Recently, many people seem to be busy rushing various popular local dogs, especially MemeCoin on Solana. Although MemeCoin does not focus on value or technology, and is completely driven by market sentiment, many people enter this field with the purpose of making money and making quick money, so everyone is FOMO about this behavior. In fact, I understand it very well. Moreover, the Solana network seems to have become the first choice for many MemeCoin due to its high speed, low transaction fees, and current ecological popularity.
Last month (February 1), we also published an article introducing a zero-code process for issuing MemeCoin on the Solana chain. As of the time of writing this article, we can also intuitively find through some on-chain data platforms that there are almost 24,000 MemeCoins in the liquidity pool on Solana (not counting those that have run away), and this number is still there every day. Increase. As shown below.
In the past few days, I have seen some friends in the group also jokingly saying: Value investing is ultimately empty, and the All In meme lives in the palace (this is a joke).
But what can I say? On the one hand, some MemeCoins on Solana continue to explode and continue to create FOMO, and on the other hand, the market as a whole has undergone some corrections. Don’t you think this atmosphere is very intriguing? If you only see people around you making money from local dogs and nothing else, then I can only say that there may be some problems with your information channels, which may be a problem for you. Danger signal.
In the previous article, in order to keep everyone as calm and rational as possible and avoid falling into a All In state, we have introduced some specific ideas, on-chain tools and methods for finding potential MemeCoin. In the next few days, we will not talk too much about MemeCoin. In fact, what needs to be said has been said many times before, and all that is left is to wish everyone the best.
In the article a few days ago, we shared a "Project Research Template Table". In this template table, we divided it into 7 major categories and 30 options. We hope that everyone can use this to compare a certain project. Comprehensive surveys and research. And I found that some friends still practiced it more seriously, because I also saw some new related messages in the background.
Because many of the comments are about "tokens" and "indicators", in this issue, we will focus on these issues and give you some basic knowledge of token economics and some commonly used indicators. Some new combing.
In fact, last year, we briefly reviewed this knowledge, mainly introducing the concept of token economics and its five uses. So what is token economics?
In fact, we can directly understand it separately. The so-called token economics is: economics + tokens, which is a knowledge of how crypto projects manage the supply, use and value of tokens. To put it bluntly, the project party ensures the success of the project by making reasonable settings in terms of supply, distribution methods, uses, etc. of its issued tokens.
Next, we will continue to sort out and share a new issue from the perspectives of supply, distribution, demand, etc.
1. Supply of Tokens
Just a few days ago, several partners left messages asking questions about ARB unlocking. Through on-chain tools, we can also check more intuitively that ARB will unlock tokens worth US$2.13 billion, and 76.62% of its supply will be unlocked. Entering the market on March 16th (exactly the date of this writing). As shown below.
With the large number of ARB unlocks this time, if these unlocked tokens directly enter the market for sale, but the purchase demand does not keep up, then there will be a high probability of a relatively large fluctuation trend, and the rate of decline may exceed your expectations. Imagine.
But the good news is that we are currently in a bull market, and there is always demand for buying, so this unlocking of ARB may not lead to the extreme decline that people are worried about, and you may even see some good news emerge. Further stimulate and create demand for ARB.
Therefore, it is still necessary to understand the supply and demand of a token.
On the supply side, the basic aspects you need to know include how much of the token is currently in circulation, what the total supply is, who are the major currency holders, etc. As for this data, we can query it with the help of on-chain tools such as CoinMarketCap, Coingecko, Bubblemaps, Arkham, etc.
Market Cap (Mcap) : Refers to the market capitalization, that is, the number of tokens in circulation x the current token price.
Fully Diluted Valuation (FDV) : refers to the fully diluted valuation, that is, the total number of tokens x the current token price.
Circulating Supply : Refers to the circulating supply, that is, the number of tokens currently circulating freely in the market.
Total Supply : refers to the total amount of current tokens that have been released, which includes free circulation and tokens in various lock-up mechanisms.
Max Supply : refers to the total amount of all tokens currently released. In fact, the market value corresponding to this supply is the FDV we mentioned above.
Of course, some tokens do not have the so-called Max Supply because they adopt an inflation design, and their supply will continue to increase with continuous minting and issuance. However, in order to cope with inflation, some projects will also design a burning mechanism to destroy a certain number of tokens.
