Unchained
What's a Fair Value for Crypto Networks Like BTC, ETH and SOL? - Ep. 721
Oct 18, 2024
Jon Charbonneau, co-founder and General Partner at DBA, discusses the challenges of valuing decentralized networks like Bitcoin and Ethereum. He explains why traditional equity models falter when applied to these assets and reveals the tax inefficiencies impacting staking rewards. The conversation also delves into Layer 2 solutions and their complexities, questioning whether they enhance or hinder Layer 1 blockchains. Finally, Jon tackles the sustainability of these networks in the long run, offering a comprehensive look at crypto valuation.
40:12
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Quick takeaways
- Valuing decentralized networks like Bitcoin and Ethereum requires understanding their unique economic models and tax implications, which differ significantly from traditional investments.
- The relationship between Layer 1 and Layer 2 networks is complex, as L2 solutions may enhance overall ecosystem value despite diverting some activity and fees from L1s.
Deep dives
Valuing Layer 1 and Layer 2 Tokens
Understanding how to value layer one (L1) and layer two (L2) tokens is crucial in the evolving landscape of cryptocurrencies. The discussion introduces key terms such as Total Economic Value (TEV) and Real Economic Value (REV), which provide a framework for assessing the revenues generated by these networks. TEV includes all economic activity on the network, such as transaction fees and miner incentives, while REV represents the actual user spending on the network, excluding inflation effects. This distinction highlights the need for a more nuanced conversation around token economics, moving beyond traditional corporate financial analysis to suit the unique structure of decentralized networks.
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