REV and F/R Multipliers: A New Valuation Method for Public Chains

REV (Real Economic Value) is gradually becoming an important reference indicator due to its closer alignment with on-chain real transaction demands.

Written by: Cage, WolfDAO

Introduction

REV Interpretation:

What is REV?

REV represents real economic value and is an indicator that measures the total fees paid by users to the public chain.

REV stands for Real Economic Value and is a measure of how much users pay to use a chain, in total.

• REV is to public chains what revenue is to enterprises.

Evenue is to businesses as REV is to Chains.

"REV consists of both in-protocol transaction fees and out-of-protocol tips that users pay for transaction execution, so it measures the [aggregate] monetary demand to transact on-chain." - @blockworksres

However, there will certainly be details that differ, and it is not entirely equivalent to the concept of revenue as it pertains to a business, and there are many controversies here.

• Note that the "∑(Out of protocol tips/MEV)" after the formula, the author understands that the "/" should be interpreted as a conjunction, not as a division sign. The complete formula should be as follows to reduce ambiguity:

REV = ∑(In-protocol fees) + ∑(Out-of-protocol tips) + ∑(MEV)

• It is not recommended to focus on the authenticity of specific data and implementation paths here, as the marginal return rate for mining and verifying this data is low. We know the calculation methods and existing dashboards are sufficient as a reference for valuation.

Currently, there is widespread debate on CT about whether REV should be maximized:

• REV Maxis: believes that maximizing REV is beneficial for reducing the marginal cost of the network / expanding the user base / achieving sustainable revenue growth.

Dan Smith on Twitter / X

• REV Minimalists: believe that REV is a poor long-term value indicator because it skyrockets during speculative bubbles and is not suitable for blockchains like Bitcoin where REV is almost zero. A minimal viable REV should be implemented to reduce its potential negative economic impact.

Ryan Berckmans on Twitter / X

Diario on Twitter / X

However, this article does not focus on whether REV should be maximized or minimized, but rather on the application of REV itself and what kind of help and reference it can bring us. Readers are encouraged to think rationally and view this indicator dialectically.

Recent Features

Data table showing the REV proportion over 5 years:

• ETH is in a dominant position from 2020 to 2023;
• In 2024, SOL will take on a new leadership role;
• The REV of TRON is also quite considerable and is continuously expanding.

In terms of REV over the past three months, SOL, TRON, and ETH are the leaders of REV, corresponding to the above chart.

In direct comparison to on-chain revenue, the most significant feature reflected by REV is: it has greatly increased the weight of the income factor's influence from non-user ends.

The calculation formula of REV tells us that it encompasses Out of Protocol Tips (or MEV) in addition to user demand. Therefore, it is not difficult to find that among all public chains, Solana's MEV can significantly help enhance its REV, thereby further increasing its potential valuation space (the application of REV's valuation will be mentioned later, and will not be elaborated on here).

We invited Teacher DeepSeek to help us summarize the linkage analysis method of the two indicators:

Advantages and Disadvantages of REV (@mteamisloading)

Advantages:

• Compared to the number of active addresses and trading volume, REV is harder to manipulate, especially when some REV is burned;
• It can effectively indicate the historical activity of retail investors across various chains.

Disadvantages:

• Has a certain lag;
• cannot reflect the entire situation of a public chain and should not be used in isolation for valuation;
• Although it is difficult, there is still a possibility of manipulation;
• There are some deviations, and in certain cases, MEV and REV can be much higher than the average;
• In some public chains where MEV infrastructure is not mature, REV is relatively small, which may lead to certain unfair valuations.

Overall, we need to approach REV dialectically, just like we do with MEV, and avoid applying any indicators or methods in isolation or metaphysically.

The valuation method of overlaying FDV: F/R multiplier

By overlaying FDV and valuing it against REV, we will obtain an FDV/REV multiplier.

This kind of multiplier is somewhat similar to the Price-to-Earnings (P/E) Ratio. Its core logic is to measure the degree of market premium on the valuation of a project. That is, the larger the F/R multiplier, the larger the potential valuation bubble, and the more optimistic (or speculative) the market is about the project's growth expectations. Conversely, the smaller the bubble, the more accurate the valuation may be to the actual situation, and in a vertical comparison, it may also represent relative undervaluation.

