Crypto fundamental analysis: value-based investing on the blockchain

WHAT is crypto fundamental analysis? Fundamental analysis of cryptocurrencies is the process of trying to determine the intrinsic value of a digital asset based on the underlying technology, business model, team, market demand, and tokenomics, as opposed to purely price-based technical analysis. This includes, for example, evaluating the project's whitepaper, examining developer activity (e.g., number of GitHub commits), analyzing network metrics (active wallets, transaction volume, on-chain data), comparing it to competitors, and assessing the regulatory environment and transparency of token distribution. The goal is to judge whether a given cryptocurrency solves a real problem, whether there is a lasting market demand behind it, and whether the current price reflects its actual value, thereby helping with long-term investment decisions. These and similar concepts will be discussed!

• The paradigm shift: The crypto market is no longer just about speculation. Leading blockchains and protocols generate real cash flow and measurable profits.
• Stock vs. Crypto: The tools of traditional fundamental analysis (P/E ratio, dilution, revenues) can be transferred to the Web3 world if we know the appropriate metrics on the blockchain.
• Tokennomics: The token issuance and burning mechanisms correspond to share issuance and share buybacks.
• Sectoral differences: You cannot use the same logic to evaluate a blockchain infrastructure (Layer 1), a financial protocol (DeFi), or a physical network (DePIN).
• Portfolio management: Using a portfolio manager is essential to measure returns in complex protocols.

If you're a traditional value investor, you probably view the crypto market with suspicion. The media usually reports on dog meme coins jumping thousands of percent and extreme volatility. It's no wonder that through Warren Buffett's lens, the whole thing looks like a huge casino without fundamentals.

However, beneath the surface, the market has changed drastically by 2026. Fundamental analysis of crypto is now very much possible. Leading blockchain networks and decentralized finance (DeFi) protocols are generating real, billion-dollar revenues, have profitable business models, and transparently return the cash flow they generate to token holders.

In this guide, we'll show you how to translate your traditional stock analysis knowledge into the language of Web3 to find real value on the blockchain.

💡If you want crypto exposure in your portfolio, but want to achieve it through traditional instruments and traditional companies, then read our article introducing these stocks: Crypto stocks: Business models behind the blockchain

🆚Traditional (stock) vs. crypto fundamental analysis

The goal of crypto fundamental analysis is the same: to find assets with intrinsic value higher than the current market price. To do this, we need to be able to examine the revenues, costs, profits, competitors, and other risk factors of a given company or project. The difference lies in the data sources and the nature of the entities.

(I.e.Company vs. protocol (or project)

While a stock represents an ownership stake in a legal entity (company), a crypto token represents a share in the operation or revenue of a blockchain, or software (protocol) running on a blockchain. The goal is to have no CEOs and office buildings, just open source smart contracts that automate the service.

📌In practice: this is not how it works in the vast majority of cases at the moment, most projects are backed by a foundation or an entrusted company that is responsible for development and operation-related tasks. In the author's opinion, this will not change in most cases, but industry developments and ideas are becoming increasingly clear on the basis of which these projects can be safely decentralized (but this does not mean that it is worth doing this in every case).

📄Financial statements vs. on-chain data

In the stock market, you wait weeks for a company’s quarterly earnings report, which often only focuses on the positives or contains complicated accounting tricks. In crypto, the blockchain is the immutable, public ledger. Every transaction, fee collected, and active user can be queried in real time, down to the second (on-chain analysis). However, collecting this data for each project requires a lot of work, so most projects usually make reports available at monthly or quarterly intervals, where they collect the most important metrics, and specific dashboards are also available that show changes in real time. (For example: Alchemix project statistics, Alchemix quarterly reports)

These reports attempt to provide data similar to traditional reports, but due to the nature of blockchain, they are structured completely differently and are less “official.”

💡The figure above shows the Aave protocol (Aave) TVL and Revenue numbers are visible. TVL stands for Total Value Locked, which is the total value of crypto tokens locked in the protocol's smart contracts. This would be user deposits in the case of a traditional financial service provider or bank, or total client assets in the case of a broker. Revenue is the interest paid on loans, from which we must subtract the costs that are paid on client deposits, as well as wages and other expenses (this is the SG&A line in traditional corporate accounting). The money left over after this is profit.

