The top blockchains by market capitalisation include an odd mix of projects that are generating substantial revenues vs those that have yet to create any meaningful economic value. While the latter include platforms that are well-positioned for the future, based on either access to users or technological excellence, and some tokens derive value from additional sources beyond the fees the networks generate, a fair number of large capitalisation tokens appear to have little grounding in any fundamental value.
Annual revenues of the highest-earning blockchains
Source: Token Terminal
The native tokens of blockchain protocols derive value from the economic activity taking place on the chain. The platform earns a revenue stream, which provides the basis for assigning value to the token.
With the industry still in a nascent stage, most of the revenue growth is to occur in the future, and the tokens (especially those of newer projects) are mostly valued based on expectations for future revenues.
However, at the current maturity of the industry, blockchains are already generating billions of dollars of revenue each year, with some projects showing great traction.
It is interesting to note that at this stage, only a tiny number of projects generate meaningful revenue. Due to the powerful network effects, it is very hard for new blockchains to take market share, even when they are technologically superior. It isn’t always the best product that wins; user traction is the ultimate arbiter of value.
Economic value creation
Despite a lack of technological prowess, the TRON blockchain has successfully optimised for revenue generation. Its dominance of Tether’s stablecoin market, with half of the market capitalisation and over 80 percent of the transaction volume, coupled with dominance among the Asian-client base and in crypto-payments, in emerging markets, has been primarily responsible for it earning more revenues than any other blockchain.
Nonetheless, the market assesses TRON’s long-term prospects more pessimistically than other blockchains. Its 8.5x revenues valuation is still reasonably high, relative to the start-up space. However, it is nothing like Ethereum’s 194x revenues. This is despite the TRON blockchain’s token being already deflationary and current proposals for a reduction in block rewards, which would increase the deflationary effect. A lot of the pessimism stems from the narrow range of applications building on the TRON blockchain, relative to many other leading blockchains. However, with the growth of the stablecoin market and the regulatory and political support for this segment of the crypto market, TRON may be well positioned to continue earning substantial fees.
The preeminent smart contract platform, Ethereum, is the other blockchain that generates meaningful revenues. Despite negative sentiment around the token over the past couple of years as its scaling strategy meant that Layer 2 scaling protocols have been cannibalising Ethereum’s revenues, it remains the leading blockchain by a wide margin in terms of the number and variety of applications building on it as well as most other market share metrics such as DeFi TVL or overall stablecoin market capitalisation.
While Ethereum’s market share has been eroded recently by other blockchains (for example, its DeFi market share declined from 72 percent to 57 percent over the past year), the market still places a very high multiple on the token, with the implied expectation that blockchain-based use cases will compete meaningfully with traditional corporations across industries in future and that Ethereum will remain a key beneficiary of this growth.
Despite several blockchains being touted as Ethereum killers over the years, the only other platform that has captured a meaningful market share in applications to date is Solana. Its recent rise in transaction volume and revenues was however largely predicated on memecoin related activity, which the market has regarded as a less stable source of revenue over the longer term and, therefore, assigned a lower multiple to Solana than to Ethereum. Although Solana’s revenues matched that of Ethereum over the last three months and even exceeded it for shorter periods, after the memecoin hype deflated, Ethereum has regained the edge in revenue generation.
Two further blockchains, namely Internet Computer and Binance Chain, generate annual revenues at least in the tens of millions of dollars. Avalanche and NEAR follow but with a negative trajectory. Toncoin started benefiting from strong user adoption last year but Pavel Durov’s arrest stopped the positive trend; there are indications, though, that the upside trajectory may resume. All other blockchains produce only a negligible amount of economic value.
Drivers of future revenues
Blockchains with meaningful market shares in the stable and growing segments of the crypto market warrant higher multiples.
Decentralised finance is still dominated by Ethereum, with Solana’s market share growing fast recently, approaching ten percent. Binance Chain and TRON used to capture higher market shares in the past, capitalising on Ethereum’s congestion and high fees at the time, but technologically more advanced chains are successful in taking market share here. Binance Chain, TRON, newcomer Berachain and – since the revival of innovation on the network – Bitcoin each capture three–five percent market shares in DeFi currently, with the former two declining and the latter two rising.
