Fundamental Analysis for Crypto — Valuing Crypto Projects by Comparison
Disclaimer : This is not Financial Advice, I am not your financial advisor this article is for educational and entertainment purpose only
I was motivated to write this after participating in the Liqwid Finance 💧 airdrop, there were a lot of people within the community who didn’t understand the value of the airdrop.
here I am to clarify how I approached his issue ✨
First of all I need to set the foundation for the content I am about to share, this includes concepts like Market Cap, Fully Diluted Market Cap, Total Value Locked (TVL), Token release Schedule Etc. if you are familiar with these concepts you can skip the following topics.
Market Capitalization
Market cap will be representing the value of all the circulating supply of the project — Using this concept we will be able to compare the Market cap at different Stages and how the price will be affected considering the circulating supply as well.
Fully Diluted Market Cap
Similar to market cap but its the value after dilution at the same price which some people misunderstand, we should look at the token release and the token allocation, diluted MCap alone makes no sense 🤯 the market is dynamic and reacts to supply/demand with respect to time.
Token Release Schedule
this is just the schedule which the supply gets released , this will determine how quickly/slowly the supply gets added — here is an example.
Total Value Locked (TVL)
TVL is the amount Value that is been managed by the protocol or “locked”- do not be tricked with the term “locked”, just like banks people can move the money in and out (There are exceptions) — here is an Example
this is the TVL data for Aave, however we know that Aave deposits are free to withdraw anytime, they are not locked for a period or so
Method — Valuation by comparison
Here we need to compare the project to the most similar and recent scenario, my pick for Comparing Liqwid Finance (On Cardano)is BENQI Finance (on Avalanche)
Lets look at some data from BENQI finance 😊
Now Lets Get the main Data from Liqwid Finance
Now what we have to do is compare the Market Cap growth of BENQI finance to the Token Release Schedule of Liquid Finance, here the values would be only accurate when the TVL is the same after launch, you can change the valuation dynamically with the TVL once we get the data
Tip : take Mcap/TVL = 0.1 as a rule of thumb for approximations on MM protocols
here would be the initial comparison
You can also use different Data sets and extend this (since BENQI Finance is only 4 months old at press time) — even though anchor finance is not the best example you can have a rough idea ✨
Resources Used :
Conclusion
There were people withing the Liqwid discord community who sold their 193 $LQ tokens from the airdrop at 10ADA each (at the time 13$ each) 🤯 and today at writing it is 75ADA each (as the time 100$ +) 👀
Not many believed my valuation at the time 😅 and I am not against selling as well — even I sold a few, but its worth noting that 100$+ was a given from the analysis and through these analysis you can keep your emotions aside and let logic make the decisions for you ✨
Note: there are many variables that would determine the price and growth of a project such as;
- Trust towards the team
ex- Sushi swap : there have been many scandals within the sushi swap team starting off with the founder. - Incentive schemes
These schemes will help bring in Mercenary capital and have a solid start at first, however they will leave when there are better opportunities to deploy their capital - Token Utility
If there is no proper token utility the most logical option for Yield farmers would be to dump the token on the market - Overall Market Dynamics
Many times in the history we have seen altcoins get crushed by the Giant (BTC) so be careful about the overall dynamics - Hype driven markets
things can get CRAZY!!! Crypto is highly driven by Sentiment — hype as well as FUD
At these instances there will be certain deviations from this model
The full Valuation and the Yield farming expected rewards will be shared in the free Discord community 🤍 Join and lets have more interesting conversations and share our knowledge 👋
Peace Out ✌️
