hand, the sustainability of the meme craze is questionable, which will also affect the sustainability of Metaplex's income. Even for Solana, the fluctuations in meme popularity are considerable; during the coldest week in September, the number of newly listed tokens on Dex was only about 1/3 of that in May when it was hottest, while this number surged tenfold in mid-November.
Weekly number of new token varieties 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 scale, cost advantages from geographic location, value accumulation from network effects, high user stickiness and premium capabilities from brand effects, and competitive barriers from administrative licenses and patents.
Projects with strong competitive moats manifest as later competitors find it difficult to catch up when entering the same track, or the comprehensive costs of catching up are very high, far exceeding their expected benefits, resulting in relatively few competitors in that track; financially, this is reflected in the project's steadily increasing profitability, with marketing and development costs not taking up a large proportion of revenue.
In the Web3 space, there are not many projects with strong competitive moats, such as Tether in the stablecoin space and Aave in the centralized lending space.
In my opinion, Metaplex is also a project with a competitive moat, and its moat comes from 'high switching costs' and 'setting standards.'
First, when developers and users rely deeply on Metaplex's tools and protocols for asset issuance and management, switching the project's assets to another protocol later will inevitably face high time, technical, and economic costs.
Secondly, when the asset format of Metaplex (including NFTs and FTs) becomes the common standard within the Solana ecosystem, it will become a consensus for various infrastructures and applications within the ecosystem to be designed for compatibility, making developers and projects prioritize choosing the more ecosystem-compatible Metaplex asset format when selecting asset service platforms.
Thanks to the moat of Metaplex, 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.
In addition to asset services, Metaplex is also testing data indexing and data availability services, which are expected to create a second growth curve for Metaplex in the future. Considering that the target audience for this service overlaps highly with Metaplex's existing customer base, its newly expanded 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, and we can observe its core indicators such as the number of active users of its services, the number of asset minting projects, and protocol income.
3.1 Monthly Active Users of Metaplex
Metaplex's monthly active users refer to the independent addresses that have conducted transactions with the Metaplex protocol each month.
Monthly active addresses of Metaplex, data source: Metaplex Public Dashboard, same below.
As of the date of writing (November 30, 2024), the latest number of monthly active users of Metaplex has reached 844,966, setting a new historical monthly record with 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 using the Metaplex protocol.
Metaplex Monthly Types of Assets Minted
As of the date of writing (November 30, 2024), this data for Metaplex also set a new historical record, with more than 1.44 million types of assets minted in November.
It is worth noting that 94% of the assets are homogeneous tokens, and only 6% of the assets are NFTs. This data was 18.6% versus 81.4% in January of this year, indicating that in terms of business volume, Metaplex's main business is now homogeneous token asset services rather than NFT services. Most of the issuance of homogeneous assets is driven by the meme craze.
3.3 Protocol Revenue
Protocol income refers to the fees received by Metaplex for providing services.
Metaplex Monthly Protocol Income
As of the date of writing (November 30, 2024), Metaplex's monthly protocol income reached 3.3 million USD, setting a new historical record.
It should be noted that, unlike many projects in the Web3 world that rely on token subsidies to drive product demand, exchanging project tokens for protocol income, Metaplex's business revenue is quite organic, without direct token subsidies, making it a typical project that has achieved PMF (Product-Market Fit).
From the data in this section, we can see:
· As a foundational asset protocol, Metaplex directly benefits from the ecological development of Solana, and its core indicators rise in sync with Solana's core indicators, especially protocol income.
· Metaplex benefits from the activity of both NFTs and FTs, and is not just a 'NFT asset service protocol.' After the meme craze, if more active tracks emerge in Solana, such as Depin, games, or RWA, the demand space for Metaplex will be further opened.
· The business demand for Metaplex 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 status of the project tokens.
4. Metaplex Team: Ecological OG Close to the Core Circle of Solana
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 in Symbolic Systems from Stanford (a major focused 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, he participated in the development of Solana Stake Pools (Solana's staking system), the SPL governance system, and Wormhole. He was also a member of the team for the first version of the Solana NFT standard, which eventually evolved into Metaplex.
Shortly after its establishment in January 2022, Metaplex received 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 distribution table, it can be estimated that the $46 million financing for Metaplex at that time corresponded to a valuation of about $450 million, which was quite high even during the bullish 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 layoffs on Twitter, preparing for the impending downturn in the Solana ecosystem. In hindsight, his actions at the time proved to be very correct, demonstrating a clear understanding of the future, and he did not have the habit of overspending on cost control like many other Web3 teams.
According to the current LinkedIn information of Metaplex, the team consists of over 10 people, still quite lean, but from the monthly project work reports published, this lean team has strong delivery capability and ambition in product development and iteration.
Metaplex's monthly work report, source: official blog
Looking back at the work experience of the founder of Metaplex and the project's development history, Metaplex basically aligns with my conception of the essential elements of an excellent Web3 team:
· Core members possess educational, work skills, and experience backgrounds that match the entrepreneurial project, with no credit faults.
