“The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future.”

— John Maynard Keynes

Storytime for crypto investors

Despite all the numbers involved, investing is widely acknowledged to be more art than science.

"Common stock selection is a difficult art,” Benjamin Graham cautioned.

Graham’s life-long student, Warren Buffett, specified that “investing is the art...of laying out cash now to get a whole lot more cash later on.” 

Pretty much all investing boils down to predicting those cash flows.

But investors “who've been trained to rigidly quantify everything have a big disadvantage," Peter Lynch warned.

That does not, however, mean that “valuation is a meme,” as financial nihilists like to claim.

Instead, it means that applying and interpreting quantifiable valuation metrics is a creative endeavor.

What valuation metric to use for which investments is a subjective decision — and knowing how to interpret the results is even more so.

A low valuation, for example, doesn’t mean a stock is cheap and a high one doesn’t mean a stock is expensive (it’s just as often the opposite).

A stock can look appealingly cheap on one metric and appallingly expensive on another.

And none of these things are obviously correlated to returns. 

This is often cause for despair — if cheap stocks don’t go up and expensive ones don’t go down, why bother trying to figure it all out?

It’s worth figuring out, I think, because that’s what makes investing fun and interesting — and, if so, the fun of crypto investing is only just getting started.

Until recently, crypto investors didn’t have many numbers to work with beyond token price and market capitalization. 

That made everything in crypto a “story” — which is fine!

Investing is about telling stories.

But the best investing stories are told with numbers and crypto increasingly has them because more protocols are earning revenue and more of that revenue is being passed on to token holders.

Also, these numbers are becoming more accessible thanks to the likes of Blockworks Research, whose analysts package them up in digestible charts and report them for us.

This is helping crypto advance to a higher stage of storytelling: storytelling with numbers.

Let’s check some current ones.

Ethereum vs. Solana

Judging by Crypto Twitter and podcasting, it seems obvious that sentiment on Ethereum has sunk to new lows, especially relative to Solana.

But an uninitiated TradFi refugee going straight to the numbers would likely guess otherwise.

Solana recorded $36 million of “token holder net income” in April, according to Blockworks Research data, which puts the SOL token on 178x annualized earnings — a rich, but possibly fair multiple if you think current activity levels are low.

Ethereum, by contrast, did $21 million in token holder net income for April, putting the ETH token on 841x earnings.

A TradFi refugee seeing ETH trading at 5x the multiple of SOL wouldn’t immediately think, “wow, why is everyone so bearish on Ethereum?”

But they wouldn’t immediately think people are 5x less positive on Solana, either.

Instead, they might conclude Solana’s revenue gets a low multiple because it mostly comes from “low-quality” memecoin activity — while Ethereum’s revenue commands a higher multiple, at least in part, because it includes higher-quality activity like real-world assets.

Now we have something to work with: If you think memecoin activity isn’t so low-quality, SOL is probably undervalued, and if you think RWAs are the future, ETH might not be so overvalued.

You could also dig a little deeper.

Blockworks Research data shows that the revenue collected by all Solana apps is only about 1.8x greater than the revenue collected by Solana.

As platform businesses go, that is a very high take rate — much higher than the maximum 30% take rate at Apple, which the US government thinks is monopolistic.

This might mean that Solana is overearning and that its token should therefore trade at a low multiple of earnings — or that Solana has a business moat and its token should therefore trade at a high multiple of earnings.

Either way, it’s a story.

Hyperliquid

Hyperliquid, a semi-decentralized crypto exchange, is the strange story of a protocol that earns quite a lot in revenue ($43 million in April) and pays virtually all of it out to token holders.

This has unsurprisingly helped the token outperform recently: “The assistance fund uses trading fees for token buybacks every 10 minutes,” the single-named Boccaccio noted in a recent report for Blockworks Research, “creating consistent buy pressure.” 

Every 10 minutes!

It’s hard to know what to make of that because there is no such thing in TradFi as a company that returns 100% of its revenue to shareholders — let alone every 10 minutes.

Judging by its valuation, crypto seems a little uncertain too.

The HYPE token trades on about 17x annualized revenue (based on market capitalization), which would normally be considered expensive.

