REV and F/R Multipliers: A New Valuation Method for Public Blockchains

Introduction

This article aims to learn and discuss knowledge related to REV, so that we can conduct a more comprehensive assessment and interpretation of public chains. We should approach learning this knowledge with an open attitude, objectively view the controversies surrounding REV, and at the same time avoid isolating the use of any single indicator to prevent potential negative impacts.

1. Interpretation of REV

1.1 What is REV?

REV represents the real economic value and is an indicator that measures the total fees users pay to the public chain. REV to the public chain is like revenue to a business.

The complete REV calculation formula is:

REV = ∑( on-chain protocol fees ) + ∑( off-chain tips ) + ∑( MEV )

There is currently widespread debate on whether REV should be maximized:

• Supporters of maximizing REV believe that maximizing REV is beneficial for reducing marginal costs of the network, expanding the user base, and achieving sustainable revenue growth.

• REV minimal supporters believe that REV is a poor long-term value indicator because it soars during speculative bubbles and is not applicable to blockchains like Bitcoin where REV is nearly zero. They advocate for implementing a minimal viable REV to reduce potential negative economic impacts.

The focus of this article is not on whether REV should be maximized or minimized, but rather on the application of REV itself and the reference value it brings. Readers are encouraged to think rationally and to view this indicator dialectically.

1.2 Recent Features

Data table shows REV proportion over 5 years:

• Ethereum dominated from 2020 to 2023
• Solana will take on a new leadership role starting in 2024.
• The REV of TRON is quite impressive and continues to grow.

In the past three months of REV, Solana, TRON, and Ethereum are the leaders of REV.

Compared to on-chain income, the biggest feature of REV is that it significantly increases the impact weight of non-user-end income factors.

The REV calculation formula shows that it includes off-chain tips outside of user demand ( or MEV ). Therefore, it is not difficult to find that among all public chains, Solana's MEV can significantly enhance its REV, thereby further expanding its potential valuation space.

The linkage analysis method of two indicators:

1. Compare the differences between REV and on-chain revenue, and assess the impact of MEV on various public chains.
2. Analyze the trend of REV changes over time, gaining insights into user demands and changes in MEV activities.
3. Combine REV with other on-chain activity metrics ( such as transaction volume and active addresses ) to comprehensively assess the health of the public chain ecosystem.
4. Observe the composition ratio of REV to understand the contribution of different income sources to the public chain.
5. Track the correlation between REV and token prices, analyzing the market's pricing efficiency for on-chain activities.

Advantages and Disadvantages of 1.3 REV

Advantages:

• Compared to the number of active addresses and transaction volume, REV is harder to manipulate, especially when some REV is burned.
• Can well reflect the activity of retail investors across various chains in history.

Disadvantages:

• With a certain lag
• Cannot reflect the full situation of a public chain, and cannot be used in isolation for valuation.
• Although it is difficult, there is still a possibility of being manipulated.
• There are some deviations; in certain cases, MEV and REV can be much higher than the average.
• On public chains where MEV infrastructure is immature, REV is relatively small and may lead to certain unfair valuations.

Overall, we need to view REV dialectically and avoid applying any single indicator or method in an isolated and metaphysical manner.

1.4 Valuation Method of Stacking FDV: F/R Multiple

By overlaying FDV and REV for valuation, we derive the FDV/REV multiple. This multiple is akin to the price-to-earnings ratio (P/E), with the core logic being to measure the degree of market premium on project valuation. The larger the F/R multiple, the greater the potential valuation bubble, and the more optimistic the market is about the project's growth expectations ( or the stronger the speculation ); conversely, the smaller the bubble, the closer the valuation is to the possible reality, which may also represent relative undervaluation in a vertical comparison.

The concept of F/R multiplier: The FDV/REV multiplier measures the ratio of the market expectations of the project FDV( to the annualized actual economic income) and the current profitability(, reflecting the premium that the market pays for each unit of income.

![REV and F/R multiples: A new valuation method for public chains])https://img-cdn.gateio.im/webp-social/moments-e2af9aba8357e7f5da02afd13c69e91d.webp(

It can be seen from this:

• BTC has the highest F/R multiplier, implying a long-term narrative and liquidity premium.
• The F/R multiples of SOL and Tron are relatively low, indicating that the market may perceive them as having stronger income potential or more reasonable valuations.

