Fundamentals for cryptocurrencies: Token Terminal
Today I am briefly introducing a very interesting website that allows gauging fundamentals for cryptocurrency, more specifically about blockchain protocols, and Dapps build on top of these protocols. It’s always a hard task to value a blockchain and the revenue a protocol is generating, however, with Token Terminal you can get a lot of insights into what is going on in layer-1, layer-2, and decentralized applications.
Token Terminal assumptions
The platform considers each crypto project as a company, every protocol can generate revenue that is shared between participants and protocol owners. Crypto businesses are run by token holders, likewise, companies are run by shareholders.
The main assumption is that traditional financial metrics can also apply to protocols and Dapps, which ultimately generate cash flows and revenue like a listed company does.
Metrics
Token Terminal deploys several metrics, in my opinion, the most important ones you should pay attention to are Borrowing volume, Price to Earnings Ratio, Price to Sales Ratio, Protocol and Supply side revenue, and of course TVL.
Borrowing volume: represents the total value of outstanding loans of a lending protocol. This is very important if you want to assess the financial health of a lending platform.
Price to Earnings Ratio: this metric is taken from traditional finance, where usually the price of a company’s stock is divided by the earnings per share of the company. This metric is telling you how much investors are paying for a dollar of revenue. In the same way, Token Terminal applies this concept to cryptocurrency projects by taking the fully diluted market cap and dividing it by the annualized protocol revenue. The only difference is that each protocol revenue is not measured by subtracting costs from revenue.
Price to Sales Ratio: this metric is taken from finance too, and in this case is equal to the fully diluted market cap divided by annualized total revenue.
Protocol Revenue: this metric measures the total amount of revenue that is distributed to token holders, likewise dividends for a public company. If you play with this number, you can compute the payout ratio of each protocol, dividing the protocol revenue by the total revenue of the project (also a metric shared by Token Terminal)
Supply-side Revenue: this metric is equal to the amount of revenue the projects pay to the supply-side participants (LPs). The parallel to traditional finance here could be the coupon paid to debtholders on their principal, lenders of tokens are acting in the same manner.
TVL: is the value in dollars of the assets deposited in the project’s smart contracts.
Data sources
Token Terminal collects data either from blockchains or via external API. The platform collects both on-chain and off-chain data, using several third-party data providers (The Graph, Etherscan, Alchemy, DeFi Pulse, CoinGecko, Coin Metrics, Uniswap TWAP oracle, Subscan, and GitHub).
Navigate the platform
Token Terminal is user-friendly; you can find a dashboard where all the most important data on every project are gathered. On the top of the dashboard, you find the summary of the project, here you can find all the info on that project, save it among your favorites, and take a look at its smart contracts, and its key metrics.
Other interesting features are the competitive landscape, where you can compare each project to others, by selecting the metric you want to compare, and custom charts where the user can create a customized chart using several metrics and projects (the number of metrics is limited to two).
This article is not intended to be investment advice. Seek a duly licensed professional for an investment recommendation.