But, in this case, revenue and earnings appear to be the same thing, so it seems pretty reasonable — if you believe the story that HYPE will continue to win business from centralized exchanges.  

Boccaccio cautions that HYPE is trading at a significantly higher multiple than its decentralized peers, but also that these might not be the right peers to compare it.

“The Hyperliquid L1 would have to take a very small percentage of overall Binance daily volume to meaningfully increase its volumes…Taking just 10-15% of only the BTC/USDT pairs volume [from Binance], would lead to a 50% increase in the HyperCore volume.”

“A growth multiple is warranted,” Boccaccio concludes. 

How much of one depends on how much you believe the story, of course.

Jupiter

Jupiter, a Solana DEX aggregator, returns a comparatively modest 50% of revenue to token holders (also via buybacks) — but similarly has quite a lot of it.

Marc Arjoon estimates that Jupiter may earn $280 million of revenue over the next 12 months, which would put the JUP token on a yield of about 11.5% yield, based on market cap.

In equities, an 11.5% yield would imply that the underlying business is distressed, but that does not seem to be the case here.

Jupiter is “the default router” on Solana, Arjoon writes, “currently has no equal in aggregation,” and is “the fourth-highest revenue-generating application among all crypto dapps.”

Better yet, it’s run like a business: “Jupiter’s strategic maneuvers throughout 2024-2025 reflect an organization aggressively entering a hyper-growth phase, ambitiously positioning itself as Solana’s premier crypto super-app.”

That hardly sounds like a business that should yield anything close to 11.5%.

There are plenty of risks, of course, which Arjoon details in his most recent note. 

But his takeaway is that “Jupiter currently trades at compellingly low multiples relative to its peers, suggesting considerable upside potential even without multiple expansion.”

He even quantifies this in a sum-of-the-parts scenario analysis, which warms my TradFi heart:

Looks like a good story.

Helium

Helium, a decentralized telecom provider, has been a crypto story for a long time now — it was founded way back in 2013.

But now it’s a story with numbers: “Revenue as measured by data credit burn is accelerating, growing at 43% QoQ,” Blockworks Research's Nick Carpinito wrote in a recent note.

“Importantly, Helium’s mix of revenue is shifting from Helium Mobile to Mobile Offload, with the latter now accounting for roughly 3x more DC burn, and growing at nearly 180% QoQ, an astounding rate for a DePIN protocol selling into enterprise budgets.”

“Mobile Offload” is the blue line above and its quarterly growth rate of 180% is an astounding number for anyone, really.

Helium’s HNT token might seem to be priced for it, trading on about 120x annualized sales.

But Carpinito told the 0xResearch podcast that he expects revenue to accelerate thanks to a “surge in data credit use through AT&T allowing its subscribers in the US to connect to Helium.”

As a result, “there’s a high likelihood that we see some HNT price appreciation over the next 12 months that is unprecedented and also much more stable than any Helium price appreciation we’ve seen in the past, which was largely based on speculation.”

It’s unusual in crypto to hear anyone make that kind of price prediction based on anything other than speculation.

And refreshing.

Pendle

Finally, Pendle is a “yield trading” protocol whose new offering, dubbed “Boros,” will allow users to speculate on any off-chain or onchain yield, beginning with funding rates. 

“The implementation will look similar to a classical interest rate swap market, where traders can pay a floating rate to receive a fixed rate, or pay a fixed rate to receive a floating rate, on margin,” Blockworks Research’s Luke Leasure explained.

That doesn’t mean too much to an equities guy like myself, but it’s apparently a big market: “With perpetual futures markets settling nearly $60 trillion annually with hundreds of billions in open interest, Boros will enter an entirely new, enormous and untapped market,” according to Leasure, who expects that Boros could double Pendle’s revenue rate.

That’s not something you hear much in TradFi.

In a bull case, Leasure estimates that the “vote-escrowed” version of Pendle’s token might be trading on just 1.6x earnings:

1.6x!

Nothing in equities ever trades on 1.6x earnings unless its business is about to fall off a cliff, which doesn’t seem to be the case here.

Still, that’s not investment advice (from me, at least) because Pendle is a complicated story — as most of them are in crypto.

But at least they’re now stories that can be told in numbers.

— Byron Gilliam

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Hackathon devs? Your ticket is covered.

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