· Close proximity to the core circle of the public chain ecosystem, smooth communication channels, and product concepts recognized by the public chain ecosystem community
· Good product intuition (less trial and error), diligent work, and good delivery of results
· Having a sense of cost control and not overspending.
· Secured investments from top-tier VCs with 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 initially held by FTX, with a comprehensive purchase cost of approximately $0.2-0.25 (with certain lock-up terms).
5. MPLX: Token Utility and Valuation Level
5.1 Basic Information on Tokens
The protocol token of Metaplex is MPLX, with a total of 1 billion.
Image Source: Project White Paper
Specific token distribution is as follows:
· Creators and early supporters 21.9%, with 50% distributed within a year in the form of airdrops (the first airdrop began in September 2022), and the remaining 50% 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% unlocked monthly in the following year;
· Partner Everstake 10%, locked for two years (locked until September 2024), linear release over a year, currently unlocking;
· Metaplex Studios 9.75%, locked for a year (locked until September 2023), released linearly over two years, currently unlocking;
· Community airdrop 5.4%, released immediately;
· Founding advisors account for 3.34%, locked for a year, linear release over a year, all unlocked;
· Founding partners 3.1%, locked for a year, linear release over a year, all unlocked.
According to the current official circulation data, the circulation rate of MPLX is 75.6%, with most being in circulation status, especially for investors' shares, which have basically achieved circulation with minimal unlock pressure.
Of the total amount, the 'unissued' portion mainly comes from shares controlled by the Metaplex DAO and Metaplex Foundation, tokens held by the treasury, and the portions not yet unlocked by Everstake and Metaplex Studios.
5.2 Token Utility
Currently, the utility of MPLX primarily lies in governance voting. Moreover, starting in March 2024, Metaplex announced that it would use 50% of protocol income for token repurchase (including historically accumulated protocol income), with repurchased tokens entering the treasury for protocol ecosystem development.
The protocol officially began repurchasing tokens in June 2024, using 10,000 SOL each month to repurchase the MPLX token, and this has continued for 5 months now.
Due to the rapid rise in protocol revenues, next month Metaplex will increase the monthly amount for protocol repurchase from 10,000 SOL to 12,000 SOL.
Besides governance and repurchase, the next scenario for MPLX will be activated by the Aura function mentioned above. After the Aura function is officially launched, MPLX is expected to become the staking asset for Aura nodes, capturing the yields generated by Aura.
5.3 Protocol Valuation
In measuring Metaplex's valuation, we still adopt comparative valuation methods, but considering that there are no comparable competing projects in the same track on Solana, I ultimately chose Raydium, which is also part of the Solana ecosystem and has similarly benefited from the meme craze this year, as a reference for comparative valuation.
In terms of protocol income and market value comparison, Metaplex's valuation is somewhat higher.
However, it is important to emphasize that although the two projects have some commonalities, they are still two tracks within one ecosystem with very different business positioning, and the above valuation comparisons only hold certain reference value.
5.4 Potential Driving Factors and Risks
Overall, the advantages of Metaplex are quite clear:
· Positioned at the upstream ecological niche of asset services, holding the power to set asset standards, directly benefiting from the prosperity of the Solana ecosystem.
· The product PMF is fully validated, achieving positive cash flow without relying on token subsidies, and has a relatively clear business moat.
· Actively expand a second growth curve based on existing business; the team has good overall quality, is close to the core ecosystem, and has a diligent and proactive approach with a sense of cost control.
· The token has a repurchase mechanism, and the project's absolute market value is relatively low (circulating market value over 260 million +, FDV over 350 million +), making it relatively light.
Potential upward drivers for Metaplex's market value include:
· Other active tracks besides memes in the Solana ecosystem emerge, further expanding the market for asset issuance, whether it's Depin, games, RWA, or NFTs that have long cooled off.
· Metaplex can be listed on larger trading platforms, such as Binance or Coinbase, to gain better liquidity premiums (considering the quality of the project and its relatively low market capitalization, I think it's worth considering for the coin listing teams, 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 ability to raise prices. Even a 100% price increase, the asset creation fees paid to Metaplex would still account for a very low proportion of the total costs for users, making it negligible.
Of course, Metaplex also faces some potential risks and challenges, such as:
· The decline of the Solana meme craze leads to a rapid decrease in asset minting numbers and a reduction in business income.
· Metaplex currently charges a one-time fee based on the types of assets created; those projects with relatively fixed asset types cannot provide Metaplex with sustained revenue in the long term.
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 in the Solana ecosystem and is a direct beneficiary of the meme craze that has continued since the beginning of the year.
If one continues to have confidence in the Solana ecosystem in the future, Metaplex, which occupies the 'upstream ecological position' of 'asset issuance and management', is worth our long-term attention.
Reference materials and data sources
Project Data: https://analytics.topledger.xyz/metaplex/public/dashboards/T50WQTTu2Cbz8hG0vge18izUO5ghEDrWhzb92knN
White Paper: https://whitepaper.metaplex.com/whitepaper.pdf
Official Blog https://www.metaplex.com/blo
Original link
