Introducing RSOV: A Better L1 Valuation Metric than REV | Jonah Weinstein

You want to recognize that your L1 token is money and accrues value like money. It's less about whether or not we decide as analysts to value it. And our view is more that this is what drives value, whether or not we recognize it.

Jonah Weinstein, welcome to Bankless.

Thank you for having me.

Okay, uh every layer one blockchain has a native token. Uh these tokens are commonly called layer one tokens. The question is how do we value these layer one qu the tokens? But and before we get to that question, I think the bigger context is why is this question even important in the first place?

Yeah. So for this question, you know, we as investors, we want to know what drives returns, generally speaking, so we can evaluate risks

against that potential.

And basically know the bet we're making with L1 tokens, really with any asset. And so,

you know, for valuation, it's important to have a framework

that gives us as analysts basically a perspective

on something, whether or not it's over or undervalued.

And and we also want to be able to compare blockchains. We want to be able to compare Solana, Bitcoin, Ethereum, talk about these things in like the best apples to apples way possible too.

Yeah, you want to be able to have informed discussions and you want those discussions to be rooted in what's actually driving value to these tokens and what's driving returns. And so it's an important discussion and

important to know what that is.

I mean, speaking of value, right? Let's all let's all remember the vast bulk of like value. What is the total crypto market cap right now, guys? Like three point three point three, three point five trillion. Yeah. It depends on the day, right? A little bit, but in the the in the above, north of three trillion range. Okay. And let's just remember the vast majority of that is actually layer one tokens.

95% are

Yeah, like we've got so layer one tokens. Bitcoin is a layer one token, guys. All right. That's like the OG. That's a that's throwing off two trillion or so, maybe it's 2.3 trillion. It's like 63% of that. But then we also have number two, which is Ethereum, you know, 350 billion or so. We've got Solana, we've got Suey, we've got BitTensor. So the way we quote unquote value layer one tokens, that's essentially the entire crypto market, isn't it, Jonah?

Yeah, it's a it's a majority share right now. I think there's other segments that will be sort of continue to grow and share, but all of those applications, for example, that are are built on these platforms are really levered to the value

that these sort of base layers are accruing. And so yeah, we need to understand what's driving that.

I almost feel like it's kind of the founding question of of bankless too. Right, Dave? Like we're always trying to figure out, okay, so how do we value these new monetary money systems with with bankless? Like what's the what's the metric for this?

I mean, it's quite literally the trillion dollar question. How do you value cryptocurrencies? Because we know how to value things in other contexts and we like to extend those things to crypto, but it doesn't quite work. There are other variables and other dynamics than what like valuation method, you know, traditional investors would leverage in non crypto contexts. And so that that mysterious question of like L1 token valuations still, I think, plagues the industry to this day where we still don't quite have this figured out.

Still early, still a lot of debate for sure.

Well, can we can we go down uh history memory lane a little bit? So I remember a number of different ways people have tried to answer this question in the past to varying degrees of of kind of success. Do you guys and and Jonah, do you remember the days of MV equals PQ? Was that uh like around your time and kind of entering the space? What what was that?

That's like a monetary theory about

people using money supply for payments and centering the valuation of money on the velocity and.

Basically, the rate of spending or velocity must always equal price times output or nominal GDP. It's a traditional sort of theory

in economics, and people are

naturally looking to apply that sort of in the crypto context.

We were pretty excited about that back in like, you know, 2016, 2017. I know old Chris Bernitsky posts were writing about this uh theorem. It's kind of fallen away as the value, as the way to value L1 tokens. We've also seen stock to flow. Bitcoin Bitcoiners kind of popularized this, which is like based on this assumption that that just scarcity measured by the ratio of existing supply to annual Bitcoin issuance, that's what directly drives value. And there's a lot of like regression lines that you can make, and it's all about the havening that's celebrated. So that's a stock to flow valuation metric for Bitcoin at least.

