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Fundamentals are starting to matter
Identifying the cash cows
I think the prices for crypto will evolve to be based more on their actual value i.e. fundamentals just like stocks. Like the old-school financial world, the same rules are gonna kick in here. There are a bunch of protocols out there now that are actually making money and have a solid user base. Plus, there are more and more folks who are using the old ways of determining value to figure out the price of these digital assets.
Based on my analysis above I believe there are several very interesting, undervalued protocols with strong fundamentals. I calculate the P/R ratio by dividing the total FDV with the protocol’s annualized revenue. Lets go over some of the interesting protocols:
If you just take the P/R ratio, you find that ETH is still highly undervalued compared to it’s competitors. There may be a lot of hype on CT for the alt-L1s but ETH by far is still highly undervalued in comparison.
Ethereum's not just the big dog when it comes to making money on-chain, it's also the only one bringing in more cash than it's spending (thanks to lower token inflation). Most chains pump out a ton of tokens to keep things secure. Ethereum, though? It makes bank from all its transactions and only lets out a little bit of ETH. Plus, ever since the Merge, some ETH gets burned every time money moves, making ETH kinda rare on most days.
In 2021, Ethereum made close to $10 billion just from fees. But this was before some big changes kicked in. If it makes the same amount in 2024, we're looking at burning a whopping $8.4 billion worth of ETH.
Another thing ETH has got going is the upcoming potential ETF launches. So, Bloomberg dropped some news on August 17, hinting that the SEC is probably gonna give a thumbs-up to an ETH futures ETF. We don’t know which ones yet, but seems like a few of them will get the green light, maybe as early as October.
Now, when we compare, ETH ETFs seem to have a straighter path than BTC spot ETFs, which got pushed back to October. Markets love sure things and get nervous with the unknown. So, we're thinking ETH might do better than BTC for a bit. Grayscale did score a win for their BTC spot ETF, but the SEC might flip the script, keeping BTC a bit on edge.
If you disregard the recent price-action, Arbitrum's been a real star this year. Even when the whole crypto market was kinda "meh", Arbitrum kept growing. Out of all the growth in Ethereum's ecosystem this year, Arbitrum's responsible for basically all of it. That's huge!
If you're not super deep into this crypto world, here's how Arbitrum makes cash: they get a small fee for every transaction. When someone pays like 20 cents for a transaction, Arbitrum gets that. Then they pack a bunch of transactions together and send them over to Ethereum, which costs them about 10 cents per transaction. So, they pocket the other 10 cents. Nice, right?
They've been growing a lot – we're talking 90 million transactions every three months. They made $23 million in the last quarter and about $5 million was pure profit. Right now, they've got around 2.5 million users doing 11 transactions each month, which means they're making around $100 million a year and keeping half of it. Not too shabby!
There's also some cool stuff coming up for Ethereum that's gonna make Arbitrum even better. There's an upgrade (EIP-4844) that might reduce their costs by a ton. If that happens, they can either give users a break on fees, keep the extra cash, or do a bit of both. It's a win-win. Check out my previous post on EIP-4844 being the big catalyst in crypto.
Arbitrum's valued at $5 billion, which might sound like a lot. But compared to other similar projects, they're actually doing way more business. Plus, I think they could make around $100 million next year. Sure, a $5 billion valuation might seem high, but they're growing like crazy. Even faster than big software companies like Shopify.
Bottom line: Arbitrum's killing it. They've got a great product, they're growing super fast, they're making good money, and their price is right. I’m keeping a close eye on them, hoping they keep proving us right!
GMX is this cool futures trading platform on Arbitrum and Avalanche. It launched in late 2021 and got a ton of traders by the next year. They came up with this idea of 'real yield' where they share some cash (revenue) with the peeps holding their tokens. Why are futures platforms like GMX doing so well? One word: Leverage. It lets them earn more fees than most DeFi apps.
In GMX's original setup, they gave 30% of their fees to the folks staking their tokens. Even though GMX has been doing its thing without splashing out on heavy token rewards, competitors like Gains, Kwenta, Mux, and Vertex have snatched some of GMX’s thunder. Still, GMX is making good money.
But here's the tea: GMX’s original model had kinda high trading fees compared to its rivals. With their new version, they cut those fees, added some new assets, and made it safer for their liquidity providers. Some of GMX’s competitors throw tokens at traders to get them onboard, making you wonder if people are there for the tokens or the actual platform. A couple of these competitors had a spike in volume when they teased big rewards, but now? Their token values have tanked 90% along with trading activity. GMX, on the other hand, keeps it real without giving out free tokens to traders, showing there's genuine demand.
So, even if the futures trading space gets more packed, GMX has a solid shot at staying relevant. Bonus point: They've got 8 million $ARB tokens stashed away. Maybe they'll use them to boost their new version? Who knows!
MakerDAO, the gang behind the DAI stablecoin, is straight-up killing it in the crypto money-making game. They've been on fire since they started using real-world stuff (like properties and businesses) as backup for DAI in 2022.
More than half of their cash flow comes from these real-world things. Pulling in $166m a year, Maker's the top dog in the DeFi world. Only Ethereum and Tron have made more bucks on-chain over the past year.
Now, since a big chunk of their earnings comes from stuff like US government bonds, if the US cuts interest rates, Maker's earnings could dip. But are the rates gonna stay up for the next year? Looks like a yes.
Rollbit's got some killer stats, but here's the thing: since they're centralized, we can't really snoop into their on-chain earnings. We can only spot when they torch their tokens. Rollbit is like this casino-meets-sports betting-meets-crypto trading hotspot. They're making bank with what they do.
They use some of their cash to buy and burn their $RLB tokens. So, right now, they're burning about $55m worth of $RLB a year, which is like 9% of its supply at the current price. If the $RLB price goes up, the burns won't cut into the supply as much.
Even though it's hard to guess if they'll keep making this much money, remember, they're doing this well even when the crypto scene isn't buzzing. If things heat up, their crypto exchange might even make more moolah!