In-depth analysis of Pumpfun: Decoding the unknown story behind the meme coin casino and valuation analysis

Pumpfun, the meme coin issuance platform based on the Solana chain, is rapidly tilting the balance of the crypto market. Since its launch in January 2024, with its unique joint curve pricing model and decentralized token issuance mechanism, it has quickly attracted the attention of investors and the enthusiasm of users. To date, Pumpfun's total revenue has exceeded 1.52 million SOL, about $262 million, and in the past month, Pumpfun's share of meme coin issuance on the Solana chain has reached 70%. Pumpfun has surpassed the vast majority of DeFi projects and become the fastest growing platform in crypto history. However, just as everything seems to be going smoothly, Pumpfun's recent selling behavior has caused the market to ponder deeply - is there a deeper strategic layout behind the continuous selling of Solana? And what does SecondLane's move to list a 1% equity stake in Pumpfun at a valuation of $1.5 billion mean? These questions may indicate that Pumpfun is about to face a major turning point. In this article, we will unveil the secrets behind Pumpfun through data and analysis, and explore whether its current valuation is reasonable.

The Rise and Current Status of Pumpfun

According to the latest data, Pumpfun's total revenue has exceeded 1.52 million SOL, with cumulative revenue exceeding $262 million. The platform has issued a total of 4.02 million tokens, of which Pumpfun accounted for 70% of the meme coins issued on the Solana chain in the past month.

In general, Pumpfun has become one of the fastest growing applications in crypto economic history, achieving $100 million in revenue in 217 days, far exceeding traditional DeFi projects. Data shows that the second-ranked ENA took 251 days to reach this milestone, while traditional DeFi projects like Curve (CRV) and Sushi took 350 days and 546 days respectively.

Team Background

Pumpfun's success is inseparable from the youth and innovation capabilities of its founding team. The Pumpfun team was not initially focused on meme coin issuance, but tried multiple directions, starting with an NFT market. After several attempts, they gradually turned to the meme coin market and quickly achieved success.

The Pumpfun team is from Europe, and the founding members are generally younger, with the CTO's education level only at the high school level. However, this has not hindered their outstanding performance in the technical field. They have stood out in the Web3 field with their keen product intuition and innovative thinking, and ultimately created a successful project like Pumpfun.

Investor Background

Pumpfun not only gained market recognition through the strong team capabilities, but also received the support of well-known investors. Qiao Wang, co-founder of Alliance and a renowned crypto industry investor.

Alliance currently mainly invests in super early-stage projects valued at a few million dollars, and Qiao Wang also obtained at least a 1000-fold return on his investment in Pumpfun in this round.

Qiao Wang mentioned that when they initially invested in Pumpfun, the team had not yet clearly focused on the meme coin direction. At that time, they tried multiple different directions, and even planned to position it as a token launchpad.

Qiao Wang believes that Pumpfun has the potential like Zora (Zora is an NFT launchpad, although it does not have token circulation, but has accumulated stable income for several years). It was because he saw the unique innovative thinking of the Pumpfun team that Qiao Wang decided to invest. At the time, they did not foresee that Pumpfun would evolve into a project focused on meme coins, but Pumpfun has indeed exceeded expectations and become the leader in the entire meme coin track.

Qiao Wang emphasized that for consumer-oriented projects like Pumpfun, the capital demand is not high. Although Alliance only invested a few hundred thousand dollars, this amount is already sufficient for a consumer-oriented project. In fact, too much capital may become a bottleneck that hinders the development of the project. Now, Pumpfun's valuation has reached 100 times the initial investment, proving its huge market potential and investment value.

Pumpfun's Selling Behavior and Changes in the Solana Market

Since Solana's price hit a new high on November 22, the inflow of funds into Solana has slowed significantly, and this phenomenon has been particularly evident in the past week, while the proportion of funds flowing into Ethereum has risen significantly. According to Artemis data, more than 53% of the inflows to Ethereum in the past 7 days have come from Solana. Is this market reaction related to Pumpfun's selling behavior?

According to Ember monitoring, pump.fun sold another 65,000 SOL about 7 hours ago, worth about $15.3 million.

So far, pump.fun has obtained a total of about 1.52 million SOL in fee income. In the past week, they have sold nearly 200,000 SOL, and their total sales volume is 1.137 million SOL ($206 million), with an average price of about $182.

However, as we have noticed, Pumpfun's recent continuous selling of Solana may be an important signal of the flow of funds in the crypto market.

SOL/ETH has been continuously declining.

Recently, Pumpfun has launched a live streaming function, combining token issuance and live streaming e-commerce, which has pushed Pumpfun's heat to a historical high. On November 23, Pumpfun's single-day revenue once reached $14.58 million, setting a new record for the platform. Subsequently, the platform temporarily suspended live streaming activities, which has also led the market to speculate whether Pumpfun's selling behavior is related to its upcoming strategic adjustments or capital needs.

If Pumpfun's team is obtaining funds by continuously selling Solana, this may indicate that the platform is preparing for the next stage of expansion or adjustment. Although Pumpfun's live streaming has significantly increased the platform's revenue and visibility in the short term, the continuous selling behavior may also have a certain impact on the Solana market.

