If income continues to rise, the valuation will have significant rise potential, making the $4 billion valuation appear reasonable and even undervalued.
**Written by: **tomas
Compiled by: Deep Tide TechFlow
On Twitter, the discussion about @pumpdotfun planning to conduct an ICO is filled with various complex emotions, but there is almost no solid evidence to support these views. Therefore, it is worth delving into its fundamentals to assess the following two questions: 1) Is the $4 billion ICO valuation reasonable? 2) What are the potential returns or risks of this investment?
This article is not a comprehensive analysis, but rather a series of key observations that I believe are necessary to form a complete judgment. I also need to state that I have no financial relationship with @pumpdotfun, and this analysis will help me decide how to trade this ICO.
To answer the two questions I raised, I believe it is necessary to further explore the following points:
How does @pumpdotfun tackle competition in the memecoin space?
How does @pumpdotfun perform in the entire ecosystem?
Is the user attraction and growth momentum of @pumpdotfun rising or falling?
Let's analyze them one by one.
How does @pumpdotfun cope with competition in the memecoin space?
The chart above clearly shows that although competitors continuously emerge and briefly occupy market share, they ultimately disappear quickly. The latest wave of competition comes from @bonk_fun, @RaydiumProtocol's LaunchLab, and @believeapp, marking the second round of competition since the existence of Pump. However, from the first wave of competition (Justin's pump[.]sun), it can be seen that these competitors do not last, and users typically return to @pumpdotfun within a few weeks.
How does @pumpdotfun perform in the entire ecosystem?
Obviously, Pump performs well in the memecoin space, but I also want to understand its significance and that of memecoins in the broader ecosystem.
From the chart above, it can be seen that the market dominance of memecoins is declining, with their share of the total ecosystem trading volume dropping from 45% at the end of the year to the current approximately 25%. At the same time, from the chart below, it can be seen that pump.swap has seen a significant rise compared to other @solana decentralized exchanges (DEX).
It is important to note that the decline in memecoin trading volume has returned to the levels before the peak of the bull market in Q4 2024 with @virtuals_io and $TRUMP, so this decline is natural and to be expected. I am glad to see that the proportion of memecoin trading in overall trading activity may have found a sustainable, normalized level.
Is the user attraction and development momentum of @pumpdotfun rising or declining?
A good picture is worth a thousand words, so below are three charts showcasing the trading volume, user base, and token issuance/graduation rate of @pumpdotfun.
Overall, when considering the background, these indicators are all positive for me. If we exclude the "frenzied" bull market period from November to January, all indicators have achieved a 2-fold rise, and the user return rate is relatively high (on average, 56% of monthly users are returning users), although the graduation rate is relatively stable but has slightly declined.
Valuation Analysis
In my opinion, @pumpdotfun is still maintaining a healthy rise with almost no sustainable competitors, and broader market conditions indicate that memecoins are far from being over. Therefore, the claim that @pumpdotfun's ICO is its "final squeeze" is unfounded.
Since the value of Pump is obviously not zero (it doesn't seem to be disappearing in the short term), we can further explore its reasonable valuation.
Instead of relying on a bunch of subjectively inputted data for discounted cash flow (DCF) analysis, I chose to use the comparative analysis method. I first collected two sets of data:
Group A
Group B
For @pumpdotfun, I used the following data in my analysis:
pump.fun data
When estimating using different metrics from dataset A, we can see that @pumpdotfun's fully diluted valuation (FDV) ranges from $183 million to $5.7 billion. Clearly, this range does not provide a definitive answer. However, as a fundamental-focused investor, considering the significant differences in the business model of Pump.fun compared to traditional decentralized exchanges (DEX) or launch platforms, I tend to view revenue as an appropriate metric for evaluating the company.
The trading volume of a DEX does not accurately reflect its monetization ability, and the fees cannot accurately represent the ability to buy back tokens. I believe that the ability to buy back tokens will become a major driving factor in analyzing any token in the future. Therefore, when valuing @pumpdotfun, revenue is clearly the most appropriate metric.
Another point that needs to be added is, which annualized metric is more appropriate to choose?
In my opinion, a 3-month indicator is the optimal choice in this case. The 1-month data is too volatile (for example, @HyperliquidX's annualized income fluctuates between 300 million and 1 billion dollars), while the 12-month income does not reflect @pumpdotfun's recent adjustments to its business model, which include introducing creator revenue sharing, potentially overestimating @pumpdotfun's current revenue run rate.
The fully diluted valuation (FDV) of Pump, based on DEX multiple estimates, is approximately $5.3 billion.
However, can we do better? The current valuation method does not well reflect the Pump team's repurchase decisions, as it assumes a 100% repurchase ratio, which is clearly unrealistic. In addition, the current valuation also fails to fully consider that Pump is actually more like a company rather than a protocol, so using DeFi multiples to evaluate a company is not entirely appropriate.
Therefore, we can turn to the price-to-earnings ratios (P/E) of key players in the centralized finance (CeFi) space—Coinbase, Binance, and Robinhood—as a representative dataset for valuation.
Valuation based on dataset B
Interestingly, assuming a 25% buyback plan is implemented, the FDV is approximately 5 billion USD, which is very close to the results based on the DEX multiple method.
But there's a problem! In these scenarios, I assumed specific buyback plans and sustainable user attraction. So what would happen if we conducted a sensitivity analysis on these assumptions?
Performing sensitivity analysis based on "valuation of dataset B", the results are as follows:
My basic assumption is that Pump.fun can maintain 75%-100% of its current revenue (daily revenue of $1.5 million) and will use 25%-50% of its revenue for buybacks. This would place its valuation between $3.7 billion and $9.8 billion. If revenue continues to rise, there will be significant room for valuation increases, making a $4 billion valuation seem reasonable or even undervalued.
