Fundamentally Right
There is a misconception that trading narratives is the best investment strategy in crypto. Log-on to ct (crypto twitter) for a day and you’ll see an endless barrage of pontification about the next great meta and which tokens are set to explode. Yet the investors who make the best returns are those who go long into a small number of high conviction, fundamentals-based assets. One prominent example of this is Multicoin and their bet on Solana. They ‘bet’ their fund on the fact Solana had the edge in terms of vertical integration and performance. They believed exogenous factors drove Solana price depreciation. Yet there was no new information that invalidated their thesis with regards to structure and performance. Their conviction paid off with Solana going from strength-to-strength from both a performance and price perspective. Historically, to get venture-like returns you have to buy early where the risk of failure is high. Yet the crypto market continues to offer these potential returns on protocols with demonstrable traction and validation.
The crypto market has matured and there are now tenured protocols with an abundance of data, tracked at a variety of venues, that allows them to be compared to their TradFi counterparts with forward-looking ratios. Yet the immaturity of the market from a capital allocators perspective means these still trade below what would appear to be market value.
It’s the once-in-a-lifetime opportunity professional investors dream of. In this article I will define ‘fundamental’ investing and how to identify the best opportunities.
What are fundamentals?
At Persistence we define fundamentals as tangible ‘levers’ that drive value back to a venture. How we think about these levers is different depending on what growth stage it is at. For early or ‘pre-rev’ ventures this may be demonstrative execution of novel products or features with the potential to unlock future value. An example may be proving new technology from a feasibility perspective prior to a fully-functioning product for customers to use. If evidence exists that validates key hypotheses, the presence of this information is fundamental to de-risking the protocol.
For established, or ‘post-rev’ protocols, fundamentals should be based on actual cashflows. There are a plethora of protocols that fit this description now; with plenty of data available via multiple venues over a significant period of time. Before discussing how to use data to value fundamentals, it’s important to cover off the markets misunderstanding of fundamental value.
Why can’t the market value fundamentals?
The root cause of the issue is an immature capital market. More specifically;
Disproportionate amount of institutional capital in the private market.
Competition in the private market drives large valuations.
Lack of institutional capital allocated to sophisticated public allocators (i.e. hedge funds).
When protocols that raised large private rounds went public, one of two things happened. The token either sold off due to no long term buyers, or it gets bid by retail unable to recognise the inflated valuations. In 2021, the latter occurred due to a combination of:
Fewer protocols with circulating tokens
Fewer circulating tokens per protocol (low float, high fully-diluted-value)
Ave household disposable income
Lack of institutional buyers
VC funds were able to exit at high valuations, while retail were left holding tokens with unsustainably high valuations. With no new buyers and a declining market these declined substantially, or died altogether.
As a result, the class of 2024 retail has abandoned VC-backed altcoins. This trend has inadvertently steered retail buyers away from protocols with strong fundamentals. Instead retail have preferred to test their luck with fair launch tokens on pump.fun Yet as the data shows this did nothing to improve their prospects of success. If anything, it only sought to fast track their capital depreciation. The ultimate irony here is that in the process of ignoring fundamentals, they have demonstrated why investing in fundamentals matters.
The fundamental paradox of Pump.fun
The paradox of pump.fun is that the product itself has strong fundamentals. According to Chaincatcher, pump.fun would be ranked in the top 10 for gambling companies globally with $1B ARR. This is extraordinary when you take into account pump.fun has only been servicing customers since January 2024. It has succeeded on the basis that fair launches are, in fact, fair. That unlike VCs they give retail an opportunity to buy low and make money. Yet the numbers paint a very different picture. Pump.fun performance:
8.6 million tokens launched
12.7 million wallets (proxy for users)
$235 million revenue (242% QoQ)
User performance:
~98.4% of tokens minted fail to graduate to a DEX via bonding
~65% of users lost money
~80% made less than $100
Pump.fun really acts as a casino and ‘investors’ are doing nothing more than ‘gambling’. Trying to hit on a token where forces unknown to them make it go up; while offsetting all the ones that go to zero. With an estimated 7 tokens launched every minute, that’s a lot of trading and fees for a less than 5% chance of making $1000 USD.
So if the bulk of investors can’t make money buying ‘VC coins’ or memecoins, how can they? The issue is rooted in the definition of value. Just as fundamentally-strong VC coins in 2021 with valuations north of $1B were over-valued, memecoins launched on pump.fun with zero fundamentals at sub $1m are arguably more over-valued. Where retail saw the private raise, build, hype, release mechanic as the reason for their portfolio failure, it instead is based on their ability to understand what ‘value’ is.
The fundamental opportunity in crypto.
Understanding how to identify and value fundamentally strong protocols is the key. As a starting point, look at categories that have adoption like Decentralised Finance (DeFi). Then dig in to see what categories within DeFi are driving the category performance. For example DEX volume and fees in Q4 alone grew 105% and 140% respectively. Despite this DEX market cap shrunk overall from $25B to $13B; a drop of 48%. Despite more than doubling performance, the marketcap halved.