🔎Crypto fundamental analysis: comparison of evaluation metrics

• Market Capitalization (Market Cap) vs. FDV: in stocks, Market Cap is the value of the company. In crypto, there is also Market Cap (the value of tokens in circulation), but more important is FDV (Fully Diluted Valuation). This shows how much the project would be worth if all the tokens that have ever existed were to be put on the market. (If FDV is 10 times the Market Cap, you face a huge risk of future dilution. We will return to this in more detail in the next section.

• Revenue vs. Network Fees: The company's sales are the transaction fees paid on the network in the case of a blockchain. In the case of an application running on a blockchain, it is the amount paid for using the software. In total, the user pays for network usage and for using the application. The graph below shows that while in 2021 90+% of the total amount paid was paid as network usage fees (i.e., Bitcoin or Ethereum network transaction costs), now applications collect 60-70% of the money.

• P/E Ratio vs. P/F Ratio: The closest thing to the Price-to-Earnings (P/E) ratio is the Price-to-Fees (P/F) ratio, which compares the fees paid to a given blockchain or application to the price of the project's token. This is not a complete match to the P/E ratio in that we do not know what costs the project still has to pay (although in many cases this can be redistributed 100%, but in such cases the payment of wages is solved by token inflation). Thus, the Price-to-Sales (P/S) ratio usually gives a more accurate picture, which means the same here as in the case of a traditional company, i.e. it compares the revenue to the price of the project's token.

❗I think it is very important to note here that different protocols operate on different mechanisms, meaning that the cost and revenue values ​​shown on these dashboards are often incorrect, and costs are typically not shown, so you need to check each project individually to see how accurate the numbers are, what they include and what they don't, and how token holders benefit from the profits.

🪙Crypto Fundamental Analysis: What is tokenomics (token distribution and dilution)?

One of the most unique areas of crypto fundamental analysis is tokenomics. Even the most brilliant software can be a terrible investment if the underlying token model is flawed. Tokenomics defines the rules for issuing, distributing, and destroying tokens. Its traditional equivalent is share dilution and buybacks.

• 🫗Inflation (dilution): like printing fiat money or issuing new shares continuously. If a network is pouring millions of new tokens into the market every day to pay network maintainers, the value of your existing tokens is constantly being diluted. Most crypto projects create new tokens according to a predefined emission schedule (inflation), which in many cases can reach an annual rate of over 100%.
  One famous model is the Olympus DAO (Olympus DAO website), who initially set a 10000% (ten thousand percent) emission schedule. Encouraged by this, 500 other projects appeared and began to compete with each other to see who could set a higher inflation rate and survive. Olympus DAO survived, the others did not, but of course they changed their model within a short time and there is no longer hyperinflation and inflation has been perfectly integrated into the value of the tokens, meaning they are now worth much less.
  
  To illustrate another, more typical example, the image below shows the inflation graphs of the Alchemix Finance token (ALCX token), where it is seen that the token supply increased fivefold in 3 years, then stabilized at a 4% annual rate exactly 3 years after the initial issuance. The project's value (market cap) has now fallen to less than a twentieth of its initial state, but due to inflation this has corresponded to a 99.8% drop in the ALCX token.

• 🔥Deflation and Token Burn (share buyback): When a network (such as Ethereum) continuously burns its own tokens from a portion of the transaction fees it collects, the supply decreases. This is exactly the same effect as when Apple buys back its own shares on the market: the value of the assets of the remaining owners automatically increases. However, this should be treated with caution in crypto, because in many cases the number of tokens does not decrease in practice, since due to high dilution, token burns can only reduce the degree of dilution.
  Even in the case of Ethereum, it depends on market sentiment whether the dilution or the burn value will be higher, although dilution has always won recently (if usage is low, transaction fees are lower and less ETH is burned, and there is also a specific technological goal to make it cheaper to use the network). There is a website for this: Ultra Sound Money

📊Crypto fundamental analysis in different crypto categories

Not all cryptocurrencies should be evaluated with the same template. Crypto is now a diversified industry, where sectors operate with completely different business logics.

