Contrary to the title, Perpetual Protocol is the probably the best derivative platform out there with a Fee:Volume ratio second to none other than UniSwap v3. The price of $PERP was also barely affected by the market crash in May as nearly 68% of $PERP are staked and are enjoying their share of the high trading fees as a result of extreme market volatility and the protocols highly efficient capital utilisation model. This may have incentivised the $PERP community to HODL. However if you look at Figure 01 below you will actually see that the value of the network took quite a beating during the market crash.
The average trade size in PERP is about $5,500 and as of now PERP is only limited to the XDAI chain. PERP gives a very similar experience to what institutional investors with deep pockets are used to in traditional finance and it would only be logical from both a protocol and a token holders point of view to migrate to chains / environments that are attracting increased adoption by institutional capital like Ethereum and various other L2s and scaling solutions.
PERP's exponential growth in market cap has neither been complemented by network growth nor trade volumes. In Fact there is a very weak correlation between growth in market capital and daily trade volumes at 0.26. This indicates that the growth in market cap is not aligned with both network value and daily volumes. The relationship between market cap and network value has been described in figure 01 below:
Figure 01:Market Cap vs Network Value Metcalfe's (NVM)
If you look closely at figure 01, you can see that both trend lines are moving in opposite directions. During the crash in May, the market cap of PERP was barely affected but the NVM dumped. This could be due to three reasons.
- More trading volumes as a result of more volatility which means more fees for PERP stakers;
- Nearly 68% of all PERP is staked and hence there is less chances for massive price dumps.
- Network value does not apply to derivative protocols
The next surprising characteristic is the growth in volumes vs market cap of PERP. One would assume that volumes is the best way to judge the growth of a derivatives protocol as higher volumes lead to more fees which in turn lead to a buy pressure on $PERP. Surprisingly, there is a very weak correlation (0.26) between the daily volumes growth and the market cap of perp. Figure 02 below clearly describes the above argument.
Figure 02: Volume vs Market Cap for Perpetual Protocol
When you compare this to another leading derivatives / synthetics protocol like Mirror protocol you will see that the market cap is positively correlated to its daily volumes and usage over time. The below screenshot clearly shows the above mentioned point:
MIR has a much stronger relationship with volume and market cap and the user base is also much larger. However MIR is probably much lower in USD terms because of tokenomics. The best way to sum up the two could be like comparing Messi and Ronaldo. Both are the best in the business and have their respective economic moats and disadvantages as well.
Based on the above quantitative facts, one might wonder if the the price of $PERP is overvalued and $MIR under valued or fairly valued based on the network value and daily usage (Utility). The fact that $PERP is the only successful on chain platform for perpetuals could and its high capital efficiency which has been discounted by the market could be the reason for its "premium" over its logical or "fair" market price.
One way for Perpetual protocol to justify its high token price will be to become chain agnostic and grow its user base thereby improving the value of its network. The only way I see this happening is for them to explore fresh water outside XDAI Chain.
