Does Crypto’s future earnings give it present value?
Every stock is fundamentally worth the present value of its future dividend payments.
That includes stocks that don’t currently pay dividends.
As well as stocks that will never pay a dividend.
Counterintuitive, yes. But consider that, in its 58-year existence as an investment vehicle, Berkshire Hathaway has only ever once paid a dividend (10 cents per share in 1967). And that Warren Buffett, regretting the opportunity cost of that one small payment, has sworn to never do it again.
But forgoing dividends doesn’t make Berkshire a giant memecoin: Berkshire has a market capitalization of $730 billion because it could pay dividends — maybe as much as $73 billion a year, if it chose to.
Similarly, loss-making tech companies get high stock-market valuations in the present because they might have the ability to pay dividends in the future (even if they choose not to).
Is that why crypto tokens get high market valuations, too?
The ongoing debate around Uniswap’s fee switch might help us find out.
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Attention Kmart investors
Here are a few canonical models of capital allocation from traditional businesses:
Don’t make money: Craigslist’s strategy of refusing to monetize is a great way to stay in business — it’s very hard to compete with free!
Make money, reinvest all of it: Amazon’s willingness to operate at zero profit margin has allowed it to deter competition in their core business (good luck raising money for a start-up competitor to Amazon.com) while simultaneously invading lots of other people’s core businesses (grocery, logistics, etc.).?
Make money, pay all of it out: If you're in a melting-ice-cube business like, say, tobacco, there’s no point building a new cigarette factory — just make as much money as you can for as long as you can and pay it all out to shareholders.
Pay more than everything out: Businesses will often borrow money to pay dividends to shareholders. Sometimes it’s an oil company just appeasing shareholders in a bad year. And sometimes it’s Kmart being run into the ground by financial engineers.
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This doesn't map 1:1 to crypto as protocols are not really businesses.?
But investors often treat them as such, which may make it a good model for thinking about Uniswap as a business and the UNI token as an investment:?
Monetization — the whole purpose of companies — is risky in an open-source, composable crypto “business” like Uniswap.?
Unless that is, you think Uniswap's brand is a moat.?
And its ability to maintain market share despite the introduction of aggregators like 1inch and Matcha suggests it might be.
It wouldn’t surprise me, if so: Trading in DeFi is scary, so it makes sense that people would stick with what they know.
But will they pay for what they know? Maybe.?
Most people will pay more to fill up at Exxon than they will do at, say, Joe’s Gas Station because they trust Exxon not to ruin their engines with cheap gasoline, and they’ve never heard of Joe.
So it might be that people will also be willing to pay more (via wider spreads, probably) to trade crypto with Uniswap than they are with, well, Trader Joe.
Turning on the fee switch would be the way to find out.
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1 年Well said.