Blockchain Valuation Models Remain Unresolved Amid Growing Adoption
Valuation of blockchain networks lacks standardization despite growth and adoption. Lessons from the early internet era highlight that traditional financial models often fail to capture the essence of new technologies.
The First Internet Valuation Wave
In the mid-1990s, valuations relied on metrics like page views and unique visitors, leading to inflated company valuations without profitability. The dot-com bubble burst revealed the inadequacy of attention-based metrics.
The Post-Crash Realignment
After the crash, investors prioritized revenue generation and profitability. Successful companies showcased operational performance, shifting focus from potential to actual results.
The Rise of SaaS and Unit Economics
The emergence of Software as a Service introduced reliable revenue models. Key metrics included:
- Annual Recurring Revenue (ARR)
- Customer Acquisition Cost (CAC)
- Lifetime Value (LTV)
This period emphasized sustainable growth and efficient customer acquisition.
The Platform Era
From 2015 onward, platforms like Facebook and Google transformed valuation by focusing on network effects and ecosystem value. Analysts began measuring:
- Network effects
- Ecosystem depth
- User engagement
Today’s Internet Giants
Current valuations prioritize operational efficiency, profitability, and cash flow. Sector-specific performance metrics have become essential, incorporating intangibles like AI models and data ownership.
Challenges in Blockchain Valuation
Blockchain valuations remain problematic. Traditional metrics often fail to account for decentralized nature and public infrastructure. Current valuation methods include:
- Monetary Store of Value (MSOV) models
- Onchain GDP
None are widely accepted or comprehensive.
A New Lens: Valuing Velocity and Flow
A proposed framework focuses on economic circulation within blockchains, measuring:
- Stablecoin turnover
- DeFi lending and trading
- NFT trading dynamics
- Real World Assets tokenization volumes
- Medium of exchange fees
This model emphasizes movement, trust, and utility as key indicators of blockchain value.
Conclusion
Adapting valuation frameworks to fit evolving technologies is crucial. The blockchain sector must develop new models to accurately reflect economic potential and societal impact.