For example, the well-known ETH is an inflationary token. It has no upper limit on supply. However, as Ethereum shifts from PoW to PoS, its token economics has also discovered some basic changes. The current burning rate of ETH has Turning ETH into a deflationary token. As shown below.
2. Distribution of Tokens
Before the project officially launches the token, the team will design their token economics and allocate the tokens differently. For example, some of them will be allocated directly to team members or foundations, and some will be allocated to investors. Or community users, etc.
Let’s take a brief look at Optimism (OP) as an example:
The initial total supply of OP is 4,294,967,296 and will expand at a rate of 2% per year. As shown in the figure above, OP’s specific allocation, 25% of the tokens are allocated to the ecosystem fund (funds used to stimulate the development of the collective ecosystem), 20% of the tokens are allocated to retroactive public product funding, and 19% of the tokens are allocated to the ecosystem fund. Coins are distributed to users (in airdrops), 19% of tokens are distributed to core contributors, and 17% of tokens are distributed to investors.
The distribution of tokens should be a part that many people pay more attention to. This is actually easy to understand. If the distribution design of a token is fair, it will definitely be beneficial to long-term development. If most of the tokens are allocated to projects The team and investors, to put it bluntly, are the bright ones who will cut you off, which is definitely not good for the currency price.
Of course, in order to rule out the above suspicion, some projects will lock the tokens allocated to team founders, team members or investors, such as locking for 1 year, or perform linear releases to alleviate the possible consequences of the sell-off. Price pressure. But no matter what, if the token distribution design is not reasonable, then this project is definitely not worth trading.
As for the specific allocation, you can generally find it through the project’s official website or white paper. For the unlocking and linear release of tokens, you can use tools such as TokenUnlocks, cryptorank, etc. to query. As shown below.
3. Demand for Tokens
After studying the supply and distribution of tokens clearly, the next thing we need to do is to think about its demand.
If you are reading this article now, then you have just caught up with a good period, because the crypto market is currently in a bull market, and as long as it is in a bull market, there will be a lot of demand. Especially during a bull market, whoever can create the most attention (topics/hype) will create the most demand.
In terms of demand, we can simply divide demand into two categories:
One type is demand created based on attention (topic/hype)
For example, in recent days, many people have been criticizing Solana's various bullies. In fact, this is mainly due to demand created by hype. Users' FOMO emotions allow some bullies to double their sales several times or even dozens of times in a day, but this This kind of demand is often short-term. When the hype is over, what is left will definitely be a piece of chicken feathers.
One type is the demand created by fundamentals
Projects with good fundamentals tend to be the ones that can create long-term value (investment value), but during some of the crazy periods in the bull market, these projects tend to perform less well in the short term than projects like popular MemeCoin.
But in the long run, projects with good fundamentals will definitely save you from the consequences of ignorance. This is what Hua Li Huawai has emphasized before. It is recommended that you give at least 50% of your position to BTC and ether, because in this way, even if your remaining positions are all wiped out by you, in the end you will You will also miraculously discover that BTC and the ether with low pressure can "save" you back.
As for how to choose attention and fundamentals, there seems to be no fixed routine. It mainly depends on the flow of money. Because hot money is always profit-seeking and will not last long in one field, this is why the so-called sector rotation exists in this market. For example, hot money enters a field and continues to raise the prices of some projects (even some junk projects) in this field, thereby attracting a large number of leeks to enter the market. When the leeks are almost gone, the hot money will withdraw and go. Find the next area. This is repeated, and many leeks are harvested over and over again in this process of constantly tracking hot spots.
4. Some common indicators for judging projects
In addition to token economics, we actually need to pay attention to other aspects to better understand the potential of this token (project).
Next, we will continue to sort out some of the most common and commonly used indicators for you:
The first one is TVL (Total value locked)
TVL is a core measurement indicator commonly used in DeFi projects. Translated, it refers to the total locked value. You can simply understand it as the total amount of assets held by each protocol.
From a certain perspective, the higher the TVL, the better the development prospects of the project may be, because a high TVL means that people are willing to lock their crypto assets in the protocol. The reason why people do this is, on the one hand, based on their trust in the protocol (Would you entrust your money to someone you don’t trust for safekeeping?), and on the other hand, they hope to use this lock in exchange for various benefits provided by the protocol. Value rewards (such as yield, token rewards, etc.).
