How To Find DeFi Value Deals

How To Find DeFi Value Deals


Bienvenidos mis ositos, tu siempre eres mis queridos! (Welcome back little bears you are always my dears!)

So as you know I’m a lazy panda that doesn’t like to think too much. I like using shortcuts whenever I can. In the TradFi world I use formulas like the Price to Earnings ratio (P/E Ratio) to look for good stock deals. Generally, the lower the P/E ratio the better.

But what about in DeFi?

The same metric exists in DeFi but we have to be more forgiving with DeFi projects.  Allow me to explain.

In a previous post I talked about how SushiSwap could be a future moonshot.

https://www.publish0x.com/how-to-transition-from-tradfi-to-defi/wen-moon-sushiswap-xlzyvxr

But if we take a look at the P/E ratio on token terminal we see that Sushiswap is 52.8!!!

https://www.tokenterminal.com/terminal/projects/sushiswap

Sushiswap Token Terminal

But Panda! It looks so expensive! Are you Nucking Futs?!?

Hey! what’s with the potty mouth? Let’s take it down a notch OK? Yes if we just look at the P/E by itself it does look pricey.

However if we compare SushiSwap to another automated market maker like Curve…

Curve Token Terminal

Curve has a P/E ratio of 303.5!!!

Now compared to Curve, Sushiswap is a bargain but I can still tell you’re a bit skeptical.

Keep in mind though we’re in the middle of a “dip”. Depending on where you got in you could be down about 50% or so. In TradFi this would be a Great Depression, in crypto it’s just another Tuesday. Now when the crypto markets get scared people tend to trade less so less transactions means less money.

Less money = less earnings or the “E” in P/E. So if earnings collapse at a faster rate then price, the P/E can look ridiculously big.

So in addition to looking at protocols in a similar business we can also look at a metric that is DeFI specific: Fully Diluted Valuation/ TVL Ratio

Max supply of 250,000,000 times $8.11   to get a Fully Filuted Value of $2,027,500,000

(My number is a little different probably because of timing and I’m not using all the decimals)

Then I divide by  3,109,388,377   to get 0.65 which is the same as CoinGecko.

https://www.coingecko.com/en/coins/sushi

Sushiswap Coin Gecko

One way of thinking of this is you’re getting a dollar for 65 cents! Now why do I like Fully Diluted Valuation/ TVL Ratio instead of Market Cap/ TVL Ratio? This is more of a personal preference.

I like Fully Diluted Valuation/ TVL Ratio because it’s more conservative. I like to imagine the worst case scenario and be prepared for it. For example what if the project team dumps their bags on the market.

You can cut down this risk by watching their governance activities like a hawk. Recently the Sushiswap community pushed back on a move that would benefit only big money venture funds.

https://thedefiant.io/sushiswap-treasury-sale-proposal-draws-community-ire/

Of course just looking at a few numbers isn’t enough. These ratios are intended to supplement your other forms of research such as reading the whitepaper, social media presence, and actually kicking the tires on the protocol.

Be sharp, stay hungry let’s get that money!

 

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How to transition from TradFi to DeFi
How to transition from TradFi to DeFi

The easiest way to convert DeFi infidels is to show them modern versions of TradFi services that they already use.

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