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

This article aims to learn and expand knowledge related to REV, so that we can have a more comprehensive assessment and interpretation of public chains. We should inclusively learn knowledge, dialectically view the existing debates on REV, while avoiding the isolated use of any indicator parameters, thereby avoiding some potential negative impacts.

1. Interpretation of REV

1.1 What is REV?

REV represents Real Economic Value, which is an indicator that measures the total amount of fees paid by users to the public blockchain.

REV to public chains is like revenue to enterprises. However, there are certainly differences in details, and it is not completely equivalent to the concept of revenue to enterprises, and there are many controversies here.

The complete formula is as follows:

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

There is currently widespread debate on 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.

• REV Minimalists: believe that REV is a poor long-term value indicator because it soars during speculative bubble periods and is not applicable to blockchains like Bitcoin where REV is nearly zero. A minimal viable REV should be implemented to mitigate its potential negative economic impact.

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

1.2 Recent Features

The data table indicates that REV's share will be:

• ETH has a dominant position from 2020 to 2023
• SOL took on a new leadership role starting in 2024
• The REV of TRON is also quite considerable and is continuously increasing.

Looking at the REV in the past three months, SOL, TRON, and ETH are the leaders of REV.

In direct comparison with on-chain revenue, the most significant feature reflected by REV is: a substantial increase in the weight of the revenue factor impact on non-user sides.

The calculation formula of REV tells us that it includes 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 its REV increase, thereby further enhancing its potential valuation space.

Advantages and disadvantages of 1.3 REV

Advantages:

• Compared to the number of active addresses and transaction volume, REV is harder to manipulate, especially when some REV is destroyed.
• It can effectively indicate the activity of retail investors on various chains throughout history.

Disadvantages:

• Has a certain lag effect
• It 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 being manipulated.
• There are some deviations, in certain cases MEV and REV can be much higher than the average.
• On some public chains where MEV infrastructure is immature, REV may be small and could lead to certain unfair valuations.

In general, we need to adopt a dialectical approach to REV just as we do with MEV, and we must avoid applying any indicators or methods in an isolated or metaphysical manner.

1.4 Valuation method of overlaying FDV: F/R multiple

By adding FDV and valuing it with REV, we will get a FDV/REV multiplier.

This type of multiplier is somewhat similar to the Price/Earnings (P/E) ratio, and its core logic is to measure the extent of the market's premium valuation of a project. That is, the larger the F/R multiplier, the greater the potential valuation bubble, and the more optimistic the market is about the project's growth expectations ( or the stronger the speculation ). Conversely, a smaller bubble indicates a valuation that is more closely aligned with reality, and in a vertical comparison, it may also represent relative undervaluation.

From this, we can give a concept of the F/R multiplier:

The FDV/REV multiplier is a measure of the ratio between a project's FDV( market expectations) and its annualized actual economic income( current profitability), reflecting the premium that the market pays for each unit of income.

It can be seen from this:

• BTC has the highest F/R multiplier, implying a long-term narrative and liquidity premium.
• The F/R multiples of SOL and Tron are relatively low, indicating that the market may perceive their earning potential as stronger or their valuations as more reasonable.

On the other hand, the FDV may be inflated due to the impact of token releases, thus affecting short- to medium-term valuations. We can also use the circulating market cap to assist in reference, which can more accurately reflect the current market's recognition of the project's value------thus establishing an MC/R or M/R multiplier. Such a multiplier is also more suitable for evaluating the market's pricing efficiency of project revenues in the short term, but we won't elaborate on this for now; the principles and algorithms can be directly applied.

The difference and connection between 1.5 and 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 us compare and analyze the two together, focusing on their different roles in valuation, in order to better understand the two indicators.

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

MEV usually manifests as arbitrage, liquidation, front-running, sandwich attacks, etc., and it is inherently a neutral term.

Therefore, in the valuation system, MEV and REV are actually two completely different concepts. The composition of REV was mentioned in the initial formula, which is actually composed of MEV, and then combined with our current understanding of REV to conclude:

• MEV should actually be more regarded as a micro indicator for assessing the health of the network and some strategic value distribution.
• REV actually takes a more macro perspective, focusing on the overall income premium situation of the public chain itself.
• The ratio of MEV and REV can be dynamically monitored and used as an auxiliary indicator of ecological health. A low ratio indicates health, while a high ratio poses risks.

2. Conclusion

1. REV does not equal the value capture of the on-chain native token.

   • REV has its advantages and disadvantages and should not be used and referenced in isolation.
   • Often, REV will be burned and returned to users through incentive mechanisms, or paid to validator node operators as operational expenses, thus reducing the nominal REV through deflationary mechanisms.

2. The FDV/REV ratio ( is similar to the price-to-earnings ratio P/E ) and naturally varies among 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 can vary.

3. Blockchain is not a company, and native tokens are not equity.

4. The views of REV Minimalists may not necessarily be advisable, while maximizing REV has many aspects worth discussing in the long term.

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 public chain health indicators for MEV/REV.
   • Using these combination indicators rationally and flexibly can provide us with a relatively comprehensive perspective when evaluating public chains.