Progrmd’s Analysis Framework
Happy new year!
What a wild ride it has been in crypto. Despite much trepidation in the industry in 2022, 2023 marked a year of robust recovery. We look forward to an even more exciting 2024, which may be well-positioned with the Bitcoin halvening, improving macro conditions, and the impending institutional adoption of the asset class.
Crypto-native research firms have released theses and predictions for the upcoming year, including Messari, Delphi Digital and Blockworks. I highly recommend them. The depth and sophistication of thought from these research houses underscores the industry’s maturation and the concentration of talent within it.
While I do not have or make any one-year predictions, I want to take the time to highlight the firm’s analysis framework. This simple framework is integral to the underwriting process that seeks to identify the long-term winners within the crypto ecosystem. In particular, we are interested in protocols that lie at the intersection of three key dimensions of value.
1. Large addressable market with structural demand drivers
A rising tide lifts all boats. We believe the context in which a project is building plays a significant part in determining the growth outcomes. Being in a conducive environment can potentially provide a buffer against against execution risks and contribute to a project’s success. In essence, it helps to be in the right place at the right time and ride the “beta effect”.
2. Competitive advantage with credible internal execution
Barriers to entry in Web3 is arguably lower. Capital is global and abundant. Code can be forked. So how has the team thought about the recipe for success and how are they poised to deliver on the game plan? Is the product faster, cheaper, more scalable, safer, and/or easier to use or access? How does the project have the potential to create an unfair advantage over its competitors?
3. Path to sustainable value transmission to token holders
The liquid token market comprises protocols at various stages of development, which we roughly bucket into five categories. Earlier stage projects naturally have a less certain value accrual model, which necessitates a more flexible approach that puts greater emphasis on metrics like user and transactions growth.
We believe that as protocols establish a sustainable user base and generate fees, network value will increasingly become a function of economic and utility value. Therefore, mapping out what value could look like is a useful exercise that roots the investment in tangible thesis and expectations.
Over the course of the year, the firm intends to provide analyses using the outlined framework. The aim is to help enhance analytical rigor in a space that is often misrepresented as mere speculation.