How to properly value L1 assets?
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How to properly value L1 assets?
The best product doesn't need a token; the best token doesn't need a product.
Navigating Web3 tides with focused insightsAuthor: Sam Kazemian, Frax Finance
Translation: Alex Liu, Foresight News
Many people are discussing how to value different assets in crypto, especially amid the recent AI memecoin craze. But I want to share my approach to valuing what I believe are the most important crypto assets: L1 tokens versus "Type 2" (dapp / L2 / "equity") tokens.
L1 tokens carry a mysterious "L1 premium," which nobody has systematically explained. Many assume it's speculative Ponzi dynamics, but the truth is the opposite. The L1 premium is a highly significant and fundamental property.
L1 assets (ETH, SOL, NEAR, TRX, etc.) are the "sovereign scarce assets" of their respective blockchain economies. They naturally become the most liquid assets within their chain ecosystems. Other projects accumulate them, build products/DeFi around them, and incentivize their liquidity, making them safe-haven assets during crises.
This asset earns yield by receiving tokens from other projects via liquidity + ICOs + DeFi, airdrops, and other innovative mechanisms—effectively allowing holders of the scarce asset to collect yield.
@DefiIgnas put it well:
"L1s are productive assets: you can use them to earn ecosystem airdrops, stake for rewards, and their price appreciates as the ecosystem grows. In fact, when accounting for airdrops received from holding ETH, SOL, NEAR, etc., they outperform their spot prices. In contrast, L2s are unproductive assets. You can't earn native rewards with them, nor use them as gas (except STRK, MNT, METIS, and now ZK?), and inflation from unlocks is usually too high. Their own ecosystem protocols rarely reward L2 token holders via airdrops."
Dapp tokens within a sovereign economy (chain) represent actual human labor/GDP occurring within that economy. The scarce L1 asset collects yield from the labor of those building the digital nation's economy (the chain).
This is why "Type 2 tokens" (aka dapp/L2 tokens) are often compared to equity and valued using P/E or DCF models, while fundamental analysts remain puzzled by the mysterious "L1 premium." It shouldn't be called an "L1 premium"—it's the asset premium of a sovereign economy.
Many may know I’m not a fan of certain ETH KOLs like @justindrake, who collectively signal to the market that ETH should be viewed as a business selling blockspace + blobs requiring P/E analysis. They are turning ETH into a "Type 2" token. Unfortunately, they’ve succeeded.
L2 tokens are typically not the sovereign scarce assets of their digital economies, even though they have chains and vibrant builders. They fall under "Type 2" and belong in P/E or DCF valuation frameworks. In fact, some L2s don’t even have tokens—like Base.
SOL has performed exceptionally well, not because its TVL increased, but because people anticipate that someday in the distant future, SOL will burn/receive billions in revenue. ETH already generates billions in revenue/burn, yet hasn't outperformed SOL. SOL’s rise is because the entire Solana economy uses it—in liquidity pools, memecoin trading, DeFi—and you need it to participate in the Solana network.
People are actively building things, tokenizing their labor (as "Type 2", i.e., dapp/PE tokens), so they can distribute yield/rewards back to SOL holders/stakers/LPs, while ETH KOLs try to reduce ETH to a DCF equity token with no value beyond cashflows generated by the Ethereum Foundation selling products.
@MustStopMurad elegantly said: the best products don't need tokens, and the best tokens don't need products. Sovereign scarce assets (L1 tokens) are meme coins—a serious meme, without pictures of cats/dogs (cats/dogs living in digital nations). balajis discussed the concept of network states in depth. The power of this meme is finally being understood. "Type 1" (L1) and "Type 2" (PE/equity/labor/L2) tokens are clearly distinct. Communities can transform from one type to another, but it's a long process.
Critically: gas + staking-based security is a technical signal reflecting a social protocol built upon a sovereign scarce asset—itself not a core value capture mechanism. People are finally realizing this, including the legendary @danrobinson.
Therefore, there is no such thing as an "L1 premium"—only sovereign assets of digital nations, i.e., Type 1 tokens. It may be the strongest, most fundamentals-driven meme, without funny pictures. It's real economics with powerful memetics. My view: there are only these two types of tokens.
Next month, @fraxfinance will release our biggest announcement yet: our 2030 vision roadmap. One of the most important things we’ll unveil is how to transform "Type 2" L2/governance/PE tokens into sovereign assets. I expect many "Type 2" tokens will use this as a guide.
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@samkazemian
