Story Time for Crypto Investors: Helium, Pendle, and the Art of Finding Narratives in Numbers

By: Byron Gilliam

"The social goal of skillful investing should be to defeat the dark forces of time and ignorance that loom over our future." —John Maynard Keynes, famous economist

Story time for crypto investors

Despite the large numbers involved, investing is generally considered to be more of an art than a science.

"The selection of common stocks is a difficult art," Benjamin Graham once warned.

Graham's lifelong student Warren Buffett further clarified that "Investing is an art...putting cash now in the hope of getting more cash in the future."

Almost all investing comes down to forecasting future cash flows.

But Peter Lynch warns that investors who are “trained to rigidly quantify everything are at a great disadvantage.”

However, this does not mean that “valuations are just a meme,” as some financial nihilists claim.

Rather, it means that applying and interpreting quantifiable valuation metrics is a creative activity in itself.

Choosing which valuation metric to apply to which investment is a subjective decision—and knowing how to interpret the results is even more so.

For example, a low valuation does not necessarily mean that the stock is cheap, and a high valuation does not necessarily mean that the stock is expensive (often the opposite is true).

A stock may look very cheap on some metrics and extremely expensive on others.

There is no obvious correlation between these valuations and actual returns.

This can often be frustrating -- if cheap stocks aren't going to go up and expensive stocks aren't going to go down, why bother trying to figure it all out?

I think it’s all worth looking into because that’s what makes investing interesting and appealing — and if that’s the case, the fun of crypto investing has only just begun.

Until recently, crypto investors had very limited options when it came to data, with little available beyond token prices and market capitalization.

This makes everything in crypto a “story” — and that’s okay!

Investing is essentially the art of storytelling.

However, the best investment stories are often told in numbers, and the crypto space is gradually having such conditions as more protocols begin to generate revenue and a larger portion of these revenues are distributed to token holders.

Furthermore, these numbers have become more accessible thanks to the work of organizations like Blockworks Research, whose analysts package this data into easy-to-understand charts and reports for us to reference.

This helps the crypto space move to a higher level of narrative: telling stories with numbers.

Let's look at some current numbers.

Ethereum vs. Solana

Judging from crypto Twitter and podcasts, it seems that market sentiment for Ethereum has hit new lows, especially compared to Solana.

But if a newcomer with a traditional finance (TradFi) background looks at the data directly, he or she may come to a completely different conclusion.

According to Blockworks Research, Solana recorded $36 million in “net token holder income” in April, which gives the SOL token an annualized earnings multiple of 178x — a multiple that, while high, may be justified given current low activity levels.

In comparison, Ethereum’s token holders netted $21 million in April, giving ETH tokens a whopping 841x earnings multiple.

An investor from traditional finance (TradFi) wouldn’t immediately think, “Wow, why is everyone so pessimistic about Ethereum?” when he sees ETH’s valuation multiple is 5x that of SOL.

But they also won’t immediately assume that the market is 5 times more positive about Solana than Ethereum.

Instead, they might conclude that Solana’s revenue valuation is lower, perhaps because it derives primarily from “low-quality” memecoin trading activity, while Ethereum’s revenue valuation is higher, at least in part, due to its inclusion of higher-quality activity, such as revenue associated with real-world assets (RWAs).

Now we have some perspectives to analyse: if you think memecoin trading activity is not that low quality, then SOL may be undervalued; and if you think real-world assets are the future, then ETH may not be overvalued.

Of course, you can dig deeper to get more information.

According to Blockworks Research, the combined revenue of all Solana applications is only about 1.8 times the revenue of Solana itself.

For a platform-based business, this is a very high take rate - far higher than Apple's 30% cap, and the US government even believes that Apple's take rate is already monopolistic.

This could mean that Solana’s revenue is too high, so its token valuation multiple should be low; or, it could mean that Solana has a business moat, so its token valuation multiple should be high.

In either case, this is a story worth watching.

Hyperliquid

Hyperliquid is a semi-decentralized crypto exchange with a somewhat peculiar story: the protocol generated a whopping $43 million in revenue in April