How does demand-driven affect the valuation of cryptocurrency assets? Re-examining BTC, ETH, and TRON

Author: polynya, Crypto KOL

Translation: Felix, LianGuaiNews

Earlier this year, crypto KOL polynya listed various demand-driven factors for ETH and explained the importance of each driving factor. The author believes that the most important demand-driven factor for crypto assets is “long-term reserve assets,” which means believing that assets are an alternative store of value. Combining economic collateral and related “currencies” (collectively referred to as “currency premium”), the author believes that it accounts for at least 90% of the value of a crypto asset. The value that many people consider important, “burning transaction fees on the chain,” is not that important in the author’s view. This article takes the top three crypto assets (BTC, ETH, TRON) as examples to explore why this situation occurs.

BTC is still the dominant asset in the crypto field and has been around for 14 years. It is a relatively long time for emerging and rapidly developing blockchain technology. BTC is valued at $572 billion and is entering a mature stage. Nowadays, some people believe that the market value of BTC will reach $1 trillion or even higher. However, the reality is quite different. Since 2017, the return on investment in BTC has been significantly declining. It can be seen that all hopium predictions like S2F have already failed.

The Bitcoin network and the wider community have little activity, but it is rarely needed. The reason why Bitcoin has value is that people collectively believe it is the best “long-term reserve asset” or alternative store of value. Based on this, Bitcoin still occupies a dominant position in the industry and is the only demand-driven factor. That’s why the author believes that whether it is a “long-term reserve asset” has the highest impact on the value of an asset.

Currently, the value of BTC is 2.5 times that of ETH. For ETH to surpass BTC, it needs to convince the collective that ETH is a better long-term reserve asset. No matter how active the Ethereum chain is, how many applications and innovations it has, or how high the user and adoption rates are, ETH will not be more valuable than BTC. The market simply believes that ETH is a better cryptocurrency. Of course, the currency premium of ETH has been growing.

The author recently wrote an article about Tron, which explains how TRON has become one of the most active blockchains economically with USDT. The fees collected and burned by the Tron network rank second, second only to Ethereum L1. On average, in terms of US dollars, the amount burned on the Tron network is more than 25% of Ethereum’s. However, compared to ETH, TRON’s market value is only 3% of ETH’s. TRON has not gained favor in the crypto industry and has not obtained the esteemed status and related premium like SOL, ADA, DOGE, and XRP tokens.

If the encrypted market values these tokens through burn volume and on-chain activity, then TRON’s market value will be about 10 times higher. But the fact is not so, so TRON’s final deflation rate will be 10 times higher than ETH. From another perspective, if ETH has TRON’s adoption rate, then the value of ETH will be about $200, and the activity on ETH and its L2 is important. Obviously, most of the value of ETH comes from other demand-driven factors. For Bitcoin, almost all of its value comes from substitutability/speculative value storage.

It is worth noting that although the amount of destruction is not the most important demand-driven factor, it is still an important factor. That’s why TRON is one of the best-performing alt-L1 tokens in this bear market, even though TRON is not optimistic and its market position is not high. Its performance is second only to BTC and ETH, more than 10 times higher than some similar tokens such as SOL, DOGE, or ADA. For similar reasons, it can also be seen that ETH performs better than BTC in a bear market.

By observing BTC, ETH, and TRON at the same time, you can see how the encrypted market views these assets and how they are valued:

1. The belief in long-term reserve assets as substitute value storage is still a determining factor in the valuation of encrypted assets. This belief can come from various different ways, no matter how unreasonable you think it is.

2. Protocol income and destruction will have a certain degree of impact, but the realized value of its impact is at least 10 times lower than the currency value.

3. For assets whose majority of value comes from the currency basket, the goal should be to minimize the protocol fees as much as possible. If it can be used to expand the established demand-driven factors in the currency category, then subsidize it. For example, for Ethereum, it means that L2 fees should be as close to zero as possible, and in the long run, so should L1 fees. In the short term, a significant reduction in L2 fees can be achieved through EIP-4844, and in the medium term through danksharding; as well as L1 fees in the medium and long term, including statelessness and zkEVM technologies. If seeking to expand ETH’s use as a currency throughout the industry, then an inflation rate of 1% for $5000 ETH may be more valuable than $2000 ETH with an inflation rate of -0.2%.

4. However, if the assets of the protocol do not have a significant currency premium, the use and income of the protocol should not be subsidized, and economic sustainability should be the first consideration.

5. Encrypted assets can have two broad demand-driven factors: currency and income. If the goal is the currency basket, then prioritize protocol income. Conversely, if it is not aimed at currency, then income is crucial for sustainable development.

6. Encrypted assets are not necessarily either/or. It is obvious that tokens like BTC heavily lean towards currency premiums, tokens like TRON heavily lean towards income, and ETH is in between. Users can have L2 and dapp tokens that combine the two, not limited to L1 tokens. In fact, the WLD token is an example (just an example, the token economics of WLD is very bad), WLD is mainly focused on income while primarily running on its L2.

Note: The author obtained the data from Token Terminal, Coinmetrics, and Tronscan. The author has verified it repeatedly and believes it to be accurate. Most people have doubts about Tron’s astonishing income, but it is indeed real.

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