How to correctly value L1 assets?

Author: Sam Kazemian, Translation: Alex Liu, Foresight News

Many people are talking about how to value different assets in Cryptocurrency, especially during the recent AI memecoin frenzy. But I want to talk about my approach to valuing the most important encryption assets: L1 Token and ‘Type 2’ (dapp / L2 / ‘Equity’ Token).

L1 Token has a mysterious ‘L1 premium’, which no one has systematically explained. Many people believe this is a speculative Ponzi Scheme, but the reality is quite the opposite. L1 premium is a very important and fundamental attribute.

L1 assets (ETH, SOL, NEAR, TRX, etc.) are the ‘sovereign scarce assets’ of the corresponding blockchain economy. They naturally become the most Liquidity assets in the chain economy. Other projects accumulate and use them to build products / Decentralized Finance, incentivizing their Liquidity, making them a safe haven asset in times of crisis.

The asset will ‘生息’ through innovative ways such as Liquidity + ICO + Decentralized Finance, Airdrop, etc., issuing Tokens of other projects to scarce asset holders.

@DefiIgnas 解释得很好：

“L1s are productive assets: you can use them to acquire ecosystem Airdrops, stake to earn rewards, and as the ecosystem expands, their price will pump. Also, if you count the Airdrops obtained by holding ETH, SOL, NEAR, etc., they perform better than the Spot price. In contrast, L2 is an unproductive asset. You can’t use them for native rewards, and you can’t use them as gas (except for STRK, MNT, METIS, and now ZK?). And the Inflation from unlocking is usually too high. Their own ecosystem, protocol, rarely rewards L2 token holders (via Airdrop).”

The dapp Token in the sovereign economic entity (chain) represents the actual labor/GDP of humanity in the economic entity. The scarce L1 assets will harvest Interest from the labor of the people building the digital national economy (chain).

This is why ‘Type 2 Token’ (also known as dapp/L2 Token) is often compared to ‘equity’ and valued through P/E DCF models, while fundamental analysts are still puzzled by the mysterious ‘L1 premium’. It doesn’t need to be called ‘L1 premium’, but rather the asset premium of sovereign economy.

Many people may know that I don’t really like ETH KOL, such as @justindrake, who are sending a signal to the market together, treating ETH assets as the need to sell Block space + blob and calculate the business’s P/E ratio. They are turning ETH into ‘Type 2’ Token. Unfortunately, they succeeded.

L2 Tokens are usually not the sovereign scarce assets of their digital economy, although they have chains and vibrant builders. They belong to “Type 2” and are included in the market capitalization DCF valuation model. In fact, some L2s don’t even have Tokens! Such as Base.

SOL has performed very well, not because its TVL (Total Value Locked) has risen, but because people expect it to be burned/earning billions of dollars in some distant future year. ETH has already earned/burned billions of dollars, but its performance is not better than SOL’s. The pump of SOL is because the entire economy of Solana is using it in liquidity pools, memecoin trading, and Decentralized Finance, and you need it to participate in the Solana network.

People are actually working to build something, tokenizing their labor (as ‘Type 2’, i.e., dapp / PE Token), in order to distribute Interest / rewards to SOL holders / stakers / LPs, while ETH KOL is trying to transform ETH into DCF equity Tokens, with no value other than the cash flow generated by the Ethereum Foundation’s product sales.

@MustStopMurad gracefully said, the best products don’t need Token, and the best Token doesn’t need products. Sovereign scarce assets (L1 Token) are memecoins, which is a serious meme without pictures of cats/dogs (cats/dogs living in the digital nation). balajis detailed the concept of a network nation. The power of this meme is finally starting to be understood. ‘Type 1’ (L1) and ‘Type 2’ (PE/equity/labor/L2) Tokens are clearly different. The community can transform one community into another, but this is a long process.

Most importantly: The security brought by Gas + stake is a technical signal, embodying a social protocol based on the sovereignty of scarce assets, which is not an important value capture function in itself. People have finally realized this, including the legendary @danrobinson.

Therefore, there is no so-called ‘L1 premium’, but the sovereign assets of digital countries, namely Type 1 Token. It can be said to be the most powerful, the most emphasis on basic knowledge of memes, without interesting pictures, it is real economics, but with strong memeticity. My view: only these two types of Token.

Next month, @fraxfinance will release the largest announcement to date, our 2030 vision roadmap. One of the most important things we will launch is how to transform ‘Type 2’ L2/governance/PE Token into sovereign assets. I expect many ‘Type 2’ Tokens to use it as a guide.