Rapture #206: DeFi Valuations Beginning to Look Ripe
I have been scrolling through DeFi land, which has taken an absolute beating since May of last year.
Annihilation
DPI, the index like token fund that tracks major DeFi projects, is down almost 85% from its all time high in May 2021. Furthermore, monthly DEX volumes are steady at approximately $60 billion per month, which is more than a 50% drop from their ATHs in May 2021. Additionally, TVL across DeFi has dropped from nearly $108 billion in November 2021 to just above $55 billion today, a loss of almost 50%. Finally, user growth has effectively stalled across all of the major DeFi projects. Both price and user based fundamentals for most DeFi projects are atrocious right now.
In fact, some of the tokens people coined "blue chips" (lol) like COMP and SUSHI are now down more than 90% from their ATHs. Ten different DeFi projects on Token Terminal have P/Es of less than 10x, and a handful have P/Es less than 5x. Even big names like Trader Joe, QuickSwap, and Yearn Finance are trading at incredibly attractive P/E multiples.
Attractive
Boy am I starting to like what I see! The market is effectively pricing in little to no product innovation across the major DeFi projects. Don't get me wrong, I think many of the teams behind these projects are dropping the ball (always easier to say from the stands mind you), but some of even the major ones are so cheap right now that any sort of jump start in the DeFi narrative might send them flying.
Furthermore, if one is willing to really put some grit into the research process, you can find DeFi projects that have annualized revenues based on their daily revenue that are more than 3x their fully diluted market cap. Now, these DeFi projects are not tracked on sites like Token Terminal, and the lack of liquidity on these token requires even a medium size fish to scale in over days, but boy are they cheap!
In fact, one coin in particular is so cheap, growing users exponentially YTD, and has such a solid narrative to justify future growth that I started to deploy capital into it. Note that it will likely take me days if not weeks to get the position sizing I want without moving the market dramatically (i.e. more than 10%), so I have my work cut out for me. Deals like this don't come along in crypto too often, and, despite the bear market, the asymmetric risk/reward is too much for me to pass up.
I, of course, will be writing about this allocation after my position is set, so be on the lookout likely for sometime next week why I am bullish on this particular coin. While I still think there is more pain ahead for the market (even if we get a short term bounce), when certain category leaders hit such attractive valuations in the most beaten down sector I am willing to put on a position since the strong (and further strengthening) fundamentals of the project give me conviction.
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