The next step is to then look at protocols specifically. Evaluating protocols is a combination of art and science. Look at a series of user and financial metrics to get an understanding of customers and their relationship with the protocol. Are users farming incentives? Are there fewer users doing larger volumes, or conversely, many doing small? Is this desirable? Why? Consider the following series as inputs to this evaluation:
Active users (daily and/or monthly)
Volume (average and total)
Transactions
Total Value Locked (TVL)
Marketcap (circulating tokens), adjusted marketcap (inclusive of non-circulating at a point in the future) and fully-diluted value (fully circulating supply)
Sales or Fees (excludes income from treasury management activities)
Each holds different levels of importance depending on the stage of the company and business model. Price/Fees and, in lieu of fees, Price/Revenue are the best metrics for determining current and future value when paired with total addressable market (TAM) and Compound Annual Growth Rate (CAGR). If you have both price/revenue and price/fees, you can calculate estimated operating costs. This leaves you with cash-in (revenue) less cash-out (fees + operating costs). While taking earnings into account helps paints the overall picture, it’s important to think about the stage, market and strategy for the protocol. For example, a newer entry will likely have lower price-to-earning as they a) don’t yet have economies of scale b) higher marketing cost to win marketshare from incumbents.
This is enough for most investors to value protocols. Tools like token terminal provide excellent data and allow you to compare ‘like-for-like’ protocols.
Is there fundamental value to be found in the memecoin market?
Despite the data shared previously on pump.fun, I don’t believe memecoins will become obsolete. Just as NFTs before them and ICOs the cycle prior, speculation, or ‘financial nihilism’ has always been a motivator for people in crypto. It should also be noted that protocols with some early tech fundamentals chose to use pump.fun as a launchpad such as AI Rig Complex (ARC); a Rust-based AI framework for building AI Agents. Though as seen in the pump example, you’re better off finding where value accrues through the value-chain.
When you launch or trade a memecoin on pump.fun, what is actually happening in the engine room? You need to use a standard, commit that standard for processing and settlement to the blockchain, then know the current state (volume, price etc) to execute a trade. This process repeats until certain parameters are met. At this point, the token can ‘graduate’ and be tradeable on DEXs like Raydium.
Below is a working example of the various widgets required for a token that launches and graduates on pump.fun.
Blockchain: Solana
Framework: Metaplex
Applications: Pump.fun /
RPCs: Metaplex
DA: Metaplex
Oracles: Metaplex
This highlights the fundamental opportunity that underpins the non-fundamental, speculative memecoin economy. While succeeding in the memecoin trenches to the tune >$1k revenue is incredibly low probability (<5%), you can instead choose to position yourself to win if this speculative behaviour persists.
Metaplex: The Invisible Engine Powering Solana's Consumer Revolution
Solana's dominance in this bull cycle tells a story of unprecedented growth. Its share of active addresses has exploded from 3.48% to 56.83% year-over-year - a staggering 1533% increase. Beneath this explosive growth lies a more compelling story. While projects like Raydium capture headlines from the meme wave, Metaplex quietly powers almost every transaction in on Solana including:
99% of non-fungible-tokens (NFT)s
90% of fungible tokens (SPLs).
As a result of its marketshare dominance, Metaplex generates ~$43.6m ARR
At 7.2x P/E, MPLX trades like a declining NFT platform - which it certainly is not. The market fundamentally misunderstands three things:
Revenue quality: January 2025 hit $4.3M in pure protocol fees. Unlike many protocols, this isn't token emissions or yield farming – it's direct value capture through products paid for by customers.
Technical moats: Major RPC providers run modified versions of Metaplex's DAS API. Competitors don't threaten Metaplex; they depend on it. Aura Network extends this advantage into compressed data storage, solving economics that competitors can't crack.
Trend reflexivity: Every new trend strengthens Metaplex's position. While other protocols fight for market share, Metaplex profits from the entire ecosystem's growth. Each new token, each NFT launch, each trading frenzy generates revenue.
When you compare Metaplex to other protocols like Pyth and the Graph, you recognise it is incredibly undervalued. Metaplex price/revenue (marketcap) is 4.27x with Celestia 1,879.49x and The Graph 3,361.37x. Not only is it under-valued based on its present value, yet grossly under-valued when you take into account potential revenue growth via multiple streams inc token standards, RPCs, Data Availability and more.
The next five years will see crypto enter a ‘golden age’ thanks to regulatory clarity and a pro-crypto government in the US. Protocols which create value in this growing market will provide the best risk-adjusted returns. Evaluating protocols based on their fundamentals is the best way to accelerate the trend and get the best return on your investment.
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Disclaimer:
This material has been prepared by Persistence Capital Management Pty Ltd (ACN 680 097 483) (the ‘Trustee’, ‘us’ or ‘we’) as the Trustee of the Persistence Capital Fund (the ‘Fund’). The Trustee is a corporate authorised representative (CAR 1312387) of Hansa Capital Pty Limited (ABN 11 655 893 762) (AFSL 554025) (Hansa Capital) and appoints Hansa Capital as its AFS licensed intermediary under s911A(2)(b) of the Corporations Act 2001 (Cth) to arrange for the offer to issue, vary or dispose of units in the Fund. 2. The material is for general information only and is not an offer for the purchase or sale of any financial product or service. The material has been prepared for investors who qualify as wholesale clients under sections 761G of the Corporations Act or to any other person who is not required to be given a regulated disclosure document under the Corporations Act. The material is not intended to provide you with financial or tax advice and does not take into account your objectives, financial situation or needs. Although we believe that the material is correct, no
warranty of accuracy, reliability or completeness is given, except for liability under statute which cannot be excluded. Please note that past performance may not be indicative of future performance and that no guarantee of performance, the return of capital or a particular rate of return is given by Hansa Capital, the Trustee or any other person. To the maximum extent possible, Hansa Capital, the Trustee or any other person do not accept any liability for any statement in this material.