From this, we can provide a concept of an F/R multiplier:

The FDV/REV multiple measures the ratio of a project's FDV (market expectations) to its annualized actual economic income (current profitability), reflecting the degree of premium the market pays for each unit of income.

It can be seen from this:

• The F/R multiplier for BTC is the highest, implying a long-term narrative and liquidity premium;
• The F/R multiplier for SOL and Tron is relatively low, indicating that the market may perceive their income-generating ability as stronger or their valuations as more reasonable.

On the other hand, **FDV may be inflated due to the impact of token releases, which can affect short to medium-term valuations. We can also use the circulating market cap to assist in our reference, as it can more accurately reflect the market's recognition of the project's value—thus establishing an MC/R or M/R multiplier. Such multipliers are also more suitable for assessing the pricing efficiency of the market's valuation of the project's revenue in the short term, **but we will not elaborate on this here; the principles and algorithms can be directly applied.

Here we would like to ask Teacher DeepSeek to summarize and compare four valuation methods, including PE and PS, using a table.

Differences and Connections with MEV

Due to the similarity in their names, and the fact that the former is a component of the latter, it is naturally easy to associate the two. Let's put them together for a comparative analysis, focusing on their different roles in valuation for a better understanding of the two indicators.

We know that MEV stands for Maximal Extractable Value, which is the profit that specific participants can obtain by leveraging the native characteristics of on-chain transactions, such as price delays, lending liquidations, transaction visibility, and so on.

MEV is typically manifested as arbitrage, liquidation, front-running, sandwich attacks, etc., and it is a neutral term in itself. I would also like to ask Teacher DeepSeek to create a comparison table:

Therefore, in the valuation system, MEV and REV are actually two completely different concepts. The composition of REV has already been mentioned in the formula we provided at the beginning, which is actually constituted by MEV, and combined with our current understanding of REV we conclude:

• MEV should actually be regarded more as a micro indicator in the valuation process to measure the health of the network and certain strategic value distribution situations;
• REV is actually more macro, focusing on the overall income premium situation of the public chain itself;
• Dynamic monitoring can be combined with the ratio of MEV to REV as an auxiliary indicator of ecological health (a low ratio indicates health, while a high ratio poses risks).

4. Conclusion

Conclusion 1 (@mteamisloading): REV does not equal the value capture of on-chain native tokens.

• REV has advantages and disadvantages and should not be used and referenced in isolation;
• Many times, REV will be burned and returned to users through incentive mechanisms, or paid to validator node operators as operational expenses, among other deflationary mechanisms, thereby reducing the nominal REV.

Logan Jastremski on Twitter / X

Conclusion 2 (@mteamisloading): The FDV/REV ratio (similar to the price-to-earnings ratio P/E) inherently varies between different chains (and enterprises).

• For tokens, factors such as yield and currency premium can significantly affect prices. Moreover, the quality and sustainability of REV on different chains vary.

Conclusion 3 (@mteamisloading): Blockchain is not a business, and native tokens are not equity.

Conclusion 4 (@mteamisloading): The views of REV Minimalists may not necessarily be advisable, and maximizing REV has many aspects worth discussing in the long term.

mteam.eth 🗼 on Twitter / X

Dan Smith on Twitter / X

Conclusion 5: REV combined with many indicators can form a relatively comprehensive observation system.

• We discussed the relationship between REV and Fees in the article;
• Discussed the reference value of F/R multiplier and M/R multiplier for public chain valuation;
• Discussed the differences and connections with MEV, and provided the on-chain health indicators for MEV/REV.
• By reasonably and flexibly using these combined indicators, we can gain a relatively comprehensive perspective when assessing public blockchains.

The content of this article is based on the following article for study, organization, and expansion. Some images are sourced from @mteamisloading's article, and some core viewpoints and indicators are not originally created by the author. It is recommended to read the original article to support the original author and to gain a preliminary understanding of the related concepts.

1. Related articles:

Poopman (💩🧱✨) on Twitter / X

mteam.eth 🗼 on Twitter / X

Valuing blockchains: The great REV debate

2. Important Dashboard:

链上比较：概况 - 分析仪表板 - Blockworks