And highly comparable to gold, right? Where we can talk about demand for gold is not met with an increasing stock, an increasing flow. And so that makes gold very price sensitive. And the same relationship has is found in Bitcoin, where if demand for Bitcoin 10x, the inflows of new bitcoins into the market does not 10x because that's just not how it works. And so

And that's we're kind of getting somewhere, right? But these it's really about the demand picture, I think, in our view. And you got to look at both of those. Stock to flow on its own is,

I think it really just assumes like infinite persistent demand. It's a very supply side focused metric. And so

You know, the relative valuation and

starts to get a little bit closer to what's driving demand here.

It's interesting you say relative valuation because when I think about Bitcoin now, the stock to flow is not as popular, hasn't kind of held up. The, you know, the aggression lines haven't held up so well. No one's talking about MV equals PQ. They are sort of talking about non-sovereign store of value. And look at the look at the TAM of gold right now, right? What is it? You know, 18 trillion, something like this, right? What's the value of gold right now? And if Bitcoin captures X amount of that store of value, nation non nation state store of value status, then you know it'll be worth X trillions of dollars. And so kind of the relative metric is

look at gold and then Bitcoin, what percent of that can Bitcoin capture? And that's where you get the number for Bitcoin.

Yeah. And I mean, I think that's more directionally the sort of line of thinking. You're looking at you're looking at traditional analog

assets

and trying to make some assumptions around inflows, sort of value from that inflow relative

to the analog valuation. So I think we can get more specific in that context around layer one assets.

And then Bitcoin bulls will go at so far to say when does the digital version ever not have more value than the analog version? So why would digital gold, why would Bitcoin have only 50% or 40% or even 60% of the value of gold? Why wouldn't it be 2x, 3x, 4x the value of gold? That's what like Bitcoin bulls would say.

Well, it's interesting because I don't know that there's ever been a case where the analog incumbent that is being disrupted by the digital disruptor has remained bigger than the digital disruptor. Exactly. And so I think that line of thinking, again, we can extend to

other layer one assets. I think we should do that.

And I want to talk about that in a second, but let's flash to where we are, I think, in May 2025 with respect to valuation. It seems like, and I'll give maybe a consensus version of sort of analysts, talented analysts in our industry. They will agree, the consensus is they agree Bitcoin can be measured on something like gold. It is a quote unquote special snowflake. That's actually a phrase that's used for Bitcoin. It's special, so it gets this status. All of the other layer one assets should be valued based on something else. Okay. This something else, uh, some analysts, I think Blockworks has popularized this, is called a rev. We could define like what Rev actually is. But basically, it's kind of a discounted cash flow of block space sales. So maybe, maybe you could kind of explain Rev to us. And just that the framing of this is Bitcoin is special. It gets to be valued based on a you know monetary store of value, reserve asset, as a percentage of gold or whatever that could be. And then there's all the other layer ones, and those assets are discounted cash flow based on this metric called Rev. Can you explain Rev to us?

Yeah. So Rev is effectively a metric that measures how much

fees users are paying to L1 validators,

or how much value those validators are capturing from transaction activity on the chain.

Mm-hmm.

And I think to your point,

there is a cohort of analysts who are

interpreting this metric as company cash flows like they would an equity company.

And so they're using that metric to sort of feed a DCF model

and argue that, you

know, these layer one tokens can be valued like companies.

So it's just kind of nonfinance.

Yeah. So the present value of a given asset is

the sort of sum of all future cash flows. And then you incorporate some discount rate.

It's interesting the history of DCF, right? So, I mean, the stock market's been around for for a while. Actually, the discounted cash flow way of valuing, you know, equity assets, stocks, uh didn't come to being until 1938. And this was in kind of like a niche uh textbook, really. It wasn't popularized, it wasn't consensus. And then over the years it sort of became set consensus. And now it's taught in business schools as hey, if you want the proper way to evaluate the value of a stock, you use discounted cash flows.

Yeah, and for and for companies that basically compound or grow a balance sheet of like non, you know, of uh of currencies, of like fiat currencies, like this makes sense. You can, you know, own 100% of the shares of Apple, for example, like as if Apple does not trade on any market, and any given share of Apple is still worth its prorata share of the sort of discounted cash flows of that company. Right. And so

That is a fundamentally sound and real metric. And it's not just our crypto analyst community, it's the broader financial community, you know, uses that to understand what is a company worth today.

Mm-hmm.