1. 🔗Crypto Fundamental Analysis: Layer 1 and Layer 2 Blockchains

The first and perhaps most important goal of crypto fundamental analysis is to evaluate the blockchains themselves – the so-called Layer 1 (L1) and Layer 2 (L2) networks. These networks (such as Bitcoin, Ethereum, Solana, or Arbitrum) are not traditional companies nor are they simple financial applications.

The best analogy for TradFi is to think of them as cloud providers (like Amazon Web Services – AWS) or digital nation states. They provide the core infrastructure and security that all other decentralized applications (DeFi, gaming, RWA) are built on.

The business model of a blockchain is quite simple. Every time someone uses the network – whether it’s a simple transfer, interacting with a smart contract, or buying and selling an NFT – the user must pay a transaction fee (gas fee), usually in the network’s native token (e.g. ETH or SOL).

• Network Revenue: These aggregate transaction fees represent the blockchain's real, organic revenue. The more people use it, the higher the network's revenue and the more valuable the network becomes.
• Layer 1 vs. Layer 2: Layer 1 networks (Ethereum) are the foundation of the system, but they are usually slower and more expensive. Layer 2 networks (like Arbitrum, Base or Optimism) are so-called scaling solutions. They process fast, everyday transactions cheaply, and then send the data in batches to Layer 1. The business model of L2s is classic “margin”-based: they process bulk transactions for users cheaply, and pay a larger amount to Layer 1 for security. The difference between the two is the profit of the L2 network. Each L2 is built on a specific L1 blockchain, and currently the majority of L2 networks have chosen Ethereum as their L1. On most L2 networks built on Ethereum, you have to pay with Ethereum's native token (ETH), but there are also some that use their own token, which the network converts to ETH in the background (since L2 also has to pay in ETH for transactions on the Ethereum network).

💡Most L2 networks have their own tokens, even though transactions must be paid for with ETH tokens. For example, Arbitrum has ARB, Optimism has OP. What are these tokens for if the network's profits are directed elsewhere? It works differently for each network, but in many cases it is a future promise that token holders will benefit from the network's profits, but currently the so-called sequencer components that operate the network are run centrally, and the profits from this are used by the team developing the given blockchain to finance themselves.

🔎How do we analyze them? (the most important metrics)

1. Daily Active Addresses (DAU): similar to Meta (Facebook)'s daily active user metric. A growing active address count indicates that the network effect is strengthening and people are actually using the ecosystem.
2. Number of Active Developers: For tech companies, developer activity is the surest predictor of future growth. If the world’s best programmers build their new apps on a given blockchain, capital and users will follow. It’s like looking at whether more quality apps are being made for iOS or Android.
3. Fees Collected vs. Token Inflation (Fees vs. Emissions): This is the most important metric for value investors. If the network collects $100 per day in transaction fees (revenue) but issues (prints) $1000 worth of new tokens per day to pay validators (inflationary spending), then the network is losing money and is continuously diluting investor capital. If the revenue is higher, then the network is making a profit and we can calculate a traditional P/E ratio from this.
4. TVL (Total Value Locked): Although this metric is more specific to DeFi protocols, in the case of a blockchain, TVL shows how much capital is parked on that blockchain. A high TVL indicates trust and liquidity, which attracts new users.

💰Digital gold narrative

If a strict value investor were to try to value the world's two largest cryptocurrencies, Bitcoin and Ethereum, based solely on their network revenue and cash flow (Price-to-Fees ratio), they would find both unrealistically overvalued. Why is the market willing to give them multi-trillion dollar capitalizations? The answer is monetary premium.

The best traditional example is gold. The industrial or jewelry uses of gold account for only a fraction of its market value. The vast majority of its price, the premium, comes from the fact that people have viewed it as an independent store of value and a means of escape for thousands of years.

• Bitcoin (BTC) as a pure Monetary Premium: Bitcoin is not a software company, nor is it a traditional Layer 1 smart contract platform. It does not have huge network revenues, and it does not pay returns. Its value is 100% driven by mathematical scarcity (maximum 21 million pieces), decentralization, and the global, censorship-resistant “digital gold” narrative. With Bitcoin, traditional cash-flow-based fundamental analysis simply does not work; macroeconomic processes (inflation, central bank interest rates) and supply-demand dynamics are what drive the price.
• Ethereum (ETH) as a Hybrid Instrument: Ethereum is a much more exciting beast. While it can be highly valued as a software network based on fees collected and deflationary token burns, its market cap far exceeds a mere “tech stock” valuation. This is because ETH is the default currency and pristine collateral of the DeFi ecosystem. When investors lock ETH in a smart contract to borrow a USD-backed stablecoin, they are not using it as a tech stock, but as a monetary asset. This role as money adds a huge monetary premium to the token’s price above cash flow, which is just as difficult to quantify as Bitcoin.

