Original Title: "Storytime for crypto investors"

Author: Byron Gilliam

Translation: Deep Tide TechFlow

"The social goal of skilled investing should be to overcome the dark forces of time and ignorance that loom over our future."

------ John Maynard Keynes, renowned economist

Although investing involves a lot of numbers, it is generally believed that investing is more of an art than a science.

"The selection of common stocks is a difficult art," Benjamin Graham once warned.

And Graham's lifelong student, Warren Buffett, further clarified, "Investing is an art… putting cash to work now with the expectation of getting more cash in the future."

Almost all investments boil down to predicting future cash flows.

But Peter Lynch cautioned that those "investors trained to rigidly quantify everything are at a significant disadvantage."

However, this does not mean that, as some financial nihilists claim, "valuation is just a meme."

On the contrary, it means that applying and interpreting quantifiable valuation metrics is itself a creative activity.

Choosing which valuation metric applies to which investment is a subjective decision—and knowing how to interpret those results is even more so.

For example, a low valuation does not necessarily mean a stock is cheap, and a high valuation does not necessarily mean a stock is expensive (the opposite is often true).

A stock may look very cheap on some metrics but appear extremely expensive on others.

And there is no obvious correlation between these valuations and actual returns.

This often leads to frustration—if cheap stocks don’t go up and expensive stocks don’t go down, then why bother figuring it all out?

I believe it’s worth studying because that’s what makes investing interesting and appealing—if that’s the case, the fun of crypto investing is just beginning.

Until recently, crypto investors had very limited choices in terms of data, with almost no data available beyond token prices and market caps.

This turned everything in the crypto space into a "story"—but that’s okay!

Investing is essentially the art of storytelling.

However, the best investment stories are often told with numbers, and the crypto space is gradually acquiring such conditions as more protocols begin to generate revenue, and a larger portion of that revenue is allocated to token holders.

Moreover, thanks to the efforts of organizations like Blockworks Research, these numbers have become more accessible. Their analysts package this data into easy-to-understand charts and reports for our reference.

This helps the crypto space move toward a higher level of narrative: storytelling with numbers.

Let’s take a look at some current numbers.

From crypto Twitter and podcasts, it seems that market sentiment for Ethereum has hit a new low, especially compared to Solana.

But if a newcomer from a traditional finance (TradFi) background looks directly at the data, they might draw a completely different conclusion.

According to data from Blockworks Research, Solana recorded $36 million in "net income for token holders" in April, giving the SOL token an annualized earnings multiple of 178x—this multiple, while high, may be reasonable if one considers the current activity level to be low.

In contrast, Ethereum's net income for token holders in April was $21 million, resulting in an earnings multiple for the ETH token of up to 841x.

A TradFi investor seeing that ETH's valuation multiple is 5 times that of SOL would not immediately think, "Wow, why is everyone so pessimistic about Ethereum?"

But they also wouldn’t immediately assume that the market views Solana as 5 times more positive than Ethereum.

Instead, they might conclude that Solana's revenue valuation is lower, possibly due to it primarily coming from "low-quality" memecoin trading activity; while Ethereum's revenue valuation is higher, at least partly because it includes higher-quality activities, such as revenue related to real-world assets (RWAs).

Now, we have some angles to analyze: if you believe that memecoin trading activity is not that low quality, then SOL may be undervalued; whereas if you think real-world assets are the trend of the future, then ETH may not be overvalued.

Of course, you can dig deeper for more information.

According to Blockworks Research, the total revenue of all Solana applications is only about 1.8 times Solana's own revenue.

For a platform business, this is a very high take rate—far exceeding Apple's 30% cap, which the U.S. government even considers to have monopolistic characteristics.

This could mean that Solana's revenue is too high, and therefore its token valuation multiple should be lower; or it could indicate that Solana has a business moat, and thus its token valuation multiple should be higher.

In either case, this is a story worth paying attention to.

Hyperliquid is a semi-decentralized crypto exchange, and its story is somewhat unique: the protocol generated up to $43 million in revenue in April and distributed almost all of it to token holders.

Not surprisingly, this model has helped its token perform well recently. As Blockworks Research's Boccaccio pointed out in a recent report, "The aid fund repurchases tokens every 10 minutes using trading fees, creating sustained buying pressure."

Every 10 minutes!

It’s hard to make a clear judgment on this because, in traditional finance, no company returns 100% of its revenue to shareholders—let alone every 10 minutes.

