Continue Capital and Pima: The path to value in blockchain investment

Author: Pima, co-founder of Continue Capital; Source: Author's Twitter @LeePima

What are you buying in the public chain market or the blockchain industry? Or what is the way out for the business model of blockchain?

The less-than-expected market of the cottage industry has caused many people to have industry doubts. In a complex environment, at different stages of industry development, it is inevitable that investment difficulties will increase, but the fundamental problem is that you have to find a business model for the long-term sustainable development of the project.

After ten years, I still find that many people, even those who have been in the industry for a long time, still don't quite understand why public chains have been able to dominate the TOP100 list, why the top public chains with tens of billions of funds are flocking to them, but your coins are only millions and tens of millions, and there are few people. I like to simplify complex things, and I try to analyze them.

From the first principle, P=E*PE, that is, stock price=profit*valuation, so in the long run, the factors affecting stock price are only profit and valuation;

First, valuation PE. This is more complicated, and there are many influencing factors, such as growth/interest rate/penetration/industry space/how much the central bank releases/monopoly, etc., which are all factors that determine people's different valuations of different stocks in a certain period of time. Idol Buffett said not to buy BTC because BTC has no cash flow (you can think of cash flow as profit). In the long run, I feel that most of what he said is right, but in the above stock price formula, only profit E is considered, not valuation PE. So from another perspective, MEME/BTC are both in the same category and can be classified into PE factors. As long as your MEME keeps attracting people to buy, your MEME can rise to a certain stage without creating cash flow by itself, but there is a very important premise: within a certain market value. The larger the market value, the more people you need to attract, and it is very difficult to sustain without continuous cash flow support.

Secondly, profit E, we will mainly discuss this. Profit comes from revenue, so if the stock price is to rise, the revenue must rise, so where does the revenue come from? It is the business model. By definition, it is a business activity that makes a profit by providing goods or services to others. Simply put, it is how your company makes money. In 2006, Duan Yongping used 620,000 US dollars to bid for Buffett's lunch. He asked a question that had been bothering him for a long time: What is the most important thing for investment? Buffett answered that it was the business model. If a company does not know how to make money, it is impossible to develop sustainably in the long run. The core of the continuous rise of the seven sisters of the US stock market is profit, not other short-term factors.

The question is what is the business model of the currency circle?

In my opinion, it is nothing more than: block space fee; SWAP fee, that is, the exchange, including DEX/CEX; lending, interest rate spread; stable currency, pumping; MEV, parasitic on the block space. The others are easy to understand, just talk about the block space fee.

In fact, it is very hidden that the currency circle has created a brand new business model: selling block space, that is, the public chain charges GAS fees and charges block space fees. Global consumers purchase access and storage rights to global computing/bandwidth resources at a basic price for each transaction.

I didn’t understand a few words before, what is the "value" Internet. We know that most Internet information is free, pictures/text/videos, etc., and one piece of information can be copied infinitely. Therefore, in the early days of the Internet, people did not know how to make a profit. In the subsequent exploration, they slowly dug out the business model of the Internet, including making money from SaaS subscription services, advertising, and transactions (e-commerce).

So where is the business model of blockchain? I later figured out that the value of the Internet in the currency circle is a paid Internet. Every time you click, you need to pay GAS. The original intention of the blockchain is to solve the problem of currency attributes, which is very different from the free Internet. You can't use a sum of money to copy and pay it to others indefinitely. The free Internet cannot solve the currency problem. Therefore, in the process of extending from currency to public chain, its uniqueness lies in that it makes consumers bear the cost of accessing block space. In the past few decades of the Internet, companies have rented their own machine computing resources to pay AWS bills in order to provide products and services to customers, thereby charging fees to make profits. This is good for applications on the blockchain: users pay for the cost of project operation. Every year, consumers around the world pay billions to tens of billions of US dollars for GAS, which is the revenue of the public chain. If the annual income is 10 billion, the yield of treasury bonds is 5%, and the PE is 20 times, it is a 200 billion market, 10 times PE is a 100 billion market, and 50 times PE is 500 billion, so this is the fundamental reason for the huge public chain market. For example, the current USDT issuance on TRX has reached 60 billion, thus occupying half of the entire USDT market. I looked at TRX's annual income in 2023 is about 400-500 million US dollars, of which 75% is USDT transfer income, that is, 400 million US dollars in profit. If we give 20 times PE, the valuation of TRX of 8 billion is reasonable. Of course, this is not the point. The point is, can this data be expanded tenfold in the next ten years or far more than tenfold? How much future incremental market share can SOL's payment/open finance grab? This is too far-fetched, and we will not further extend the topic of expansion here.

You have to understand that I am only trying to explain why the public chain market is huge, that is, I am only explaining the existing phenomenon that you are willing to pay for GAS fees. I have not gone further to understand why you should pay for GAS and why more people will pay for GAS in the future. The need for transfer payment? The need to get rich quickly (hoarding GAS)? The need for entertainment (paying for a certain DAPP)? The need to trade coins/commodities/stocks/SWAP everything? You have to know that if no one pays for GAS fees in the future, the public chain market will not exist.

So now I often see some fancy terms. I don’t know whether it’s because the currency circle is in its early stages of development or because it’s not easy to implement and visualize. The promotion is all about abstract words that are difficult for ordinary people to understand: scalability, ZK technology, L2, UTXO, chain abstraction, modularization, homomorphic encryption, parallel EVM, etc. Because I didn’t participate in the development of the Internet in the early stage, I didn’t know until later that modularization/monopoly chain and other words all originated from Internet technology, but you are rarely mentioned in the Internet field, but you are repeatedly promoted as the focus in the currency circle. I am now very resistant to narrative words. Basically, after being familiar with the basic concepts, I directly ask: How much revenue can this technology bring me? How much profit can I generate for repurchase? Otherwise, what is the market fit of your technology? I can support the long-term development of basic technology/basic disciplines, but tell me how long it will take to get a clear business model? Two years, ten years or twenty years? How to increase revenue GAS in the future and who can occupy the top market share are more complex issues that you should consider, although I have already selected $SOL.

Therefore, Since the public chain is a product with revenue, cash flow and profit, its business model is clear and has a way out. The rest is that you have to decide how to expand revenue, increase market share and reduce costs, etc., which are in line with the business development path.

Many projects in the currency circle do not have a business model, that is, they themselves do not know how to make money. The survival rate of the world's top 500 companies is only 3%. Investment is whether you can find these 3% projects and hold them for a long time. Many investment concepts are very simple, but it is very difficult to put them into practice. There are tens of thousands of projects in the currency circle in the future. How can you invest if you can't see the value? Be serious, invest.

When the river is clear, how long will human life be? Be less mysterious and unrealistic, and be more down-to-earth, otherwise you will not have much time left.