Thread by @TheTokyoDoge

Comparing $REN and $RUNE - an investment thesis 👇

1/ Currently, there are a lot of different and competing #DeFi protocols, which are trying to gain a significant market share in the interoperability & cross-blockchain bridge sector.

2/ This thread isn’t about which of these protocols are the most likely ones to succeed. I won’t compare the underlying tech nor any roadmaps or significant USPs. Instead, I’ll just refer to a set of important metrics and ratios.

3/ When you consider to invest in a protocol’s token, it’s useful to know if this token is more likely to be currently under- or overvalued. In this thread, I’ll compare the $RUNE and the $REN token, because the underlying protocols are competing in a similar area.

4/ First things first, I’ll need to define some basics.

5/ First of all, you should always look at the current FDV. If the FDV is much higher than the MC, it’s also harder for a token’s price to perform well over time, because there is potentially a lot of upcoming inflation (= more supply), which could offset a future rise in demand.

6/ For example, there are currently ~300,000,000 $RUNE circulating. However, there is a total supply of 500,000,000 $RUNE token. That means, that roughly 40% of all $RUNE tokens are still outstanding (= not yet circulating).

7/ By looking at the release schedule, you’ll notice that the remaining 40% are meant to be released until the year 2026. A lot of this inflation will be used to incentivize liquidity providers and node operators.

8/ On the other hand, the circulating supply of $REN is 1,000,000,000 and equals the total supply. There is no protocol inflation happening, because $REN tokens aren’t commonly used as a liquidity incentive.

9/ So what does that mean for prices?

1. if demand for $REN = demand for $RUNE ➡️ price of $REN will perform significantly better

2. for price performance of $RUNE = price performance of $REN ➡️ demand for $RUNE would have to be significantly higher than the demand for $REN

10/ (continuation)

3. if demand for $REN doesn’t change in the future ➡️ price of $REN would stay the same

4. if demand for $RUNE doesn’t change in the future ➡️ price of $RUNE would go down, because of all the newly issued supply

11/ Keep in mind, that you could ofc just deposit your $RUNE as a liquidity provider to earn inflationary rewards in $RUNE, but this would come with additional risks (e.g. impermanent loss).

12/ Furthermore, by looking at the MC/TVL ratio, we have another metric to decide if a token should be considered as under- or overvalued.

1. if ratio > 1 ➡️ token is (potentially) overvalued

2. if ratio < 1 ➡️ token is undervalued

3. if ratio ~ 1 ➡️ token is fair valued

13/ Therefore, $RUNE could be considered as quite overvalued, because its MC/TVL ratio sits currently at 10.15 (!). On the other side, $REN is potentially undervalued, because its MC/TVL ratio is only 0.44.

14/ This gap gets even bigger when you consider the FDV/TVL ratio. The ratio for $REN stays the same (no inflation), while the ratio for $RUNE is now at 16.88! To sum up, it seems like the price of $RUNE is heavily driven by speculation, while $REN tends to be undervalued.

15/ IMPORTANT: There is no such thing as the one metric to rule them all. It’s also quite easy to under- or overcount the TVL (e.g. by ex- or including staked governance tokens). Furthermore, investment decisions shouldn’t solely rely on a few metrics or charts, because it’s …

16/ … indispensable to bear long term fundamentals in mind, although you should definitely be aware of economic factors like emission schedules and protocol inflation. Therefore, metrics like the FDV and the MC/TVL ratio can be useful to determine a tokens current (real) value.

17/ Got curious about @renprotocol‘s fundamentals? Feel free to check out my recent #RenVM overview:

https://twitter.com/TheTokyoDoge/status/1479959964345061382