💡For this reason, when analyzing so-called blue chips in the crypto market, always consider that their price consists of two components: the fundamental network revenue (Utility Value) and the social trust in them (Monetary Premium). For smaller, newer DeFi or DePIN tokens, this premium does not exist - only hard cash flow and tokenomics matter there.

2. 📈Crypto Fundamental Analysis: DeFi (Decentralized Finance)

If we considered Layer 1 blockchains as digital nation-states, then the DeFi (Decentralized Finance) protocols running on them are the financial institutions operating within them: banks, stock exchanges, brokerage firms, and insurance companies.

This is the sector where crypto fundamental analysis is closest to traditional stock analysis. Unlike “tech stocks” (L1s), these protocols operate much closer to classic business models: they provide a specific financial service for which they charge a direct service fee, and often generate positive cash flow from day one.

While a blockchain lives off transaction fees, a DeFi protocol lives off commissions from user activity.

• 💱Decentralized Exchanges (DEX – e.g. Uniswap): They work exactly like a broker. They take a small percentage trading fee (e.g. 0.3%) for each token swap. This is the protocol's gross revenue.
• 🏛️Lending Protocols (e.g. Aave): These are the commercial banks of the blockchain. They pay interest to depositors (who provide liquidity) and collect a higher interest rate from borrowers. The spread between the two, and the fees from liquidating defaulted borrowers, make up the profit.
• 💲Stablecoins (e.g. MakerDAO): They issue tokens that track the price of traditional fiat assets, these tokens are called stablecoins. 99% of stablecoins track the price of the US dollar (USD stablecoin, but there are also EUR and others). MakerDAO and many similar projects are interesting in that they also fall into the previous category, lending. In exchange for an appropriate deposit (e.g. BTC or ETH), the protocol “prints” stablecoins to borrowers. The income will be the interest paid by the borrowers. In turn, the project must ensure that there will be users who stand on the other side and act as lenders by buying and holding the stablecoin issued by the protocol (in MakerDAO’s case, DAI). The business model is more complex than in simple lending protocols, but the principle is the same.

🔎How do we analyze them? (the most important metrics)

When evaluating a DeFi protocol, numbers dominate rather than narrative. The most important fundamental indicators are:

1. TVL (Total Value Locked): This is the “assets under management” (AUM) or bank deposit account of the DeFi world. It shows, in dollars, how much capital users have entrusted to the smart contracts of a given protocol (e.g. how much money they have deposited in lending pools).
2. Protocol income: How much revenue (fees) the protocol generates. Different types of applications collect fees in different ways, so it is always important to understand the business model.
3. Real yield vs. inflation yield: This is the key dividing line between sustainable business models and pyramid schemes.
   • The wrong model (inflationary return): The protocol has little real revenue, but promises investors an annualized rate of return (APY) of over 100%, paid out exclusively in newly minted, depreciating tokens. This is an extreme form of share dilution, and a very large number of projects still operate as quasi-zombie projects in this manner.
   • The good model (Real Yield – The “Dividend”): The protocol pays out fees collected from real users (e.g. in stablecoins or ETH) to token holders as dividends, or uses the proceeds to buy back its own tokens on the open market (buyback). Fundamental investors seek this real return.

💡You can read our full article introducing the DeFi sector here: What is DeFi? A guide to the future of finance

3. 🏙️Crypto fundamental analysis: DePIN (physical infrastructure)

If Layer 1s are the digital nation-states and DeFi protocols are the banks, then DePIN (Decentralized Physical Infrastructure Networks) projects are the utilities, telecommunications companies, and data centers of the blockchain.

This is the sector that connects blockchain to physical reality. For an equity investor, DePIN is one of the easiest categories to understand and model, as we are not talking about abstract digital returns, but real, tangible hardware and physical services (bandwidth, storage, computing capacity).

