Original author: Pima ContinueCapital
Original source: Twitter
The value path of blockchain investment
What are you buying in the public chain market or the blockchain industry? Or what is the way out for the blockchain business model?
The performance of the copycat market that is lower than expected has caused many people to have industry concerns. In a complex environment and at different stages of industry development, it is inevitable that investment difficulties will increase, but the fundamental problem lies in finding a business model for the long-term sustainable development of the project.
Ten years have passed, and I’ve found that many people, even those who have been in the industry for a long time, still don’t quite understand why public chains have always dominated the TOP100 list, and why the top public chains with billions or hundreds of billions of funds are flocking to them, while your coins with only millions or tens of millions are deserted. I personally like to simplify complex things, so I’ll try to analyze them.
From the first principles, P=E*PE, that is, stock price=profit*valuation, so in the long run, the only factors affecting stock prices are profit and valuation;
First, valuation PE. This is more complicated, and there are many influencing factors, such as growth/interest rate/penetration rate/industry space/how much the central bank releases/monopoly, etc., which are all factors that determine people's different valuations of different stocks in a certain period of time. Idol Buffett said not to buy BTC because BTC has no cash flow (you can think of cash flow as profit). In the long run, I feel that most of what he said is right, but in the above stock price formula, only profit E is considered, and valuation PE is not considered. So from another perspective, MEME/BTC are both in the same category and can be attributed to the PE factor. As long as your MEME keeps attracting people to buy, your MEME does not need to create cash flow by itself to rise to a certain stage, but there is a very important premise: within a certain market value. The larger the market value, the more people you need to attract, and without continuous cash flow support, it is very difficult to sustain.
Second, profit E, we will mainly discuss this. Profit comes from revenue, so if the stock price is to rise, the revenue must rise, so where does the revenue come from? It is the business model, which is defined as a business activity that makes a profit by providing goods or services to others. In simple terms, it is how your company makes money. In 2006, Duan Yongping used 620,000 US dollars to bid for Buffett's lunch. He asked a question that had been bothering him for a long time: What is the most important thing for investment? Buffett's answer is the business model. If a company does not know how to make money, it is impossible to develop sustainably in the long run. The core of the continuous rise of the seven sisters of the US stock market is profit, not other short-term factors.
The question is, what is the business model of the cryptocurrency world?
In my opinion, there are no more than: block space fees; SWAP fees, which are exchanges, including DEX/CEX; lending, interest rate spreads; stablecoins, pumping; MEV, parasitic on block space. The others are easy to understand, let’s just talk about the block space fees.
In fact, it is very hidden that the cryptocurrency circle has created a brand new business model: selling block space, that is, the public chain charges block space fees based on GAS fees. Global consumers purchase access and storage rights to global computing/bandwidth resources at a basic price for each transaction.
I didn’t understand a few words before, what is the “value” of the Internet? We know that most of the information on the Internet is free, such as pictures/text/videos, etc., and one piece of information can be copied infinitely. Therefore, in the early days of the Internet, people did not know how to make a profit. Later, through exploration, they gradually discovered the Internet’s business model, including making money from SaaS subscription services, advertising, transactions (e-commerce), etc.
So what is the business model of blockchain? I later figured out that the value Internet of the currency circle is a paid Internet. Every time you click, you need to pay GAS. The original intention of blockchain is to solve the problem of currency attributes. It is very different from the free Internet. You can't use a piece of money to copy and pay it to others indefinitely. The free Internet cannot solve the currency problem. Therefore, in the process of extending from currency to public chain, its uniqueness lies in that it makes consumers bear the cost of accessing block space. In the past few decades of the Internet, companies have rented machine computing resources to pay AWS bills to provide products and services to customers, thereby charging fees to make profits. This is good for applications on the blockchain: users pay for the cost of project operation. Every year, global consumers pay billions to tens of billions of US dollars for GAS, which is the revenue of the public chain. If the annual income is 10 billion, the yield of treasury bonds is 5%, and the PE is 20 times, it is a 200 billion market, 10 times PE is a 100 billion market, and 50 times PE is 500 billion, so this is the fundamental reason for the huge public chain market.
For example, the USDT issued on TRX has reached 60 billion, accounting for half of the entire USDT market. I looked at the annual revenue of TRX in 2023, which was about 400-500 million US dollars, of which 75% was USDT transfer income, that is, 400 million US dollars in profit. If we give 20 times PE, the valuation of TRX of 8 billion is reasonable. Of course, this is not the point. The point is, can this data be expanded tenfold in the next ten years or far more than tenfold? How much future incremental market share can SOL's payment/open finance grab? We are going too far, and we will not further expand on the topic of expansion here.
You have to understand that I am only trying to explain why the public chain market is huge, that is, I am only explaining the existing phenomenon that you are willing to pay for GAS fees. I did not go further and go into why you should pay for GAS and why more people will pay for GAS in the future. The need for transfer payment? The need to get rich quickly (hoarding GAS)? The need for entertainment (paying for a certain DAPP)? The need to trade coins/commodities/stocks/SWAPs? You have to know that if no one pays for GAS fees in the future, the public chain market will not exist.
So now I often see some fancy terms. I don’t know whether it’s because the cryptocurrency industry is in its early stages of development or because it’s not easy to implement and visualize. The promotions are all abstract words that are difficult for ordinary people to understand: scalability, ZK technology, L2, UTXO, chain abstraction, modularization, homomorphic encryption, parallel EVM, etc. Because I didn’t participate in the development of the Internet in the early stages, I didn’t know until later that modularization/monopoly chain and other terms all originated from Internet technology. However, few people in the Internet field mention you, but you are repeatedly promoted as a focus in the cryptocurrency industry. I am now very resistant to narrative words. Basically, after being familiar with the basic concepts, I directly ask: How much revenue can this technology bring me? How much profit can I generate for repurchase? Otherwise, what is the market fit of your technology? I can support the long-term development of basic technologies/basic disciplines, but tell me how long it will take to get a clear business model? Two years, ten years or twenty years? How to increase revenue in the future GAS and who can occupy the top market share are more complex issues that you should consider. Although I have already selected $SOL
Therefore, since the public chain is a product with revenue, cash flow and profit, its business model is clear and has a solution. What remains is for you to decide how to expand revenue, increase market share, reduce costs and other actions that are in line with the business development path.
Many projects in the cryptocurrency world do not have a business model, that is, they do not know how to make money. The survival rate of the world's top 500 companies is only 3%. Investment is about whether you can find these 3% projects and hold them for a long time. Many investment concepts are very simple, but it is very difficult to put them into practice. There are tens of thousands of projects in the cryptocurrency world in the future. How can you invest if you can't see the value? Be serious, invest.
How long will a person live when the river is clear? Be less mysterious and unrealistic, and be more down-to-earth, otherwise you will not have much time left.