Considering that the price trend of Solana is closely related to Pumpfun's capital flow, this behavior may reflect Pumpfun's capital needs in the expansion process, and also imply that there may be some changes in market expectations.

At the same time, SecondLane's move to sell Pumpfun's equity has also attracted widespread market attention. SecondLane has listed 1% of Pumpfun's equity, with a valuation of $1.5 billion, which may reflect the market's expectations for Pumpfun's future development direction. The team's selling behavior and the upcoming equity sale, do they indicate that Pumpfun is about to face some important changes or transformations? These questions are worth further discussion.

Discounted Cash Flow (DCF) Analysis: Pumpfun's Current Valuation

Using the Discounted Cash Flow (DCF) method to value Pumpfun is a more traditional and in-depth assessment approach. This method predicts the company's future free cash flow (FCF) and then discounts it to the present value to derive the intrinsic valuation of the project.

In a project like Pumpfun, we can treat it as a platform-type protocol, and predict its future cash flow based on the transaction fees and token issuance revenue it generates. Next, we will proceed with the valuation analysis in the following steps.

Step 1: Estimate Future Cash Flows

PumpFun's main revenue sources include:

1. Token issuance fees: The platform charges a 1% transaction fee. This is PumpFun's main source of revenue, as the platform collects a corresponding proportion of fees each time a user purchases tokens on the platform.
2. Listing fees: A 6 SOL listing fee charged for each token that goes live. This revenue comes from the issuance and listing of each new meme coin project on the platform.
3. Potential additional value-added services: Such as token issuance, advertising, or platform promotion, which may become additional revenue sources in the future.

Based on current data:

• Total revenue in 2024 is estimated to be $262 million, which includes revenue from token issuance and transaction fees.

Step 2: Set Different Scenario Analysis (Optimistic, Neutral, Pessimistic)

Due to the significant volatility of the crypto market, factors such as revenue growth and Solana price fluctuations may affect PumpFun's future cash flows. Therefore, we have set three different scenarios for analysis:

Optimistic Scenario: Assuming the market maintains rapid growth, Solana price rises, and PumpFun continues to attract a large number of users, with a high revenue growth rate. We assume a revenue growth of 30%, a Solana price of $350, and a discount rate of 14%.

In the high-growth stage of the market, investors have a more optimistic outlook on the future, and the investment risk is relatively low, which means the present value of future cash flows is higher in this scenario. A higher Solana price means an expansion of the market liquidity pool, and more investors are willing to participate in higher-priced meme coin investments, leading to more transactions and higher returns.

Neutral Scenario: Assuming the market growth slows down, Solana price stabilizes, and PumpFun's revenue maintains steady growth. We assume a revenue growth of 0%, a Solana price of $240, and a discount rate of 9%.

In the stable growth scenario, investors have a neutral outlook on the future, and the risk is relatively moderate. At this time, although there are certain participants, due to the stability of the market, the fluidity of funds and the participation of investors may be relatively low, which may have a weaker driving effect on transaction volume and revenue.

Pessimistic Scenario: Assuming the market enters a downturn, Solana price declines, and PumpFun's revenue declines. We assume a revenue growth of -30%, a Solana price of $130, and a discount rate of 4%.

In the case of a market downturn or recession, investors may take a more conservative attitude towards future returns, believing that the uncertainty of future cash flows is greater. When market participants decrease, the demand for meme coins may also decline sharply, so there may be negative revenue growth.

These three scenarios consider different market environments and external risks, which can help us arrive at a more comprehensive valuation result.

Step 3: Calculate Future Cash Flows

Based on the revenue growth rates in different scenarios, we calculate the future revenue and discount it to the present.

Optimistic Scenario (30% revenue growth, Solana price $350, discount rate 14%):

Neutral Scenario: Solana price $240, annual revenue growth 0%, discount rate 9%

Pessimistic Scenario: Solana price $130, annual revenue growth -20%, discount rate 4%

Now we have the discounted cash flows for the Optimistic, Neutral, and Pessimistic scenarios.

Weighted DCF = 1/3 × High Growth Scenario DCF + 1/3 × Volatile Growth Scenario DCF + 1/3 × Decline Scenario DCF = $1.068 billion

Conclusion:

• Based on our discounted cash flow analysis, the weighted valuation is $1.068 billion.

SecondLane has listed 1% of Pump.fun's equity for $15 million, implying a total valuation of $1.5 billion for Pump.fun. From our discounted cash flow analysis, based on Pump.fun's current revenue level, market risk, and Solana price volatility, its reasonable valuation range should be around $1 billion, or even lower in the pessimistic scenario.

Therefore, the $1.5 billion valuation is clearly too high and overly optimistic, especially considering the volatility of the crypto market and the lack of sustained revenue growth for Pump.fun. In the current situation, the valuation given by SecondLane may have an excessively high risk, and if the market or revenue growth does not meet expectations, investors may face a significant valuation adjustment.