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The content is for reference only, not a solicitation or offer. No investment, tax, or legal advice provided. See Disclaimer for more risks disclosure.
ICO valuation is 4 billion USD, is Pump.fun worth this price?
**Written by: **tomas
Compiled by: Deep Tide TechFlow
On Twitter, the discussion about @pumpdotfun planning to conduct an ICO is filled with various complex emotions, but there is almost no solid evidence to support these views. Therefore, it is worth delving into its fundamentals to assess the following two questions: 1) Is the $4 billion ICO valuation reasonable? 2) What are the potential returns or risks of this investment?
This article is not a comprehensive analysis, but rather a series of key observations that I believe are necessary to form a complete judgment. I also need to state that I have no financial relationship with @pumpdotfun, and this analysis will help me decide how to trade this ICO.
To answer the two questions I raised, I believe it is necessary to further explore the following points:
Let's analyze them one by one.
How does @pumpdotfun cope with competition in the memecoin space?
The chart above clearly shows that although competitors continuously emerge and briefly occupy market share, they ultimately disappear quickly. The latest wave of competition comes from @bonk_fun, @RaydiumProtocol's LaunchLab, and @believeapp, marking the second round of competition since the existence of Pump. However, from the first wave of competition (Justin's pump[.]sun), it can be seen that these competitors do not last, and users typically return to @pumpdotfun within a few weeks.
How does @pumpdotfun perform in the entire ecosystem?
Obviously, Pump performs well in the memecoin space, but I also want to understand its significance and that of memecoins in the broader ecosystem.
From the chart above, it can be seen that the market dominance of memecoins is declining, with their share of the total ecosystem trading volume dropping from 45% at the end of the year to the current approximately 25%. At the same time, from the chart below, it can be seen that pump.swap has seen a significant rise compared to other @solana decentralized exchanges (DEX).
It is important to note that the decline in memecoin trading volume has returned to the levels before the peak of the bull market in Q4 2024 with @virtuals_io and $TRUMP, so this decline is natural and to be expected. I am glad to see that the proportion of memecoin trading in overall trading activity may have found a sustainable, normalized level.
Is the user attraction and development momentum of @pumpdotfun rising or declining?
A good picture is worth a thousand words, so below are three charts showcasing the trading volume, user base, and token issuance/graduation rate of @pumpdotfun.
Overall, when considering the background, these indicators are all positive for me. If we exclude the "frenzied" bull market period from November to January, all indicators have achieved a 2-fold rise, and the user return rate is relatively high (on average, 56% of monthly users are returning users), although the graduation rate is relatively stable but has slightly declined.
Valuation Analysis
In my opinion, @pumpdotfun is still maintaining a healthy rise with almost no sustainable competitors, and broader market conditions indicate that memecoins are far from being over. Therefore, the claim that @pumpdotfun's ICO is its "final squeeze" is unfounded.
Since the value of Pump is obviously not zero (it doesn't seem to be disappearing in the short term), we can further explore its reasonable valuation.
Instead of relying on a bunch of subjectively inputted data for discounted cash flow (DCF) analysis, I chose to use the comparative analysis method. I first collected two sets of data:
Group A
Group B
For @pumpdotfun, I used the following data in my analysis:
pump.fun data
When estimating using different metrics from dataset A, we can see that @pumpdotfun's fully diluted valuation (FDV) ranges from $183 million to $5.7 billion. Clearly, this range does not provide a definitive answer. However, as a fundamental-focused investor, considering the significant differences in the business model of Pump.fun compared to traditional decentralized exchanges (DEX) or launch platforms, I tend to view revenue as an appropriate metric for evaluating the company.
The trading volume of a DEX does not accurately reflect its monetization ability, and the fees cannot accurately represent the ability to buy back tokens. I believe that the ability to buy back tokens will become a major driving factor in analyzing any token in the future. Therefore, when valuing @pumpdotfun, revenue is clearly the most appropriate metric.
Another point that needs to be added is, which annualized metric is more appropriate to choose?
In my opinion, a 3-month indicator is the optimal choice in this case. The 1-month data is too volatile (for example, @HyperliquidX's annualized income fluctuates between 300 million and 1 billion dollars), while the 12-month income does not reflect @pumpdotfun's recent adjustments to its business model, which include introducing creator revenue sharing, potentially overestimating @pumpdotfun's current revenue run rate.
The fully diluted valuation (FDV) of Pump, based on DEX multiple estimates, is approximately $5.3 billion.
However, can we do better? The current valuation method does not well reflect the Pump team's repurchase decisions, as it assumes a 100% repurchase ratio, which is clearly unrealistic. In addition, the current valuation also fails to fully consider that Pump is actually more like a company rather than a protocol, so using DeFi multiples to evaluate a company is not entirely appropriate.
Therefore, we can turn to the price-to-earnings ratios (P/E) of key players in the centralized finance (CeFi) space—Coinbase, Binance, and Robinhood—as a representative dataset for valuation.
Valuation based on dataset B
Interestingly, assuming a 25% buyback plan is implemented, the FDV is approximately 5 billion USD, which is very close to the results based on the DEX multiple method.
But there's a problem! In these scenarios, I assumed specific buyback plans and sustainable user attraction. So what would happen if we conducted a sensitivity analysis on these assumptions?
Performing sensitivity analysis based on "valuation of dataset B", the results are as follows:
My basic assumption is that Pump.fun can maintain 75%-100% of its current revenue (daily revenue of $1.5 million) and will use 25%-50% of its revenue for buybacks. This would place its valuation between $3.7 billion and $9.8 billion. If revenue continues to rise, there will be significant room for valuation increases, making a $4 billion valuation seem reasonable or even undervalued.