So, what is the relationship between this TVL and the market value we mentioned above?
Here we introduce a more commonly used indicator: Mcap/TVL ratio, which is dividing market value by TVL. The smaller the ratio, usually it means that the project may be undervalued.
The second one is Fees/Revenue (income)
Fees directly translates to fees. Many newcomers may be confused by this. We can simply understand it as the fees paid by users. It is mainly used to evaluate whether users are willing to pay to use the protocol, or whether there is a product market for the protocol. Fit (especially without token incentives). If you still don’t understand, let me continue to speak plainly. Fees can be directly regarded as the total income generated by the project.
You can understand Revenue as the portion of fees retained by the protocol (some protocols will also choose to allocate a portion to token holders). To put it bluntly, you can simply think of it as the income that the agreement collects after providing relevant services, and it also represents the actual revenue capacity of the project itself.
If we have used a simple formula to explain it, it is: Fees = Revenue + other revenue items (different projects may have different revenue design models).
Here we take Raydium (an AMM DEX built on the Solana chain) as an example. In this protocol, when users trade or exchange tokens, there are two main types of fees involved (corresponding to the two incomes of the protocol). They are:
Exchange fee (Swap fee), that is, whenever a user exchanges between currency pools, the platform will charge a transaction fee of 0.25% (of which 0.22% will be returned to the LP pool and 0.03% will be used to repurchase RAY tokens).
Network fee means that the platform will charge a nominal fee of 0.0001–0.001 SOL for each transaction.
It can be seen that as long as someone uses the Raydium protocol, it will generate a certain amount of income. The higher the number and frequency of users, the greater the income generated.
In other words, if a project itself can generate various incomes and is able (willing) to use part of the income to repurchase its own tokens or feed back to token holders, then to a certain extent it will Have a positive or stimulating effect on the price of its tokens.
For example, last month (February 23), Erin Koen, the head of governance of the Uniswap Foundation, launched a proposal to the Uniswap Governance Forum, suggesting using a fee mechanism to reward UNI token holders who have entrusted and pledged their tokens. , and affected by this news, the price of UNI tokens was immediately raised that day. As shown below.
The third is user growth (number of active addresses, number of transactions)
In addition to TVL and fee income, user growth is also an important indicator for measuring a project and an important indicator that affects the token price of the project.
Let’s make a simple comparison between SOL and ETH (data on March 15):
In terms of TVL, SOL is US$3.7 billion and ETH is US$52.5 billion.
In terms of fees, SOL is US$3.6 million and ETH is US$18.8 million.
In terms of revenue, SOL is US$1.8 million and ETH is US$16.8 million.
Although there is still a big gap between SOL and ETH in terms of TVL and Fees/Revenue, SOL's recent price trend has been relatively strong. In addition to other influencing factors such as Wall Street capital, SOL's rapid development in user growth may also have contributed to its growth. One of the factors causing the price increase. As shown below.
Of course, in addition to the indicators we introduced above, there are actually many practical indicators, such as P/S ratio, P/F ratio, etc. Interested friends can also go directly through some on-chain tools (such as token terminal). Make corresponding data queries. As shown below.
Okay, we will share the content of this issue here for the time being. This is also the 427th article updated by Hua Li Huawai. We will continue to bring you more related sharing later. Interested friends can contact us through Hua Li Hua Wai. Check out Li Huawai to learn more.
The sources of data/pictures mentioned above mainly come from dexscreener, tokenunlocks, coingecko, ultrasound, cryptorank, defillama, coinmarketcap, artemis, and tokenterminal platforms. Friends who are interested in this can search and learn about it through Google. Friends in the Crypto mutual aid exchange group outside Hua Li Hua can directly check the corresponding source/citation links in the Notion version of the article.
Finally, we need to remind you again that none of the projects mentioned in this article have any interest in Hua Li Huawai. Any investment behavior is risky. Please be sure to DYOR (Do Your Own Research) before making decisions.
Note: The above content is only a personal perspective and analysis. It is only used for popular science learning and communication and does not constitute any investment advice. The crypto market is an extremely high-risk area. Please treat it rationally, increase your awareness of risk prevention, and abide by the relevant laws and regulations of the country and region where you are located!
