Ethereum is the house of decentralized finance (DeFi), wanting on the over $100 billion in whole worth locked (TVL). Though the determine fluctuates, primarily relying on the efficiency of ETH, it’s clear that DeFi has confirmed revolutionary, opening up new use instances spanning a number of sectors, together with finance and insurance coverage.
Are Ethereum DeFi Protocols Undervalued?
Taking to X, one analyst is now satisfied {that a} group of established DeFi protocols on Ethereum, together with Uniswap and Aave, are extremely prone to be grossly undervalued.
To place it in context, DeFiLlama information reveals that Uniswap, a decentralized alternate, Aave–a decentralized cash market, and Lido Finance–a liquidity staking platform, are among the many largest by TVL.
The analyst famous that these protocols’ price-to-fees ratio, a metric used to gauge monetary well being, is unusually excessive and manner higher than high conventional finance platforms listed on bourses throughout the USA.
Of the recognized, Uniswap has a price-to-fees ratio of 9.6x from the $807 million in charges collected over the previous yr. Nevertheless, in accordance with LinkedIn information, the DEX employs roughly 137 individuals.
In the meantime, Maker, a lending and borrowing platform and the issuer of the algorithmic stablecoin DAI, has a price-to-fee ratio of 6.9X. The protocol generated $252 million in charges final yr from a workforce of roughly 100 workers.
The identical pattern may be seen in Aave and Lido, the place their price-to-fees ratio stood at 2.8X and 1.5X, respectively, although their workforce stays comparatively small.
To know the potential undervaluation of DeFi protocols, the analyst then in contrast these price-to-fee ratios with TradFi giants. The AI big Nvidia has a price-to-sales ratio of 40X–greater than Uniswap’s.
Nevertheless, the Wall Road big employs a bigger workforce of roughly 32,000. The identical pattern may be seen in Robinhood. Although the brokerage has a price-to-sale ratio of 9.8X, it generated $2 billion in income however with a bigger workforce of over 3,300 workers.
Potential For Progress, Regulatory Readability, And Steady Scaling
Although Nvidia may have a better ratio than Uniswap, DeFi protocols are inherently extra scalable than conventional monetary establishments. Accordingly, as Ethereum finds regulatory readability, it would possible proceed to rake in additional charges and scale to serve new vectors.
Moreover the regulatory readability that comes with the USA Securities and Change Fee (SEC) approving a spot Ethereum exchange-traded fund (ETF) and deciding to cease their investigation into Ethereum 2.0, the broader Ethereum ecosystem is scaling.
Based on on-chain information, the mainnet, layer-2, and layer-3 options course of round 300 transactions per second (TPS).
Function picture from Canva, chart from TradingView