The author Pima, from the source @LeePima on Twitter, asks what exactly are you buying in the public chain market or the blockchain industry? What is the future for the business model of blockchain?
The underwhelming performance of the cottage market has raised doubts among many in the industry. In a complex environment with different stages of industry development, increasing investment difficulty is inevitable. However, the fundamental problem lies in finding a long-term sustainable business model for the project.
After ten years, I have found that many people, even those who have been in the industry for a long time, still don’t quite understand why public chains have always dominated the TOP100 list and why top public chains attract hundreds of billions of dollars in funding while your coins barely attract millions. I like to simplify complex things, so I’ll try to analyze it.
Starting from first principles, P=E*PE, which means Stock Price = Profit * Valuation. Therefore, in the long run, the factors influencing stock prices are only profit and valuation.
First, Valuation PE. This is quite complex, with numerous influencing factors, such as growth, interest rates, penetration rates, industry space, central bank liquidity, and monopolies, all of which determine the valuation of different stocks at different times. Warren Buffett said he doesn’t buy BTC because BTC doesn’t generate cash flow (you can consider cash flow as profit). In the long term, I feel that most of what he says is correct. However, in the stock price formula above, only profit E is considered, not valuation PE. So, from another perspective, MEME/BTC can be classified as the same type, both of which can be attributed to the PE factor. As long as your MEME keeps attracting people to buy, your MEME can rise to a certain level without creating its own cash flow. However, an important premise is that this happens within a certain market value. The larger the market value, the more people you need to attract, and without sustained cash flow support, it is very difficult to last.
Second, Profit E. We mainly focus on this. Profit comes from revenue, so for stock prices to rise, revenue must increase. And where does revenue come from? It comes from the business model, which is defined as a business activity that generates profits by providing goods or services to others. To put it simply, it’s about how your company makes money. In 2006, Duan Yongping bought Warren Buffett’s lunch for $620,000 and asked a question that had been troubling him for a long time: What is the most important thing in investment? Buffett’s answer was the business model. A company cannot sustain long-term development if it doesn’t know how to make money. The core of the continuous rise of the FAANG stocks in the US stock market is profit, not other short-term factors.
What about the business model in the coin circle?
In my opinion, there are mainly: block space fees; SWAP fees, including exchanges such as DEX/CEX; lending, interest rate differentials; stablecoins, fee extraction; MEV, parasitic on block space. Other aspects are easy to understand, but let’s focus on block space fees.
In fact, what is very hidden is that the coin circle has created a new business model: selling block space, i.e., public chains are valued and charged for block space using GAS fees. Global consumers purchase access and storage rights to global computing/bandwidth resources based on the basic price of each transaction.
I was very confused about a few words before, such as “value” internet. We know that most of the information on the internet is free, such as images/text/videos, etc., and a piece of information can be infinitely duplicated. Therefore, in the early development of the internet, people did not know how to make a profit. In later exploration, the business model of the internet was gradually discovered, including making money from SaaS subscription services, advertising, transactions (e-commerce), etc.
So, where is the business model of blockchain? I later understood that the “value” internet in the coin circle is a paid internet, where you have to pay GAS for every click. The original intention of blockchain is to solve the problem of currency attributes, which is very different from the free internet. You cannot use one dollar to infinitely duplicate and repeatedly pay others. The free internet cannot solve the problem of currency. Therefore, in the process of extending from currency to public chains, the unique point is that it makes consumers bear the cost of accessing block space. Over the past few decades, companies in the world have been paying AWS bills to lease machine computing resources in order to provide products and services to customers, and thus generate revenue. This changes on blockchain applications: users pay for project operating costs. Every year, global consumers pay tens of billions to hundreds of billions of dollars for GAS, and that is the revenue of public chains. If the annual income is 100 billion, with a 5% bond yield, giving it a 20 times PE, it will be a 2 trillion market, a 10 times PE will be a 1 trillion market, and a 50 times PE will be a 5 trillion market. This is the fundamental reason for the vast public chain market.
For example, the USDT circulation on TRX has reached 60 billion, occupying half of the entire USDT market. I looked at TRX’s annual revenue in 2023, which is about 400-500 million USD, 75% of which comes from USDT transfer income, which is a profit of 400 million USD. If we give it a PE of 20, an 80 billion valuation for TRX is reasonable. However, the key point is whether this data can increase tenfold in the next ten years or even more. How much market share can SOL’s efforts in payments/open finance grab in the future? This is getting off track, so I won’t delve further into the topic of scalability.
You need to understand that I am simply trying to explain why the public chain market is so vast, meaning I have only stated the existing phenomenon that you are willing to pay for GAS fees. I have not gone further into why you have to pay GAS and why more people will pay GAS in the future. Demand for transfer payments? Demand for getting rich (hoarding GAS)? Demand for entertainment (paying for a certain DAPP)? Demand for trading cryptocurrencies/commodities/stocks/SWAP? If in the future no one pays for GAS fees, the public chain market will cease to exist.
Therefore, when I see some fancy terms, I don’t know if it is due to the early stage of development in the coin circle or the difficulty in landing and concretizing, they are all abstract terms that are difficult for ordinary people to understand: scalability, ZK technology, L2, UTXO, chain abstraction, modularization, homomorphic encryption, parallel EVM, etc. I didn’t get involved in the early development of the internet, so it was later that I learned that terms like modularization/single-chain originate from internet technology. However, these terms are rarely mentioned in the internet field, but are repeatedly emphasized in the coin circle. I am now very resistant to these narrative terms. Basically, once I am familiar with the basic concepts, I immediately ask: How much revenue can this technology bring me? So that I can generate enough profit to buy back? Otherwise, where is the market fit for your technology? I can support the long-term cultivation of basic technology/basic disciplines, but tell me how long it will take to get a clear business model? Two years, ten years, or twenty years? The more complex question of how to increase revenue from GAS and who can occupy the top market share is your main consideration. Although I have chosen SOL.
Therefore, since the public chain is a product with revenue, cash flow, and profit, it confirms that its business model is clear and has a way out. The remaining question is how to expand revenue, increase market share, and reduce costs in accordance with the business development path.
Many projects in the coin circle do not have a business model, which means they themselves do not know how to make money. Only 3% of the world’s top 500 companies have survived until now. Investment is about finding these 3% of projects and holding them for the long term. Many investment concepts are very simple, but they are very difficult to implement. With tens of thousands of projects in the coin circle in the future, how can you invest without knowing the value? Seriously, investment.
The clarity of the river, how long will life last? Less nonsense and more practicality, be down-to-earth, otherwise, you won’t have much time left.
