Dragonfly Partners: Encryption has fallen into financial cynicism, and those who value public chains with PE have already lost.

Author: Haseeb ＞|＜

Compiled by: Deep Tide TechFlow

Reaffirming “The Defense of Exponential Growth”

In the past, I often told entrepreneurs that the reaction you receive after launching a project won't be “hate”, but rather “indifference”. Because by default, no one will care about the new blockchain you are launching.

But now, I must stop saying that. This week, Monad just launched, and I have never seen a newly launched blockchain provoke so much “hate.” I have been a professional investor in the crypto space for over 7 years. Before 2023, almost every new chain I had seen launched was met with either enthusiasm or indifference.

However, now that a new chain is born, it will be surrounded by the “annoying” chorus of criticism. The number of critics I've seen for projects like Monad, Tempo, and MegaETH—even before their mainnets went live—truly represents a new phenomenon.

I have been trying to analyze: why is this situation starting to happen now? Does this reflect the psychological state of the market?

“The medicine is worse than the disease”

A heads up: this might be the most vague article you’ve read about blockchain valuation. I have no flashy data metrics or charts to impress you. Instead, I will attempt to refute the mainstream ideas on Crypto Twitter, with which I have almost always been at odds over the past few years.

In 2024, I feel that what I am opposing is a form of “financial nihilism.” Financial nihilism is the belief that these assets are fundamentally meaningless, and that everything ultimately amounts to nothing more than “meme culture,” and that everything we have built is essentially worthless.

Fortunately, the atmosphere of “financial nihilism” no longer exists, and we have finally escaped this predicament.

But the current mainstream mentality can be referred to as “financial cynicism”: well, perhaps these things do have some value, maybe not all of it is “meme culture”, but their valuations are severely inflated, and Wall Street will eventually realize this. It's not that all blockchain is worthless, but their actual value may only be one-fifth or even one-tenth of the current trading price (have you seen these P/E ratios?). So, you better pray that Wall Street doesn't expose our bluff, because once they do, all of this will turn to dust.

Now, many bullish analysts are trying to combat this sentiment with optimistic Level 1 (L1) valuation models, desperately inflating price-to-earnings ratios, gross margins, and discounted cash flow (DCF) in an attempt to reverse this pessimistic trend.

At the end of last year, Solana proudly adopted REV (Realized Economic Value) as a metric that could ultimately prove the reasonableness of its valuation. They proudly announced: We—only we—are no longer putting on a show for Wall Street!

However, shortly after Solana adopted REV, this metric quickly collapsed (interestingly, the performance of $SOL was much better than REV itself).

This does not mean that REV (Realized Economic Value) itself has a problem. REV is indeed a very clever indicator. However, the focus of this article is not to discuss the choice of indicators.

Next is the launch of Hyperliquid. A decentralized exchange (DEX) that has real revenue, a buyback mechanism, and a price-to-earnings (PE) ratio. Thus, the voices in the market began to rise – see, I told you so! Finally, for the first time, there is a truly profitable token with a reasonable PE ratio. (Don't mention BNB, we're not discussing it.) Hyperliquid will devour everything, because clearly Ethereum and Solana aren't really making money, and we can stop pretending to value them now.

Hyperliquid, Pump, and Sky are all excellent tokens centered around buybacks. However, the market has always had the ability to invest in exchanges. You can purchase shares of Coinbase at any time, or BNB, or other similar products. We also hold $HYPE, and I agree that it is a fantastic product.

But this is not the reason people invest in ETH and SOL. Layer 1 blockchains do not have high profit margins like exchanges, and that is not why people buy them - if they wanted that kind of profit margin, they could just buy shares of Coinbase directly.

So, if I'm not criticizing the financial metrics of blockchain, you might think this article is meant to blame the “evils” of the token industrial system.

Clearly, over the past year, everyone has lost money on tokens, including venture capital firms (VCs). This year, the performance of altcoins has been very poor. As a result, another half of the mainstream voices on Crypto Twitter have begun to debate who should be held responsible for this. Who has become greedy? Is it the venture capital firms that are greedy? Is it Wintermute that is greedy? Is it Binance that is greedy? Is it the liquidity mining farmers that are greedy? Or is it the founders that are greedy?

