Thread by @korpi87

1) Although in a bull market narratives drive prices more than fundamentals, it's always wise to look at your portfolio from a bear market perspective and pay attention to traditional valuation metrics adapted to DeFi. @tokenterminal is a place to go. Let's play a bit with AMMs.

2) The most common metric used to compare protocols is Price to Sales ratio (P/S). It's a relation of a protocol's market cap to its revenue so it indicates how the market values the asset relative to its revenue and expectation of future growth.

3) In terms of AMMs revenue represents total fees paid by traders to liquidity providers. In other words it's the amount users are willing to pay to use the protocol. For better comparison market cap is fully diluted (FDV), i.e. it assumes all tokens are in circulation.

4) Let's look at P/S ratios for top AMMs. Lower values suggest a protocol is either undervalued or the market has lower expectations of its future growth.
- $SUSHI: 7.91
- $BNT: 16.07
- $UNI: 25.22
- $1INCH: 26.61
- $BAL: 53.87
- $DODO: 185.69

5) It seems the market has extraordinarily high expectations for $DODO and very low expectations for $SUSHI. Or maybe $SUSHI is undervalued and $DODO overvalued? Or $DODO is fairly valued but $SUSHI hugely undervalued? There is no correct answer. It's just a comparison.

6) What we can say for sure is that $SUSHI and $BNT have bigger potential for price increase than their competitors (fundamentally speaking). It doesn't mean they will turn out to be better investments but if market were to be rational, they would be. Is market rational though?

7) Since November many DeFi tokens have substantially increased in price. FDV for $UNI increased 13x, for $SUSHI 35x! What happened with P/S? For $UNI increased 4x, for $SUSHI only 1.7x! Despite tremendous price action, P/S for $SUSHI has been very flat. What does it mean?

8) The growth of $SUSHI revenues almost matched increasing FDV. That's why P/S ratio hasn't changed much. In other words, market still values $SUSHI similarly to how it did in November. Funny, isn't it? Price-wise $SUSHI has almost the same growth potential as it had in November.

9) @tokenterminal doesn't show @bancor on P/S page (why?) so I don't have the same chart for $BNT but its evolution from November to now is even more impressive:
FDV: ⬆️ 14x
P/S: ⬇️ 3x (!)
Do you realise what happened? P/S decreased 3x while FDV increased 14x!

10) It may indicate that $BNT was overvalued in November or market expected a significant growth of the protocol in future (well done market!). But it also shows that current price is much more reasonable than it was earlier. If you think you missed the opportunity, think again.

11) @Bancor absorbs more and more liquidity and generates more and more volume. I explained why it happens in the linked thread. Because of that, reasonable expectations of future growth (expressed as P/S ratio) should be much higher than they are now.

https://twitter.com/korpi87/status/1366483481367351300

12) Higher expectations of future growth => higher P/S (higher price). With P/S almost flat since the beginning of 2021, $BNT price barely keeps up with the increase in @bancor revenues. According to @tokenterminal, 30-day total revenues grew by 350% month to month.

13) Fundamentally speaking, recent $BNT price action barely reflects the current growth of the protocol, let alone future expectations. In my opinion, there is plenty of room to grow. Probably this is why top $BNT holders have been accumulating big positions in recent 30 days.

14) To sum up, taking valuation metrics into account, I believe that $SUSHI and $BNT have the highest growth potential among other AMMs. It doesn't mean they will grow the fastest but I like their strong fundamentals and innovation they bring into DeFi. Not financial advice 😀