Layer-1 protocols ( $ETH, $SOL, etc.) are the backbone of crypto, but are they worth their massive market caps?
Let’s talk about why these tokens might be overhyped, misunderstood, or maybe even… both.
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Recall, for something to have value, it must have financial, utility or social value
The historical P/E ratio of the S&P 500 is 16x, whereas it is currently closer to 24x.
Layer 1 protocols trade closer to 100-200x fees earned.
ETH and SOL are definitely useful, but so is aluminum, which is not very valuable. The usefulness of both does not add up to a lot of value.
That leaves social value. Is it cool to be a part of these networks? Maybe 5 years ago, but now every crypto project has its own L1, and that cache is largely gone.
Yet the majority of the value of a Layer-1 smart contract protocol is coming from social value
Let’s break it down 👇
- $ETH earns ~$2.4B in annual fees
- At a 25x P/E, that’s ~$60B in financial value
- Add ~$72B in idle ETH held for gas
Total: ~$132B
Yet ETH trades at ~$450B.
That means ~$318B of its value is pure social hype
Same story for $SOL:
~$750M in annualized fees = ~$19B financial value
~$340M in gas buffer usage
- But market cap is ~$90B
So ~77% of SOL’s valuation is from social value too.
Could ETH or SOL be worth more in a future where it secures a $4T stablecoin economy?
Maybe.
But then we’re betting on security, not “fat protocol” value extraction. It flips the old thesis on its head.
Blockchains aren’t worthless. But objective analysis shows most L1 tokens are priced more like memes than infrastructure.
The real value? Still TBD.
Full article here:
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