[Long English Thread] How to Determine the Fair Valuation of an L1 Token?

Chainfeeds Guide:

Valuing L1 tokens has never been a simple task. It’s not just about revenue; more often, it involves speculation, narratives, and expectations for the future—factors that are often priced in before they actually materialize.

Source:

Author:

The Smart Ape

Opinion:

The Smart Ape: The first principle in token valuation is not to confuse different categories. L1, L2, protocol, and L0 tokens each have their own analytical frameworks. Here, we focus only on L1, dividing them into general-purpose (ETH, SOL, AVAX, BNB, DOT, ADA, SUI) and application-specific (HYPE, dYdX, OSMO, RUNE, RENDER, TON, RON). The first step in valuation is to look at revenue, but the key is whether the revenue can be captured by the token, for example, through buybacks, burns, dividends, or injection into protocol development. If revenue flows entirely out of the system, it should not be counted. Once revenue attribution is confirmed, it should be annualized, such as using three months of data × 4 as a benchmark. Next, look at the FDV/Revenue ratio, which is the most intuitive valuation anchor. For traditional tech companies, this ratio is usually between 8–15, while in crypto it is often much higher. It’s important to emphasize that this metric alone is not sufficient; L1 growth and network traction are equally important. Attention should be paid to usage data such as active addresses, trading volume, transaction count, and TVL. Absolute values matter, but the trend line is even more critical—if there is sustained long-term growth, even a small base can support a high valuation, as the market will anticipate future expansion. Another core dimension is the security budget, i.e., whether the network can sustain itself through fees, otherwise it can only rely on inflation. The key metric here is net issuance rate (issuance – burn / total supply). If negative, it means deflation, which is excellent; if positive, it means inflation, which is unfavorable. Finally, token unlocks must be considered: when will they unlock, and who benefits? If unlocks are used for marketing or team salaries, it’s generally negative; if used for development or distributed to holders, it’s more positive. If the unlock scale is small (less than 10% of circulating supply), the impact is minor; 10–30% is moderate pressure; above 30% is heavy pressure. In the past year, Ethereum generated about $740 million in revenue. Due to EIP-4844 lowering gas fees, revenue performance was not outstanding, but almost all of it accrues to ETH holders, including burning, staking dividends, and MEV redistribution. The FDV/Revenue is as high as about 675, far exceeding the 8–15 range of traditional companies. However, ETH’s value lies not only in revenue, but in its unique status as a global settlement layer and store of value, which brings a structural premium to its valuation. The annualized issuance rate is only 0.5–0.7%, and the burn mechanism often offsets or even exceeds new supply, giving ETH deflationary properties at times. Growth data is also impressive: active addresses, stakers, transaction count, and TVL are all steadily increasing. Therefore, whether ETH is overvalued is hard to judge, but its unique status is certain. In the past year, Solana generated about $387 million in revenue, most of which is returned to holders through burning and staking rewards. The FDV is $14.3 billion, corresponding to an FDV/Revenue of about 370, still much higher than traditional companies. From a growth trend perspective, active addresses and transaction count have passed their explosive phase, so future exponential growth may be limited. SOL’s valuation mainly comes from its positioning as a high-throughput public chain aimed at large-scale retail applications, rather than purely financial metrics. This valuation logic shows that even with relatively limited revenue, as long as there are unique ecosystem advantages, the market can still price it highly. Hyperliquid’s uniqueness lies in using 100% of revenue for token buybacks, so all revenue directly accrues to token holders. Revenue in the past 90 days was about $255 million, annualized to about $1 billion, with an FDV of $5.2 billion, and an FDV/Revenue of about 52. Although higher than traditional companies, it is much lower than ETH or SOL, making it more cost-effective. Its trading volume and user numbers grow every month, currently accounting for only about 4.9% of the CEX market, leaving huge future potential—a typical case of growth expectation-driven valuation. Overall, L1 valuation is not simply about revenue. The market relies heavily on speculation and future narratives, often pricing in before actual delivery. Revenue and fundamentals provide anchors, but what truly drives prices is speculation and future imagination. From a strictly fundamental perspective, most L1 projects are overvalued relative to their current delivered value, but the market continues to prepay for growth and narrative premiums. Therefore, investors need to make comprehensive judgments based on FDV/Revenue, growth trends, security budget, unlock pressure, and other dimensions—not blindly trusting current revenue, nor ignoring future potential. In this sense, crypto valuation methods are more like bets on the future, rather than traditional financial statement-style actuarial calculations. [Original text in English]