DePIN projects essentially apply the “sharing economy” business model of Uber or Airbnb to global infrastructure.

A traditional telecom company (like AT&T) or a cloud service provider (like Amazon Web Services) would have to spend billions of dollars on capital expenditures (CapEx) to build data centers or cell towers. DePIN networks outsource this huge cost to the community:

• 📦Supply: The network rewards ordinary people with tokens to connect their own hardware (such as an idle gaming graphics card on the Render network, or a special mobile base station on the Helium network) to the global system.
• 🫴Demand: The revenue comes from the service users, often traditional companies, who receive storage space (Filecoin), mobile bandwidth (Helium), or AI computing capacity in a cheaper and more decentralized way than if they were paying Amazon.

🔎How do we analyze them? (the most important metrics)

When evaluating DePIN, the number of hardware and real market demand must be constantly weighed. Similar to classic corporate analysis, capacity utilization is the key here:

1. Network Availability (Active Nodes / Hardware Count): How many active physical devices are working in the network? This determines the capacity of the project. The rapidly growing node count proves that the token incentive system works and the network is able to scale on a global scale.
2. Demand and Utilization Rate: This is the most critical metric. A project can have 100 expensive GPUs (supply), but if no AI development studio in the real world rents them, the project is doomed. The fundamental investor should monitor the revenue generated by the network from real, paying customers (Customer Revenue). If supply increases but utilization is low, token inflation will eat up the price.
3. The “Burn-and-Mint” Equilibrium (Tokenization of Revenue): How can traditional companies’ dollar payments become a driving force for the exchange rate? The best DePIN projects use a smart token issuance mechanism: when an external company (e.g. a Hollywood animation studio) pays for the computing capacity fee with a bank card or stablecoin, the smart contract in the background uses this money to buy the project’s own token on the open market and then burns it permanently. This mechanism directly correlates the company’s real business success with the wealth of its shareholders – the greater the paying demand, the more intense the deflationary pressure on the token, similar to a share buyback.

4. 🐶Crypto fundamental analysis: memecoins (the casino of crypto)

If Layer 1s are nation states, DeFi is the banking system, and DePIN is the utility grid, then memecoins (like Dogecoin, Shiba Inu, or Pepe) are the Las Vegas casinos of the blockchain.

For a classic Warren Buffett-style value investor, this category is incomprehensible. There is no product, no revenue, and often the founders are anonymous. Their closest relative in the traditional market is the “meme-stock” craze of 2021 (GameStop, AMC), where fundamentals were replaced by social media hype and public speculation, but at least there was and is some kind of existing business behind those companies.

Fundamental analysis is not meaningful for memecoins, as their intrinsic value is exactly zero. The model is based purely on the Greater Fool Theory: the only reason you buy it is because you believe that someone will be willing to buy it from you later for a higher price.

🔎How to Analyze Them? (The Most Important Metrics)

In short: impossible. In longer terms: forget about P/E ratio and cash flow. Valuing memecoins is really about risk management and on-chain behavior analysis. If you do venture into this field, you should look at the following data:

1. Social Dominance and Attention (Social Volume / Sentiment): since the only fundamental is attention, that's what needs to be measured. How many times is the token mentioned on X (Twitter), how active is the Telegram group, and how many influencers are talking about it?
2. On-Chain Liquidity (Liquidity Pool Size): This is the most common trap. A memecoin's FDV (full valuation) may be worth $100 million on paper if its liquidity pool on a decentralized exchange (DEX) only has $50000 in real collateral (e.g. SOL or USDC). If you win and want to sell your tokens, a sale of that size would immediately push the price to zero (Slippage). A memecoin is only a “safe” speculation if it has massive liquidity relative to its capitalization.
3. Holder Distribution: Who controls the supply? Thanks to on-chain data, you can see exactly what percentage of the total token supply is held by the top 10 or top 50 wallets. If 80% of the tokens are held by a handful of whales (or the anonymous developers themselves), that’s a ticking time bomb. They could dump the supply on the market at any time. In the world of TradFi, this means looking at Free Float and Insider Ownership. The more evenly distributed the token is among thousands of small investors, the lower the risk of manipulation.

