Messari Daily Brief Jan. 14, 2021 - Crypto IPO Froth Fest

We’re starting to see signs that the crypto IPO market could become a froth-fest in the new year. Coinbase hype is real. Bakkt will SPAC. eToro is filing. BlockFi likely to follow. Even Gemini teased us with a rumor this morning. A lot of big crypto infrastructure companies with PMF will test the waters.

How about the decentralized alternatives, though? How do we value them given some of the defensibility challenges I discussed in yesterday’s newsletter?

We asked Watkins earlier this week what he thought of valuation metrics total value locked (TVL) vs. network fee multiples (more analagous to how the public markets will value IPOs) for DeFi protocols. He thinks most will end up monetizing their balance sheets (TVL is more than a vanity metric), though the simplicity of migrating liquidity between protocols should lead you to discount TVL vs. network earnings *power*, particularly in environments that are heavily impacted by temporary liquidity mining incentives.

That’s sensible, and he thinks it’s also not easy to normalize across projects: Maker's and Synthetix’s TVL are totally different in substance. Maker relies on external capital (primarily ETH) so its holders don’t determine TVL, while Synthetix relies on internal capital (SNX) to power its entire synthetic asset economy. It all depends on sector, protocol, and mechanism for value capture. For Uniswap, volume matters more than balance sheet (value in the trading flows), whereas with THORChain TVL is more important because its balance sheet is used to drive value towards its security.

Personally, I tend to think long-term about investments, but short-term regarding DeFi KPIs. Uniswap and Sushi fees are staggering, and I’d expect to see those token valuations track crypto exchange IPO valuations somewhat closely. Lenders, asset managers, insurance protocols? My money is on those with long-term balance sheet. Perhaps we should track the inverse of “bitcoin days destroyed” and ascribe premiums to protocols with the largest duration-weighted balance sheets.

Headlines that matter:

• INTEL (enterprise): Decentralizing tBTC governance, Celo quorum changes, Melon v2
• Anchorage becomes the first federally-chartered bitcoin bank (CoinDesk)
• Gemini “watching the market” for a potential IPO (The Block)
• …Buys Blockrize to roll out a crypto rewards card (Decrypt)
• Digital asset manager Arca raises $10M Series A from RRE (CoinDesk)
• Mapping out Polkadot’s ecosystem (The Block - paywall)
• Bitcoin options market puts 20% probability of $50k BTC in Jan (CoinDesk)
• eToro to limit bitcoin weekend buying due to high volatility (The Block)
• Grayscale is dissolving its XRP trust (Decrypt)
• …while Japan regulator says XRP is not a security (CoinDesk)
• Daily Shade: "Bitcoin is what the internet wants to be.” - Jack