DeFi
Are Ethereum DeFi Titans like Uniswap, Maker and Lido grossly undervalued?
Ethereum is the home of decentralized finance (DeFi), considering the total value blocked (TVL) of over $100 billion. While this figure fluctuates, primarily based on the performance of ETH, it is clear that DeFi has proven to be revolutionary, opening up new use cases spanning multiple industries, including finance and insurance.
Are Ethereum DeFi protocols undervalued?
Moving to X, an analyst is now convinced that a group of established DeFi protocols on Ethereum, including Uniswap and Aave, are very likely to be grossly undervalued.
To put things into context, DeFiLlama data watch that Uniswap, a decentralized exchange, Aave, a decentralized money market, and Lido Finance, a liquidity staking platform, are among the largest in TVL.
The analyst noted that the price-to-fee ratio of these protocols, a metric used to assess financial health, is unusually high and much better than that of major traditional financial platforms listed on U.S. exchanges.
Of the items identified, Uniswap has a price-to-fee ratio of 9.6x compared to the $807 million in fees collected over the past year. However, according to LinkedIn data, the DEX employs around 137 people.
Meanwhile, Maker, a lending and borrowing platform and issuer of the algorithmic stablecoin DAI, has a price-to-fee ratio of 6.9X. The protocol generated $252 million in fees last year for a team of around 100 employees.
The same trend can be observed in Aave and Lido, where their price-to-fee ratio stood at 2.8X and 1.5X, respectively, although their team remained relatively small.
To understand the potential undervaluation of DeFi protocols, the analyst then compared these price-to-fee ratios with the TradFi giants. AI giant Nvidia has a price-to-sales ratio 40 times higher than Uniswap.
However, the Wall Street giant employs a larger workforce, around 32,000 people. The same trend can be observed at Robinhood. Although the brokerage had a price-to-sales ratio of 9.8X, it generated $2 billion in revenue, albeit with a larger workforce of over 3,300 employees.
Potential for growth, regulatory clarity and continued scaling
Although Nvidia may have a higher ratio than Uniswap, DeFi protocols are inherently more scalable than traditional financial institutions. As a result, as Ethereum finds regulatory clarity, it will likely continue to charge more fees and evolve to serve new carriers.
In addition to the regulatory clarity brought by the U.S. Securities and Exchange Commission (SEC) approving an Ethereum spot exchange-traded fund (ETF) and deciding to stop its investigation into Ethereum 2.0, the broader Ethereum ecosystem is developed.
According to chain dataCore network, Layer 2, and Layer 3 solutions process approximately 300 transactions per second (TPS).
Featured image from Canva, chart from TradingView