Original Title: How to Analyze Crypto Assets
Authors: Henri Hyvarinen, Aleksis Tapper, and Robert Valta (Co-founders of Token Terminal)
Translated by: 0x33
A year ago, the crypto industry had limited understanding of how to value digital assets. Today, teams like Token Terminal are pioneering traditional financial metrics such as Price-to-Earnings (P/E) and Price-to-Sales (P/S) ratios. Investors increasingly ask: Does this project or token have long-term value? Are there short-term opportunities? Data-driven metrics now help answer these questions—mirroring methods familiar to mainstream finance.
This guide leverages Token Terminal’s data to explore essential valuation metrics for crypto assets, offering insights into project health and investment potential.
Core Metrics for Crypto Asset Valuation
1. Market Capitalization
What it measures: Total value of a project based on its fully diluted token supply.
Why it matters: Indicates market sentiment and comparative size within the sector.
2. Price-to-Sales Ratio (P/S)
Formula: Market Cap ÷ Annualized Revenue
Insight: Evaluates whether a project is over/undervalued relative to its income.
Note: Annualized revenue uses a 30-day moving average for forward-looking estimates.
3. Trading Volume-to-Market Cap Ratio (VOL/MC)
Formula: Daily Token Trading Volume ÷ Market Cap
Purpose: Assesses liquidity and price-discovery efficiency. Higher ratios suggest active trading.
4. Total Value Locked (TVL)
Definition: Capital deposited in a project’s smart contracts.
Calculation: For DEXs: Liquidity pools; For lending protocols: (Deposits - Borrowings).
5. Gross Merchandise Volume (GMV)
What it shows: Demand for a project’s services (e.g., trade volume or loans issued).
6. Revenue
Formula: GMV × Take Rate (fees charged per transaction/loan).
Breakdown: Tracks fees distributed between users (e.g., liquidity providers) and token holders.
7. Take Rate
Definition: Fee percentage applied to GMV (e.g., 0.3% per trade).
Use case: Compares cost structures across protocols.
Interpreting Data Visualizations
Key Events to Track
- Token launch dates
- Incentive distributions (e.g., yield farming campaigns)
- New asset additions (trading pools/lending markets)
👉 Explore real-time DeFi metrics on Token Terminal
Chart Types Explained
- Counter Charts: Benchmark a project against peers, showing monthly changes and Compound Monthly Growth Rate (CMGR).
- Historical Trends: Identify patterns (stability, volatility, spikes) and correlate them with events like token unlocks.
- Composition Charts: Reveal which pools/markets drive GMV or revenue.
Example: A large "Other" category in GMV breakdowns suggests long-tail contributions from smaller pools.
FAQs
Q: Why focus on revenue over profits in DeFi?
A: Most projects are VC-backed with off-chain costs, making revenue a more transparent metric until on-chain accounting matures.
Q: How does TVL differ from market cap?
A: TVL reflects user deposits (liquidity), while market cap values the token itself. High TVL can indicate utility but doesn’t guarantee token appreciation.
Q: What’s a good P/S ratio for crypto projects?
A: Context matters. Compare against sector averages—lower P/S may signal undervaluation, but consider growth potential.
Conclusion
DeFi protocols function as permissionless, digital-native markets. As they evolve, metrics like P/E ratios will gain accuracy, bridging crypto and traditional valuation frameworks.
👉 Dive deeper into DeFi analytics here
Data transparency and standardized metrics are key to informed investing in this rapidly maturing asset class.