📣Opinion: if you are reading this article, it is very likely that memecoins are not the right choice for you, although in the author's opinion it is not the right choice for anyone except those who do it for the enjoyment of gambling, similar to casinos. The expected value is negative, but someone may be willing to pay that much for the fun.

5. 🏠Crypto Fundamental Analysis: RWA (Real World Assets)

If DeFi is the banking system of the blockchain, then the crypto fundamental analysis The RWA segment is literally the bridge between Wall Street and Web3. This is the sector where a traditional bond or real estate investor finds immediate, familiar footholds.

There’s no “crypto magic” or abstract algorithmic stablecoin here. RWA projects (like Ondo Finance, Centrifuge, or Maple Finance) convert traditional, real-world assets—US Treasury securities, corporate loans, real estate, stocks, or even physical gold—into digital tokens that run on blockchain. Their goal is not to build a new economy, but to make existing, multi-trillion-dollar global financial markets more efficient using blockchain technology.

These protocols operate and generate revenue in exactly the same way as traditional investment fund managers (Asset Managers), ETF issuers (e.g. BlackRock) or private credit institutions (Private Credit).

• The process: The investor deposits a stablecoin (e.g. USDC) into the protocol. The legal entity behind the project exchanges this crypto for traditional USD (fiat), buys US Treasury securities (T-Bills) with it, and deposits them with a regulated bank custodian. In return, the investor receives a digital receipt (token) that pays them the yield on the treasury securities on the blockchain.
• Source of income: The protocol follows the classic TradFi model: it deducts a management fee from the assets under management or maintains a minimum spread between the asset's real market return and the return paid to token holders.

🔎How do we analyze them? (the most important metrics)

This is where traditional financial (TradFi) risk analysis and blockchain transparency come together.

1. AUM (Assets Under Management): As with Vanguard or Fidelity, the primary measure of success is the size of assets under management. A sharply growing AUM demonstrates that the market (including large investors and institutions) trusts the legal and technical security of the protocol.
2. Yield Spread & TER: How much of the real yield does the company keep? If the US Treasury bond pays 5% in reality, but the RWA token only gives the user 3.5%, then the protocol is too expensive (high Total Expense Ratio). Fundamentally strong projects bring real-world yields to the blockchain with minimal “friction” and fees.
3. Credit Risk and Default Rate: This is especially important for private credit protocols. If the protocol does not invest your money in US government securities, but in lending to companies, credit rating is the most important fundamental. On the blockchain, you can see the maturity of the loans issued and late payments transparently. It is useless for the protocol to promise a 12% return if the portfolio is full of non-performing loans.
4. Legal and Custodian Structure (Off-Chain Risk): Unlike pure DeFi (e.g. Uniswap), the biggest risk with an RWA protocol is not the code being hacked, but the physical reality. The question is, who is actually holding the government securities? Premium RWA projects use Tier-1 custodians known from traditional finance (e.g. BNY Mellon, Coinbase Custody). This should ensure that even if the crypto startup goes bankrupt, your underlying government securities will remain safe in reality.

6. 📢Crypto Fundamental Analysis: Oracles

Continuing our analogy: Layer 1 is the digital state, DeFi is the banking system, and Oracles are Bloomberg terminals and communication channels similar to SWIFT.

The oracle sector is often overlooked in crypto fundamental analysis, but for traditional investors it is the digital equivalent of the classic pick and shovel strategy. During the 1849 Gold Rush, the surest wealth was not made by the lucky gold diggers, but by the traders who sold them the tools. In crypto, oracles provide this essential infrastructure.

To understand the business model, we need to understand a technical limitation: blockchains (like Ethereum) are inherently “blind.” They only see what is happening within their own network, but have no idea what Apple’s stock price is on NASDAQ, what the score was for yesterday’s Real Madrid match, or whether it is raining in London.

However, DeFi protocols cannot function without this data (a lending app needs to know the current exchange rate in order to liquidate a debtor who has lost their collateral).

• The solution: Decentralized nodes of oracle networks (like the market leader Chainlink or Pyth Network) retrieve this data from the outside world and securely “write” it into the blockchain’s smart contracts.
• The income: This is a traditional B2B (Business-to-Business) service. DeFi protocols, games, and other applications pay a fee to the oracle network for each data update or request (API call). The more active the DeFi market, the more frequently prices need to be updated, and the more revenue the oracle generates.

