Continue Capital Pima: Where is the way out for blockchain business models?

Original author: Pima, ContinueCapital Joint Creation

The Value Journey of Blockchain Investment

What are you buying in the public chain market or the blockchain industry? Or where is the way out for the business model of blockchain?

The underperformance of the altcoin market has raised concerns among many professionals in the industry. In a complex environment with different stages of industry development, increased difficulty in investment is inevitable. However, the fundamental problem lies in finding a long-term sustainable business model for the project.

After ten years, I found that many people, even those who have been in the industry for a long time, still don’t understand why there are so many public chains dominating the top 100 list, why the top public chains attract billions or even trillions of funds, while your coin is only worth millions or tens of millions and is hardly noticed. Personally, I prefer to simplify complex things, so I will try to analyze it thoroughly.

Starting from the first principle, P=EPE, that is, Stock Price=ProfitValuation, so in the long run, the influencing factors of stock price are only profit and valuation;

Firstly, the valuation PE. This is quite complicated, with many influential factors, such as growth rate/interest rate/penetration rate/industry space/central bank liquidity/monopoly, etc. These are the factors that determine the different valuations given to different stocks by people in a certain period of time. Idol Buffett said not to buy BTC because BTC has no cash flow (you can think of cash flow as profit). In the long run, I feel that most of what he said is true. It’s just that in the above stock price formula, only the profit E is considered, without considering the valuation PE. Therefore, from another perspective, both MEME and BTC belong to the same category and can be classified into the PE factor. As long as your MEME keeps attracting buyers and increasing its market capitalization, it can rise to a certain level without creating its own cash flow. However, there is an important prerequisite: within a certain market capitalization. The larger the market capitalization, the more people you need to attract, and without sustainable cash flow support, it is very difficult to last.

Secondly, let’s discuss profit E. Profit comes from revenue, so in order for the stock price to rise, revenue must increase. But where does the revenue come from? It comes from the business model, which is defined as the commercial activity of making a profit by providing goods or services to others. Simply put, it’s how your company makes money. In 2006, Duan Yongping spent $620,000 to have lunch with Warren Buffett. He asked a question that had been bothering him for a long time: What is the most important thing to focus on in investing? 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 reason for the continuous rise of the seven tech giants in the US stock market is profit, not other short-term factors.

What is the business model of the crypto world?

In my personal opinion, it mainly includes: block space fee; SWAP fee, which refers to exchanges, including DEX/CEX; lending, interest rate difference; stablecoin, slippage; MEV, parasitic on block space. Everything else is easy to understand, but let’s focus on block space fee.

Actually, very hidden is the fact that the crypto world has created a brand new business model: selling block space, which means public chains price and charge block space fees in GAS. Global consumers purchase access and storage rights to global computing/bandwidth resources based on the basic price of each transaction.

I didn’t understand a few words before, what’s called “value” Internet, we know that most of the information on the Internet is free, such as pictures/text/videos, etc., and a piece of information can be infinitely copied, so in the early development of the Internet, people didn’t know how to make profits. In the later exploration, they gradually discovered the business model of the Internet, including making money through SaaS subscription services, advertising, transactions (e-commerce), etc.

Where is the business model of the blockchain? I later understood the value internet in the crypto world, which is a paid internet. Every time you click, you need to pay GAS. The original intention of the blockchain is to solve the problem of currency attributes, which is very different from the free internet. You cannot use one dollar to infinitely copy and repeatedly pay it to others, and the free internet cannot solve the currency problem. Therefore, in the process of extending from currency to public chain, the uniqueness lies in the fact that consumers bear the cost of accessing the block space. In the past few decades, enterprises in the Internet have leased machine computing resources and paid AWS bills to provide products and services to customers in order to obtain profits. But things are different on the blockchain: users pay for project operating costs. Every year, global consumers pay billions to tens of billions of dollars for GAS, which is the revenue of the public chain. If the annual income is 10 billion, with a 5% national bond yield, a 20 times PE ratio is a 200 billion market, a 10 times PE ratio is a hundred billion market, and a 50 times PE ratio is a 500 billion market. This is the fundamental of the huge public chain market.

For example, the current circulation of USDT on TRX has reached 60 billion, accounting for half of the entire USDT market. I checked the annual income of TRX for 23 years, which is approximately 4-5 billion US dollars, 75% of which comes from USDT transfer income, which is a profit of 400 million US dollars. If we give it a 20 times PE ratio, a valuation of 8 billion for TRX is reasonable. Of course, this is not the focus. The key is, can this data expand tenfold or even more in the next ten years? How much incremental market share can SOL’s efforts in payment/open finance capture in the future? Going off topic, we will not further expand on the topic of expansion here.

You need to understand that I am just trying to explain why the public chain market is huge, that is, I have only explained the existing phenomenon that you are willing to pay the GAS fee, and I have not gone further into why you have to pay GAS and why more people will pay GAS in the future. Transfer payment demand? Rich demand (hoarding GAS)? Entertainment demand (paying for a certain DAPP)? Trading currency/commodity/stock/SWAP demand for everything? You should know that if no one pays for GAS fees in the future, there will be no public chain market.

So now, many times when you see some fancy terms, I don’t know if it’s because the crypto world is in its early stages of development or if it’s due to the difficulty of landing and concretizing. The promotion is all about abstract terms that are difficult for ordinary people to understand: scalability, ZK technology, L2, UTXO, chain abstraction, modularization, homomorphic encryption, parallel EVM, etc. Because I did not participate in the early development of the Internet, it wasn’t until later that I learned that terms like modularization/monolithic chain originated from Internet technology, but you rarely hear anyone mention them in the Internet field. Instead, they are repeatedly emphasized in the crypto world. I am now very resistant to these narrative terms. Basically, after familiarizing myself with the basic concepts, I directly ask: How much revenue can this technology bring me? How much profit can I make 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 obtain a clear business model. Two years, ten years, or twenty years? How to increase revenue in the future, GAS, and who can occupy the head market share, these are the more complex questions you should consider. Although I have chosen $SOL.

Therefore, since the public chain is a product with revenue, cash flow and profits, its business model is clear and has a way out. The rest is how you choose to expand revenue, increase market share, reduce costs and take other actions that comply with the path of business development.

Many projects in the crypto world do not have a business model, and they themselves do not know how to make money. The survival rate of the Fortune Global 500 companies is only 3%. Investment is about finding these 3% of projects and holding them for the long term. Many investment concepts are very simple, but implementing them is very difficult. With tens of thousands of projects in the crypto world, it is difficult to see how to invest in value. Be serious about investing.

Wait for the clear river, how long will life be? Don’t play around with empty words, be down-to-earth, otherwise you won’t have much time left for you.

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