Of course, the answer is the same as before, it has never changed.

Everyone is greedy. Every single one—venture capital firms (VCs), Wintermute, liquidity mining farmers, Binance, opinion leaders (KOLs), they are all greedy, and so are you. But that doesn’t matter. Because any normally functioning market doesn’t require participants to act against their own interests. If our judgment about the future of the crypto industry is correct, then even if everyone is greedy, investments can still succeed. Trying to explain the market downturn by analyzing “who is greedier” is like holding a meaningless “witch hunt trial.” I can guarantee that no one started becoming greedy only in 2025.

So, this is not what I wanted to write.

Many people want me to write an article about why $MON should be worth X or why $MEGA should be worth Y. But I am not interested in that, nor would I suggest you buy any specific asset. In fact, if you don't have confidence in these projects yourself, then you probably shouldn't buy them at all.

So, will the new challenger chain (emerging public chain) succeed? Who knows. But if it does have a chance of success, then its pricing will be based on that possibility. If Ethereum has a market cap of $300 billion and Solana has a market cap of $80 billion, then a project with a 1%-5% chance of becoming the next Ethereum or Solana would also have its price set according to that probability.

Crypto Twitter (CT) is shocked by this, but it is actually no different from the biotech field. A drug that has less than a 10% chance of curing Alzheimer's disease, even if there is a 90% probability of ultimately failing in Phase III clinical trials, will still be valued at tens of billions of dollars by the market. This is the logic of mathematics — and it turns out that the market is very good at doing these mathematical calculations. The pricing of binary outcomes is based on probability, not on current performance or moral judgment. This is the valuation logic of “shut up and calculate.”

I really don't think this is an interesting topic worth writing about. “A 5% chance of winning? Impossible, it's clearly a 10% chance!” For any individual token, the market rather than the article is the best way to assess this probability.

So, what I really want to write is: Crypto Twitter seems to no longer believe that public chains themselves are valuable.

I don't think it's because people don't believe that new chains can gain market share. After all, we just witnessed Solana rise from the ruins and dominate market share in less than two years. This is not easy, but it is clearly possible.

The bigger problem is that people are starting to believe that even if a new chain wins the competition, there is no prize worth competing for. If $ETH is just a meme, and if it can never generate real revenue, then even if you win, it cannot be worth 300 billion dollars. The competition itself is not worth participating in, because these valuations are all false, and everything will collapse before you can claim the “prize.”

Having an optimistic attitude towards chain valuation has become outdated. Of course, that doesn't mean no one is optimistic—clearly, there are always some who are. After all, behind every seller, there is a buyer. Despite the “cool kids” on Crypto Twitter (CT) being eager to mock Layer 1 (L1) blockchains, there are still those willing to buy SOL for $140 and ETH for $3000 .

However, there is a common belief now that all smart people have already given up on buying smart contract chains. Smart people know that this game is over. If it isn't over now, it will be over soon. Those still buying now are considered “suckers” — like Uber drivers, Tom Lee, or those KOLs who talk about a “trillion-dollar market.” Maybe even the U.S. Treasury. But “smart money” will not enter the market anymore.

This is complete nonsense. I don't believe this statement, and neither should you.

Therefore, I feel it is necessary to write a “Declaration of the Smart People” to explain why general-purpose public chains are valuable. This article is not about Monad or MegaETH, but rather defending ETH and SOL. Because if you believe that ETH and SOL are valuable, then everything else will naturally fall into place.

As a venture capitalist (VC), defending the valuations of ETH and SOL is usually not my job, but damn it, if no one is willing to step up and do it, then I'll write this article.

Experience the power of “exponential growth”

My partner Bo personally experienced the explosive growth of the Chinese internet when he was a venture capitalist (VC). Over the years, I've heard countless comparisons of “crypto being like the internet,” to the point where I'm numb to it. But every time I hear his story, it reminds me of how costly it is to get these significant trends wrong.

A story he often tells is about the early 2000s, when all the early venture capitalists investing in e-commerce (at that time this circle was still quite small) gathered together for coffee. They debated: how big would the e-commerce market actually become?