🔎How do we analyze them? (the most important metrics)

Since these are infrastructure providers, their evaluation is based on measuring network impact and trust in them.

1. TVS (Total Value Secured): This is the “AUM” of oracles. It doesn’t show how much money is in the protocol, but how much capital is in the smart contracts that rely on a particular oracle to operate. For example, if Chainlink’s TVS is 50 billion USD, that means that 50 billion USD of capital in the entire DeFi ecosystem relies on its price data. The higher this number, the more indispensable the service is and the greater the market trust (since bad data could cause a disaster, for example, positions could be liquidated because the smart contract believes that a user’s margin has fallen below a critical level).
2. Number of integrations and partners (Integrations): How many different dApps (banks, exchanges, games) are subscribing to the service? This shows market penetration. The switching cost is high. If a leading DeFi protocol like Aave has been reliably using Chainlink for years, it would be a huge technical and security risk to switch to a cheaper but less tested competitor. Moreover, not only would Aave have to switch, but every token currently on the platform would have to create oracles for the new oracle platform, as each token has its own oracle. This gives the market leaders a huge competitive advantage.
3. Transaction revenues and gas cost efficiency: How much real revenue do data requests generate? It is important to note that writing data to the blockchain costs money (gas fees). The question is, do the fees collected cover the cost of writing the data to the chain and leave a net profit?

7. 🎮Crypto Fundamental Analysis: Web3 Gaming and Entertainment Industry (GameFi)

If we follow our analogies so far, Web3 Gaming and GameFi (Game Finance) are the entertainment industry of the blockchain: the Electronic Arts (EA), Activision Blizzard or Take-Two Interactive of the digital world.

The GameFi sector is particularly interesting from a crypto fundamental analysis perspective, as the video game industry generates more revenue globally than the film and music industries combined. For a traditional equity investor, GameFi’s analysis is almost identical to the valuation of classic software as a service (SaaS) or video game development companies, with the addition of the digital economy dynamics provided by blockchain.

In traditional (Web2) games, players spend billions of dollars on digital swords, characters, skins, or virtual lands, but these are never actually theirs – the publisher can shut down the server or block their account at any time.

Web3 Gaming is upending this model with real digital ownership (NFTs) and open in-game economies (tokens).

• Source of income: The revenue of game studios and game publishers (like Sky Mavis – Axie Infinity, Gala Games, Illuvium) rests on three main pillars: primary sales (selling new characters or items), ecosystem fees (a small percentage is deducted from every in-game transaction), and secondary market royalties when an NFT changes hands (Royalties).
• The TradFi parallel: Blockchain game publishers essentially use the “tax collector” model of Apple’s App Store or Steam. When players trade a rare digital weapon on the secondary market, the developer’s smart contract automatically deducts a commission of, say, 5% from each transaction. This is an extremely powerful source of recurring revenue.

📌Game-specific blockchains (like Immutable X or Ronin) are successful when more transactions take place on their blockchain, in their case the characteristics of blockchains prevail, so although their success depends on games, they do not belong to this category.

🔎How to Analyze Them? (The Most Important Metrics)

When evaluating GameFi, financial metrics (TVL) take a back seat, and classic tech/SaaS and attention-based metrics take their place. The main question: is the game really fun, or are users just coming to play to earn money (Play-to-Earn)?

1. DAU and MAU (Daily/Monthly Active Users): is one of the most important indicators. No matter how brilliant the code is, if there are no players, there is no revenue. The chain shows transparently how many unique wallets interact with the game daily. You want to see a constantly growing DAU here.
2. Retention Rate: This is the most important quality filter. If DAU is high but 90% of players churn after a week, it means the game is boring and people were only attracted by the promise of free tokens. Long-term successful projects are those where users keep coming back months later for the sheer gaming experience.
3. ARPU (Average Revenue Per User): It shows how much the player base is actually willing to spend money in the game. If you divide the daily network fees/commissions collected by the number of active players, you can immediately see the effectiveness of monetization.
4. In-Game Economy (Token Sinks / Inflation): This is a unique risk for GameFi. Many early blockchain games failed by printing an infinite supply of tokens as rewards for players, but not creating enough of a reason to spend (burn) them in-game. So, we need to look at “Token Sinks”: do players have to burn tokens to level up, upgrade weapons, or enter tournaments? If inflation (issuance) exceeds consumption (burn), the in-game currency will hyperinflate, and the in-game economy will collapse, and with it, users will disappear.

