Crypto Relative Value: Fee Generation
There are many ways to assess the value of a token. When we survey the landscape of crypto projects, we try to assess diverse aspects like fee generation, usage, addressable market, growth, and token structures that shape value accrual. Given the highly disparate nature of crypto projects, such exercises can become complex, especially when trying to compare projects, particularly across different sectors.
Sometimes it’s worth taking a step back and viewing the market through a more simplified lens.
In this chart, we’ve very simplistically taken fees (broadly defined, and including any transaction costs, fees, interest paid, etc.) and compared them to market capitalization (based on fully diluted supply). We’ve done so for projects in the Top 100* by market cap for which we have data. Some interesting observations emerge.
↔️ The range of fee generation among the projects is immense, with some generating barely $100/year and others edging over $1bn (annualized from the past 90 days). Meanwhile, the smallest project in this study still commands a market cap of over $400mm (roughly the ~25th percentile stock in the Russell 2000).
🏦 DeFi projects (red squares in chart) stand out for their high fee generation relative to market cap. This could be due to the perception that projects in the space may have limited economic moats, with low switching costs for users. Or perhaps they, ironically, suffer from being too well-defined: Layer 1s may compete for a market that some might describe as “the entire world economy”, while DeFi projects have more specific markets like spot/perp trading or lending. While there are deeper dynamics at play, we think the well-defined business models of projects in this sector vs current valuations make DeFi a very interesting space within the broader crypto ecosystem.
⛓️ Layer 1s (green dots in chart) exhibit the largest range of fee generation and also show a general trend where higher fee generating chains command higher market caps. L1s tend to trade at a premium to other projects with similar fee levels, implying much higher growth expectations. While many Layer 1s have a stated goal to minimize user costs, we believe that right now low fee generation still mainly implies a lack of real chain usage.
🪙 Bitcoin stands out with its high market cap relative to fees, illustrating how its valuation is largely driven by the ‘digital gold’ thesis rather than its utility.
This analysis is an oversimplification of how investors value different tokens, and top line fees are an imperfect measure of a project’s business model. However, it highlights just how uneven fundamentals are, even among the most valuable tokens.
*The information herein is for general information purposes only, is not investment advice, and should not be used in the evaluation of any investment decision. An investment in digital assets involves a high degree of risk. Past performance is no guarantee of future results.