From its valuation perspective, the crypto market also seems somewhat hesitant.

The trading valuation of the HYPE token is about 17 times its annualized revenue (based on market cap), which would typically be considered expensive.

But in this case, revenue and profit seem to be the same thing, so if you believe HYPE can continue to win business from centralized exchanges, such a valuation still looks quite reasonable.

Boccaccio reminds us that HYPE's trading valuation multiple is significantly higher than its decentralized peers, but those peers may not be appropriate comparables.

"Hyperliquid's L1 only needs to capture a small portion of Binance's daily trading volume to significantly boost its trading volume… just capturing 10-15% of Binance's BTC/USDT trading pair could increase HyperCore's trading volume by 50%."

"Therefore, the growth multiple is reasonable," Boccaccio concluded.

Of course, the size of this multiple depends on your level of trust in this story.

Jupiter is a decentralized exchange (DEX) aggregator on Solana that returns a relatively modest 50% of its revenue to token holders (also through buybacks)—but its revenue is still quite substantial.

Marc Arjoon estimates that Jupiter could generate $280 million in revenue over the next 12 months, which means that based on market cap, the JUP token's yield is about 11.5%.

In the stock market, an 11.5% yield typically indicates that the related business is in distress, but that doesn’t seem to be the case here.

Jupiter is "the default router on Solana," Arjoon wrote, "currently unmatched in the aggregation space," and "is the fourth-ranked application by revenue among all crypto dapps."

More importantly, it operates like a real business: "Jupiter's strategic actions in 2024-2025 indicate that this is an organization actively entering a high-growth phase, ambitiously positioning itself as the top crypto super app on Solana."

This sounds nothing like a company that should have an 11.5% yield.

Of course, there are still many risks, which Arjoon detailed in his recent report.

But his conclusion is that "Jupiter's current trading valuation multiple is attractive compared to its peers, indicating that it still has considerable upside potential even without considering multiple expansion."

He even quantified this through a segment valuation analysis, which is reassuring for someone with my traditional finance background:

This looks like a good story.

Helium, a decentralized telecom service provider, has long been a hot topic in the crypto space—it was founded back in 2013.

But now, it’s not just a story; it’s a story backed by data: "Revenue measured by Data Credit Burn is accelerating, with a month-over-month growth of 43%," wrote Nick Carpinito from Blockworks Research in a recent report.

"More importantly, Helium's revenue sources are gradually shifting from Helium Mobile to Mobile Offload, which now accounts for about three times the Data Credit Burn and has a month-over-month growth rate approaching 180%, an astonishing growth rate for a DePIN (Decentralized Physical Infrastructure Network) protocol in the enterprise budget space."

"Mobile Offload" is the blue line in the chart above, with a quarterly growth rate of 180%, which is a shocking number for anyone.

Helium's HNT token seems to have reflected this in its valuation, currently trading at about 120 times its annualized sales.

But Carpinito mentioned in the 0xResearch podcast that he expects revenue to accelerate further, as "AT&T allows its U.S. users to connect to the Helium network, driving a surge in Data Credit usage."

Therefore, "within the next 12 months, we are likely to see HNT prices rise unprecedentedly, and this rise will be more stable than the speculative price fluctuations of Helium in the past."

In the crypto space, it is very rare to hear someone make such price predictions based on non-speculative factors.

And it’s refreshing.

Finally, Pendle is a "yield trading" protocol, and its new product "Boros" will allow users to speculate on any on-chain or off-chain yield, starting from funding rates.

"This implementation is similar to the classic 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, and it supports leveraged trading," explained Luke Leasure from Blockworks Research.

For someone with my traditional finance background, this sounds a bit complex, but it’s clearly a huge market: "The perpetual futures market settles nearly $60 trillion annually, with open interest in the hundreds of billions. Boros will enter a brand new, massive, and untapped market." Leasure stated that he expects Boros could double Pendle's revenue.

This is rarely heard in traditional finance.

In an optimistic scenario, Leasure estimates that the "vote-escrowed" version of the Pendle token could trade at just 1.6 times earnings:

1.6 times!

In the stock market, a company's valuation would only drop to 1.6 times earnings if it were on the verge of collapse, but clearly, that is not the case for Pendle.

Nonetheless, this is not investment advice (at least not from my side), as Pendle's story is quite complex—just like most projects in the crypto space.

But at least now these stories can be told through numbers.