Why Blockchain Valuation Models Are Still Up for Debate
Blockchain network valuation presents a challenge similar to the early internet era. Initial internet valuations relied on metrics like page views and active users, ignoring profitability. This led to the dot-com bust. Subsequently, valuations shifted towards revenue, margins, and profitability, exemplified by companies like Amazon and eBay. The SaaS era introduced metrics like ARR, MRR, CAC, and LTV, focusing on recurring revenue and customer lifetime value. The platform era valued network effects and ecosystem depth, with companies like Facebook and Google demonstrating the importance of user engagement and data lock-in. Currently, tech valuations prioritize operational efficiency, profitability, and free cash flow, with a focus on sector-specific performance and intangible assets like AI models.
However, blockchain valuations remain underdeveloped. Traditional methods like DCF and validator revenue are insufficient, similar to valuing early Amazon by shipping costs. Blockchains are public infrastructure, often relying on subsidies or token emissions that distort true value. Existing models like MSOV and onchain GDP offer partial insights but lack comprehensiveness. A crucial missing element is the data layer aspect.
A novel approach is needed, focusing on “velocity and flow”—a measure of how assets move within the blockchain economy. This model analyzes stablecoin turnover, DeFi lending and trading, NFT dynamics, cross-layer asset flows, real-world asset tokenization, and capital reuse across applications. This approach reflects the inherent functionality of blockchains, prioritizing usage patterns and transaction loops. It emphasizes movement as a key indicator of trust, utility, and relevance, mirroring how money velocity reflects an economy’s vitality.
The internet’s evolution demonstrated the necessity of adapting valuation models to technological advancements. Blockchain’s unique characteristics demand a new framework that captures its dynamic nature and economic potential. The development of such a framework is crucial not only for accurate valuation but also for a deeper understanding of the blockchain’s social and economic impact. Creating a valuation model suited to the future of blockchain is essential for its continued growth and adoption.
