Ma: Analyzing the business model of the currency circle and the value path of blockchain investment

Author: Pima

The business model of the public chain market

In the public chain market or blockchain industry, what is the essence of what you are buying? Where is the way out for the blockchain business model?

As the performance of the copycat market falls short of expectations, industry insiders have doubts about the prospects of the industry. In a complex market environment, the difficulty of investment in different development stages will inevitably increase, but the core of the problem lies in finding a business model for the long-term sustainable development of the project.

Valuation of the public chain

Starting from the first principle, the stock price P=EPE, that is, the stock price = profitValuation. Therefore, in the long run, the only factors that affect stock prices are profit E and valuation PE.

First, valuation PE. This factor is relatively complex and has many influencing factors, such as growth, interest rates, penetration rate, industry space, degree of central bank release, degree of monopoly, etc. Idol Buffett once said not to buy BTC because it has no cash flow (can be regarded as profit). From a long-term perspective, this statement is basically correct, but it only takes into account the profit E in the stock price formula and does not consider the valuation PE. From another perspective, MEME/BTC can be classified as a PE factor. As long as it continues to attract investors, it can maintain growth within a certain market value range. However, it should be noted that the larger the market value, the more people need to be attracted. Without continuous cash flow support, it will not be sustainable.

Second, profit E. Profit comes from revenue. Therefore, rising stock prices require revenue growth, and the source of revenue is the business model. A business model is defined as a business activity that makes money by providing goods or services to others. Simply put, it is how a company makes money.

The business model of the currency circle

In 2006, Duan Yongping asked Buffett about the focus of investment during a lunch, and Buffett answered that it was the business model. If a business does not know how to make money, it cannot achieve long-term sustainable development. The core factor driving the continued rise of the Seven Sisters of U.S. stocks is profits, not other short-term factors.

What is the business model of the currency circle? Personally, I think it is nothing more than:

• Block space fees;
• SWAP fees (exchanges, including DEX/CEX);
• Lending (interest spreads);
• Stablecoins (pumping);
• MEV (parasitic on block space).

The currency circle has created a new business model: selling block space, that is, the public chain is priced in GAS fees and charges block space fees. Global consumers purchase access to global computing/bandwidth resources and storage on a per-transaction basis.

The original intention of blockchain is to solve the problem of currency attributes, which is essentially different from the free Internet. A piece of money cannot be copied and paid to other people indefinitely, and free Internet cannot solve the currency problem. Therefore, in the process of extending the public chain from currency attributes to the public chain, the unique feature is that users need to bear the cost of accessing the block space. For decades on the Internet, companies have rented machine computing resources to pay AWS bills to provide products and services to customers and earn revenue.

In applications on the blockchain, users need to pay for the project running costs. Global consumers pay billions to tens of billions of dollars for GAS every year, which is the revenue of the public chain. For example, assuming annual revenue is US$10 billion and the yield on government bonds is 5%, given 20 times PE, the public chain market can reach US$200 billion, 10 times PE is US$100 billion, and 50 times PE is US$500 billion. . This is the fundamental reason why the public chain market is huge.

The prospect of the public chain market

You are willing to pay for GAS fees, this is an existing phenomenon. However, further thought is required: why do you need to pay GAS? Why will more people pay GAS in the future? Need to transfer payment? The need to get rich suddenly (Tuen GAS)? Need for entertainment (paying for a DAPP)? Need to trade coins/commodities/stocks/SWAP everything? If no one is willing to pay GAS fees in the future, the public chain market will cease to exist.

Therefore, when you see some fancy terms, don’t be fooled by the early development of the currency circle or the factors that are difficult to implement. The propaganda is full of abstract words that are difficult for ordinary people to understand, such as scalability, ZK technology, L2, UTXO, chain abstraction, modularity, homomorphic encryption, parallel EVM, etc. Terms such as modular/single chain originate from Internet technology, but are rarely mentioned in the Internet field, but are repeatedly promoted in the currency circle. I was resistant to these narrative words. After familiarizing myself with the basic concepts, I directly asked: How much revenue can this technology bring? How much profit will be generated from the repurchase? Otherwise, where is its market fit? It can support long-term in-depth cultivation of basic technologies/basic disciplines, but it requires a clear business model and the time required to obtain the model (two, ten or twenty years). More complex issues such as how to increase revenue GAS in the future and who will occupy the top market share are the focus.

Summary

The public chain is a product with revenue, cash flow and profit. Its business model is clear and has a future. What remains is to consider how to expand revenue, increase market share, reduce costs and other measures that are consistent with the business development path.

Many projects in the currency circle do not have a clear business model and do not know how to make money. The survival rate of the world's top 500 companies is only 3%. Investment is to find and hold these 3% companies for a long time. There will be tens of thousands of projects in the currency circle in the future, making value judgment difficult. Investment needs to be cautious and taken seriously.

Don’t play with myths and keep your feet on the ground. Otherwise, you won't have much time left.

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