Will it mainly focus on electronic products (perhaps only tech enthusiasts shop for computers)? Will women use it (maybe they care too much about the tactile experience)? What about food (perhaps fresh food is simply unmanageable)? These questions are crucial for early-stage venture capitalists as they determine what projects to invest in and what price they are willing to pay.

Of course, the final answer is that all these people are completely wrong. E-commerce will ultimately sell everything, and the target users are the whole world. But at that time, no one really believed this. Even if someone believed it, saying it would seem utterly ridiculous.

You can only wait long enough for “exponential growth” to reveal the truth to you. Even among those who believe in e-commerce, very few truly think it will become that massive. And those few who genuinely believe have almost all become billionaires by sticking to not selling. As for the other venture capitalists - as Bo told me, because he is one of them - they all sold too early.

In the field of cryptocurrency, the belief in “exponential growth” has become a thing of the past.

But I still believe in the exponential growth of the crypto space. Because I have experienced it firsthand.

This is Amazon's profit and loss statement (P&L) from 1995 to 2019, a full 24 years. Red represents revenue, and gray represents profit. Do you see that small fluctuation at the end? The gray line starts to rise, which is when Amazon truly began to turn a profit for the first time, 22 years after its founding.

It was only 22 years after Amazon was founded that this gray net profit line finally rose above 0 for the first time. In every year prior to that, there were column articles, critics, and short sellers claiming that Amazon was a Ponzi scheme that would never make money.

Ethereum has just turned 10 years old. And this is Amazon's stock performance in its first 10 years:

A decade of turbulence. During this period, Amazon has been surrounded by skeptics and naysayers. Is e-commerce a charity subsidized by venture capital? Are they just selling low-priced, low-quality goods to consumers in pursuit of cheap products, what is the point? How could they possibly make real profits like Walmart or General Electric?

If you were discussing Amazon's price-to-earnings ratio (P/E Ratio) at that time, you were completely off track. The price-to-earnings ratio falls under the category of linear growth, while e-commerce is not a linear trend. Therefore, those who argued based on the price-to-earnings ratio over the course of 22 years were all very wrong. No matter how much you paid, or when you bought in, your bullishness was not sufficient.

Because this is the characteristic of exponential growth. When it comes to truly exponential technologies, no matter how big you think it can get, it will always get bigger.

This is precisely where Silicon Valley understands more thoroughly than Wall Street. Silicon Valley grows on exponential growth, while Wall Street is accustomed to linear growth. In the past few years, the focus of the crypto industry has gradually shifted from Silicon Valley to Wall Street. This change is evident.

Of course, the growth of the cryptocurrency industry does not appear to be as smooth as that of e-commerce. It is more volatile and exhibits characteristics of intermittent bursts. This is because the cryptocurrency industry is closely related to money, heavily influenced by macroeconomic factors, and faces a more intense regulatory tug-of-war than e-commerce. The cryptocurrency industry strikes at the core of a nation—currency—therefore, its impact on governments is much greater than that of e-commerce, and it is also more unsettling.

However, the trend of exponential growth will not decrease as a result. This may be a rough argument, but if the crypto industry is indeed exponential, then this rough argument is correct.

Zoom out the perspective.

Financial assets yearn for freedom. They desire openness and interconnectivity. Cryptographic technology transforms financial assets into a file format, making it as simple to send a dollar or a stock as sending a PDF. Cryptographic technology allows everything to communicate with everything, enabling it to operate around the clock, be global, interconnected, and open.

This model will definitely win. Openness will always prevail.

If the internet has taught me one thing, it is this: vested interests will fight hard, governments will loudly oppose, but in the end, they will compromise in the face of the universality, creativity, and sheer efficiency brought by this technology. This is exactly what the internet has done to other industries. And blockchain will similarly engulf the entire financial and monetary sectors.

Yes - as long as the time is long enough - everything.

There is an old saying: “People overestimate what will happen in two years, but underestimate what will happen in ten years.”

If you believe in exponential growth, and if you widen your perspective, everything still seems cheap. What should humble you even more is that every day, those holders are surpassing the sellers and skeptics. The time horizon of big capital is much longer than what short-term traders on Crypto Twitter (CT) would have you believe. Big capital has learned from history not to give up easily on significant technological bets. Did you know? That compelling story that initially made you buy $ETH or $SOL ? Big capital believes in that story too, and has never stopped believing.