Interpretation of Data from 86 DeFi Projects: Which Assets May Be Undervalued?

Original Author: Frank, PANews

The crypto market is once again celebrating, as on December 5, Bitcoin broke through the $100,000 mark. Other altcoins also began a surge in this context. Previously, PANews conducted a market analysis of mainstream tokens, revealing that over 60% of tokens increased by more than 100% in the past month. (Related reading: The Altcoin Season is Here! Data Analysis of 289 Tokens Shows 60% Up Over 100%, High Interest in Public Chains and MEME )

While the market is optimistic, investors are searching for potentially undervalued assets. Among various sectors, DeFi projects can be quantified more easily through metrics such as TVL and fee data. In this regard, PANews conducted a data analysis of DeFi-related tokens based on Defillama and Coingecko, aiming to identify which projects might be undervalued by the market.

Data Note: The data for this analysis was sourced as of December 5, 2024. By analyzing data from 86 DeFi-related projects or public chains, the information was aggregated using API programs for comparative analysis. Market cap and trading volume data come from Coingecko, with trading volume referring to the 24-hour trading volume of the tokens. TVL and fee data are sourced from Defillama.

TVL Perspective: 42 DeFi Projects Relatively Undervalued

For DeFi projects, TVL (Total Value Locked) is arguably the most important metric. Generally, a larger TVL indicates more funds are locked in the protocol, suggesting a thicker liquidity pool and better user recognition. For projects that have issued tokens, the P/TVL ratio also holds reference value. If P/TVL is less than 1, it indicates that the TVL exceeds the total market cap of the token, suggesting potential undervaluation by the market. Conversely, if P/TVL is greater than 3, it suggests that the market perceives the token as having high growth potential or that the locked value provided by the protocol is considered insufficient.

Data analysis shows that among the sample, 42 tokens have a P/TVL of less than 1, including projects like Marinade, Lido, Ether.fi, Scallop, JUST, Venus, Kamino, Morpho, BENQI, and Rocket Pool, which have the lowest values, ranking in the top ten.

Among these projects, Lido, Aave, Ether.fi, JUST, Maker, Ethena, Amp, Pendle, Jito, and Compound have the highest TVL data, all of which are long-standing DeFi projects characterized by high TVL and low market cap. According to the latest data disclosed by Grayscale, as of December 5, 2024, the Grayscale DeFi Fund's portfolio consists of five tokens: $UNI, $AAVE, $MKR, $LDO, and $SNX. Notably, $AAVE, $MKR, and $LDO are also among those with a P/TVL of less than 1.

Among the tokens with a P/TVL of less than 1, the one with the lowest market cap is KTX.Finance, whose token KTC has a market cap of only $568,000, while its TVL reaches $8.5 million. However, this token has only a few trading markets, and its total transfer count on Arbitrum is just 35,000, indicating poor on-chain activity. Additionally, some lower market cap projects include Ramses, HMX, Lynex, Scallop, Spookyswap, Extra Finance, and Inverse.

It is worth mentioning that in the ratio of TVL to market cap, several popular DEX protocols on Solana, such as Raydium, Jupiter, and Orca, have ratios less than 1. These projects account for over 80% of the trading volume on the Solana chain, yet their token market caps are lower than their TVL.

Which DeFi Projects Are the Most Profitable?

In addition to TVL, fees are also an important indicator of a DeFi project's activity and profitability. However, the method of referencing fees differs slightly from that of TVL. In calculating fees, PANews primarily uses the total fee revenue over the last 30 days to derive an average daily fee value, which is then multiplied by 365 to simulate the expected annual fee at the current fee level. By comparing this projected annual fee with the market cap and the current total fees, insights can be drawn.

First, the ratio of annual fees to market cap resembles the PE ratio used in traditional financial markets for company valuation, which we will refer to as "PF." If PF is less than 10, it indicates that the project is undervalued; a value between 10 and 20 is generally considered reasonable. A PF between 20 and 50 indicates high growth expectations, while a PF greater than 50 likely suggests overvaluation.

In this analysis, 38 projects have a PF value of less than 10, with Lifinity, Orca, Lynex, Raydium, WigoSwap, HMX, Marinade, Thena, Jito, and KTX having the smallest values in the top ten.

However, it is important to note that a high PF value for some projects does not necessarily indicate overvaluation. Some projects inherently generate low fees due to their mechanisms, especially when considering the PF value of public chains. This data is usually more significant in tools and decentralized exchanges or lending protocols.

Additionally, among the 86 projects analyzed, 28 have projected annual fees exceeding total fees, indicating that if current fee levels persist, these projects will generate more fees in the coming year than in the past. This also suggests that the activity and profitability of these projects are gradually increasing. The top ten projects in this regard include Raydium, Jito, Solana, Thena, Ethena, Ether.fi, Orca, Aerodrome, Kamino, and KTX. Of course, when considering this data, the project's launch time must also be taken into account; for example, Ether.fi, which has been live for less than a year, is expected to have annual fees exceeding total fees.

Furthermore, another metric to consider is the ratio of token trading volume to market cap. Typically, a ratio greater than 0.1 indicates good market activity and liquidity for the token. Among these tokens, 51 projects have a V/P greater than 0.1.

8 Projects with Multiple Undervalued Indicators

After filtering through multiple data dimensions (P/TVL less than 1, V/P greater than 0.1, P/F(YEAR) less than 10, projected annual fees greater than total fees), a total of 8 projects meet these criteria: Raydium, KTX, Inverse, Aerodrome, Jito, Ethena, Morpho, and Ether.fi. However, further assessment is needed for these projects based on factors such as token issuance time, market launch, and community activity.

Additionally, when determining whether a DeFi project is undervalued, comparisons with metrics from leading projects like Uniswap and Sushi can often provide valuable insights.

Finally, regarding the assessment of undervaluation levels of DeFi projects, it should be noted that the above data filtering methods are not absolute. A token's market performance often depends on factors beyond the data. Only in a sufficiently rational market can data models fully influence trends. Besides the data mentioned above, factors such as user activity, marketing, and project type also need to be considered. (The above analysis is somewhat akin to seeking a sword in a boat, and should not be used as an investment basis; the market carries risks, and caution is advised when entering!)