In terms of stablecoin market capitalisation, Ethereum and TRON dominate, with an 80–85 percent aggregate market share. Ethereum leads across all stablecoins but is almost matched by TRON in Tether market share. Solana and Binance Chain capture three–five percent each, with a rising trend for Solana and a declining trend for Binance Chain.
Beyond current market shares, access to users will be a key determinant of future success – this has been a key to TRON’s success, for example. Some projects warrant higher multiples when they are able to capitalise on affiliations with other activities involving a large customer base – such as the Binance Chain’s affiliation with crypto exchange Binance or Toncoin’s affiliation with social media platform Telegram and its over one billion users.
It is generally assumed that technological innovation will be the key to future user adoption, especially when it solves a pain point. However, technological prowess alone has not automatically translated into user growth and revenues. Many innovative blockchains of the past, such as Tezos, Polkadot and Cosmos, have failed to generate meaningful fee income. Solana managed to break this mould by effectively marketing its unique capabilities (OPOS – only possible on Solana), as did Internet Computer to some extent. Continued innovation, upgrades and new blockchain launches always carry the promise of a breakthrough, however, only a small number of protocols, such as Sui and Berachain, are currently showing signs of growing user adoption.
Nonetheless, innovation remains very important with a nascent technology, and tracking developer headcount and activity also provides some insight into which projects may have long-term success. Ethereum continues to dominate in this regard; however, Solana has recently been attracting the highest number of new developers. Other chains with strong developer growth include Internet Computer, Bitcoin, Aptos, Sui and NEAR. In addition to these, projects with the largest core developer teams include Cardano, Polkadot, Cosmos and Avalanche, although these blockchains have not seen as much developer growth.
Other sources of value
It should also be noted that fee revenue is not necessarily the only source of value for the native tokens of blockchains.
Crypto assets that demonstrate strong store-of-value properties and are adopted as a safe-haven asset can derive substantial economic value from this. For now, only Bitcoin has been able to attain such status, and it is not likely that other blockchains can achieve the same, as the bar is very high.
Cryptocurrencies also derive value from being used as a medium of exchange, although their use in real-world payments remains necessarily limited, and most transactions take place within the crypto market.
Some tokens capture additional value from sources that are external to the blockchain – for example, centralised exchange Binance shares some of its revenues with the holders of the BNB token by using part of its quarterly profits to purchase and destroy (burn) BNB.
Tokens can also derive economic value if users of the blockchain are required to hold the native token, Polkadot, for example, has such a mechanism (referred to as ”existential deposit”). This, however, only makes a meaningful difference to value if the user base is large enough – which Polkadot has so far failed to achieve.
Fallen stars
There have been many blockchain launches over the years where high hopes were attached to the future success based on the quality of the team or the innovative nature of the technology but these hopes have not been realised. Examples are EOS, Tezos and Cardano.
Typically, these tokens slide in the rankings in terms of relative market capitalisation if user traction does not materialise over time and the initial hype fades. However, occasionally, projects remain among the megacaps despite a lack of user adoption over an extended period. An example of this is Cardano – the token remains in the top ten despite not having demonstrated any noticeable economic value generation since its 2017 launch.
The rest
Similarly puzzling is the top ten status of blockchains, such as Dogecoin or XRP that have not demonstrated user traction or technological excellence to fuel great hopes but are instead valued primarily on the basis that they “might” be used in real-world payments in future. These valuations are probably the least justifiable, as cryptocurrencies (other than stablecoins) face substantial challenges in real-world payments, and the aggregate value is not likely to be significant, even if these tokens are indeed adopted – which is by no means certain.
Summary
The crypto industry is still in its infancy, and it is not easy to predict which blockchains will generate the most economic value in the long run. However, there is growing evidence pointing at projects that are showing great success in revenue generation. Others show promise by capturing market share in key sectors and market segments, or delivering meaningful innovation and attracting a growing number of developers. However, there are some long-existing projects that have failed to show any traction, and yet their tokens inexplicably remain among the megacaps.
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