Traditional methods of valuing blockchain networks fall into misconceptions by treating blockchain networks as enterprises and applying formulas designed for calculating fair stock prices, which have fundamental flaws. In reality, blockchains, especially smart contract platforms like Ethereum, are not enterprises but emerging sovereign digital economies with their own reserve currencies, gradually becoming new network nations—digital nations.
1. The Uniqueness of the Blockchain Economy
1. Differences from Traditional Economies: The blockchain economy shares similarities with traditional national economies, but each aspect is more liquid and monetary. Take Ethereum as an example; its currency serves not only the native network but also provides value storage, unit of account, and medium of exchange across multiple extended networks and externally, similar to the way the US dollar operates today. At the same time, proof-of-stake blockchains introduce mechanisms akin to bonds, allowing participants to stake assets to protect the network in exchange for returns.
2. Introduction of Decentralized GDP: To meet the demand for suitable valuation frameworks in emerging digital economies, the concept of decentralized GDP has been proposed. It encompasses not only the total monetary supply but also captures economic activities within the blockchain ecosystem, including the market capitalization of protocols, decentralized applications, and cultural assets, reflecting the paradigm shift of blockchain economics.
2. Key Indicators Constituting Decentralized GDP
1. Market Capitalization: Measuring monetary sovereignty: The market capitalization of a blockchain's native currency represents the monetary base and economic scale. For example, in leading blockchain economies, BTC has a market cap of $1,820 billion, while ETH has $400 billion. Including LST and LRT tokens can provide comparable measures of the M3 or M4 money supply in smart contract blockchain economies.
2. Total Locked Value (TVL): Capital utilization in DeFi: TVL measures the value of assets locked in DeFi protocols and serves as a strong indicator of active economic activity on the blockchain, reflecting the reliability of monetary jurisdiction and the ability to attract investors. Ranked by TVL, ETH leads with $66.6 billion.
3. L1 Transaction Fees: Revenue from economic activity: Fees generated by the blockchain represent 'tax revenue' and are counted in GDP. Having a balanced fee market is crucial for maintaining operational stability and network security. Ranked by annual fee revenue, ETH leads with $2.6 billion.
4. Stablecoins: Integration of foreign capital and currency: Stablecoins represent foreign capital in blockchain economies and serve as an important indicator of the ability to attract foreign investment. Ethereum dominates in terms of stablecoin holdings, with $101 billion hosted on the mainnet and an additional $10 billion on Layer 2.
5. Protocols, Applications, and NFTs: Infrastructure and Culture of the Economy: In blockchain economies, protocols, applications, and NFTs play roles analogous to the industrial and cultural sectors in traditional economies. Ethereum dominates in both areas, with the total value of fungible tokens around $110 billion and the total value of NFTs at $4.1 billion.
6. Protocol and Application Fees: Economic activity of enterprises in blockchain economies: Analyzing fees generated by top protocols and applications on each blockchain can represent the economic output of enterprises within the ecosystem. ETH leads significantly with approximately $6 billion.
3. Applying Decentralized GDP to Assess Blockchain Economies
1. Comparing Blockchain Economies: By combining the above indicators, a more comprehensive measurement of blockchain economies can be achieved. For example, comparing ETH and SOL, ETH performs strongly in various aspects such as monetary sovereignty and DeFi activities, with a total economic value of $700 billion, while SOL stands at $142.5 billion.
2. Gaining Exposure to the Blockchain Economy: In smart contract economies, native currencies like ETH act as triple attribute assets, providing integrated exposure to the entire blockchain economy and simplifying investment decisions. Native DeFi protocols and blue-chip NFTs can also be added.
3. Using the GDP Model to Estimate Future Value: The valuation of native blockchain currencies should not be based on frameworks designed for public companies, but should view blockchain economies as digital counterparts of traditional nation-states. Taking Ethereum as an example, if it replicates the economic growth rate of China over the past 30 years, by 2054, its total economic value could reach $18 trillion. Under different assumptions, the price of ETH could reach $180,000 or $225,000. This is not a price prediction or financial advice, but it demonstrates how the GDP framework aids in understanding the value of blockchain economies.
In summary, decentralized GDP provides a more comprehensive approach to assessing blockchain economies, highlighting the complexity and potential of blockchain economics.