FDV may be inflated due to the impact of token releases, which can affect short to mid-term valuations. We can also use market capitalization (Market Cap) as a reference to establish MC/R or M/R multiples, which can more accurately reflect the current market's recognition of the project's value. These multiples are more suitable for assessing the market's pricing efficiency of project revenues in the short term.

![REV and F/R Multipliers: A New Valuation Method for Public Chains])https://img-cdn.gateio.im/webp-social/moments-b77d38ac68b5fc057f49ad0872bcc683.webp(

Comparison of Four Valuation Methods:

1. PE) Market Cap / Net Profit (:

   • Advantages: Directly reflects profit premium, suitable for mature enterprises
   • Limitations: Ignoring growth potential, losses in enterprises cannot be calculated
   • Applications: traditional industries with stable profits such as consumer goods and manufacturing

2. PS) Market Cap/Sales (:

   • Advantages: Applicable to loss-making/high-growth enterprises, focusing on revenue scale
   • Limitations: Ignores cost structure, unable to measure profitability quality
   • Application: Tech startups, high-growth sectors ) such as SaaS (

3. FR) fully diluted valuation/annualized on-chain income (:

   • Advantages: Reflects long-term narratives and liquidity premiums
   • Limitations: FDV overestimated ) unlocked tokens (, income volatility interference
   • Application: Evaluate the long-term valuation of public chains ) such as Bitcoin, Ethereum (

4. MR) Circulating Market Cap/Annualized On-chain Revenue (:

   • Advantages: Short-term pricing is more authentic, avoiding dilution of valuation interference.
   • Limitations: Ignoring the selling pressure of unlocked tokens, relying on income stability
   • Application: High liquidity projects ) Solana (, short-term trading decision reference

) The difference and connection between 1.5 and MEV

MEV stands for Maximum Extractable Value, referring to the profits that specific participants can obtain by utilizing the native characteristics of on-chain transactions, such as price delays, borrowing liquidations, transaction visibility, etc., ###. MEV typically manifests as arbitrage, liquidations, front-running, sandwich attacks, etc., and is inherently a neutral term.

Pros and Cons of MEV:

Advantages:

• Increase validator income, enhance network security
• Reflecting market activity
• Small nodes can capture MEV to make up for profit gaps.
• MEV revenue can be captured by the protocol.

Disadvantages:

• Ordinary users' transactions are front-run, Gas fees soar, and the experience deteriorates.
• Malicious MEV undermines user trust, leading to ecosystem loss.
• In practice, MEV is often monopolized by large mining pools/professional bots, exacerbating centralization.
• Unallocated MEV may become a systemic risk

In the valuation system, MEV and REV are two completely different concepts:

• MEV as a micro indicator measures the network's health and the strategic value distribution.
• REV is more macro-oriented, focusing on the overall income premium situation of public chains.
• The ratio of MEV to REV can be dynamically monitored as an auxiliary indicator of ecological health. A low ratio indicates health, while a high ratio poses risks.

2. Conclusion

1. REV does not equal the value capture of the native on-chain token. REV has its advantages and disadvantages and should not be used or referenced in isolation. Often, REV will be destroyed, returned to users through incentive mechanisms, or paid to validator node operators as operational expenses, etc. This deflationary mechanism reduces the nominal REV.

2. The FDV/REV ratio ( is similar to the price-to-earnings ratio P/E ), which inherently varies between different chains ( and enterprises ). For tokens, factors like yield and currency premium can significantly affect prices. Moreover, the quality and sustainability of REV on different chains also vary.

3. Blockchain is not a company, and native tokens are not equity.

4. The viewpoint of minimizing REV may not necessarily be desirable, while maximizing REV has many aspects worth discussing in the long term.

5. REV can be combined with many indicators to form a relatively comprehensive observation system. The article discusses the relationship between REV and Fees; it discusses the reference value of the F/R multiplier and M/R multiplier for public chain valuation; it discusses the differences and connections with MEV, and provides the MEV/REV public chain health indicator. The reasonable and flexible use of these combined indicators can bring a relatively comprehensive perspective when we evaluate public chains.