📣Opinion: I personally spent endless time playing computer games, so this was the sector that appealed to me the most in the beginning (now it's more like DeFi :))

So it felt natural that I bought a stake in a project called Illuvium at its launch in the form of ILV tokens. The promise was very convincing: blockchain-based games at the time did not provide much gameplay experience and challenge, their essence was only the promise of an endless in-game economy and thus token price growth. Illuvium, on the other hand, is developing the first AAA game that also tries to compete with giants such as Call of Duty, Fortnite, or League of Legends in terms of gameplay (picture of the gameplay above, at the beginning of the section).

However, it allows for one more thing compared to these games: players can actually own in-game items, trade them freely, and even trade resources collected in the game for real money. This is usually prohibited in traditional games.

This seemed like a huge advantage to me at the time and my assumption was that over time, NFTs would be included in every game so that players could truly be the owners. But I think the lesson of the past few years is that players don't really care about this, or at least only a very small percentage, as even after years, the explosive growth that many (including me) expected has not been seen. It is questionable when there will be a blockchain native game that can give this sector a boost.

I also invested in the Gala Games ecosystem, which is both a game publisher and game developer, but the same thing has been seen with them over the years, there is minimal interest in their games, even though they all offer a real gaming experience, I would play them myself regardless of whether they are blockchain or non-blockchain based games.

🚫The hidden pitfalls of crypto analysis: what are the distortions of traditional models?

While crypto fundamental analysis tools are great for DeFi protocols, a traditional stock investor must be prepared for unique market dynamics that are unknown in the world of TradFi (traditional finance).

1. 〽️TVL illusion: when the value of your “bank deposit” evaporates

In traditional finance, if a bank manages $1 billion in deposits and makes a 5% profit on them, that base is stable. The value of a USD deposited will still be $1 tomorrow. However, with many DeFi protocols (like Aave or Compound), this logic breaks down.

• The problem: In DeFi, TVL (Total Value Lending) is not made up of dollar bills, but of volatile crypto assets (e.g. Ethereum, Bitcoin). Although TVL is expressed in USD, the value of the collateral can fluctuate drastically regardless of the project's performance.
• Example in practice: Let's say a protocol has 100 million USD worth of Ethereum locked up, generating 5 million USD in annual fees. You calculate the P/E ratio based on this. The next day, Ethereum's price drops by half. The protocol's TVL suddenly drops to 50 million USD, and the fee revenue in USD also drops by half.
• The lesson: The protocol did not make a business mistake, customers did not transfer capital to a competitor, it has the same number of active users as yesterday, but the profit was halved, so in theory the value of the project was suddenly halved. Professional DeFi analysts therefore never measure TVL and growth in (only) USD, but in the amount of tokens tied up (e.g. in ETH in terms of number of pieces), the question is how much this helps if our everyday expenses are incurred in USD or another fiat currency.

2. ⚔️No patents, no moats: “vampire attacks”

The biggest asset of a traditional software company (SaaS) is its closed, proprietary source code. If someone wants to copy their algorithm, it will take years and millions of dollars to develop. On the blockchain, however, all code (smart contracts) is open and public.

• The immediate competition: anyone can take the code of the market-leading decentralized exchange (Uniswap) and launch a perfect clone in literally five minutes, with zero research and development (R&D) costs.
• The vampire attack: Since the product doesn’t take time to build, the new clone can spend all its money on aggressive marketing and attracting users. This is exactly what happened when SushiSwap copied Uniswap: the new protocol bombarded Uniswap users with free tokens (with a higher yield), who transferred huge amounts to the competitor within days.

📌In practice: when I started buying tokens from DeFi projects, fresh from the field of equity investing, I immediately calculated P/E values ​​and cash flow and bought into the newest projects, which were trading at ridiculously low valuations.

This became less ridiculous when the DeFi market started to collapse in 2022 and the money evaporated from the projects I owned due to the fall in the price of the assets held in custody without anyone withdrawing a cent.

In the second round, protocols with institutional backgrounds appeared, copying the already well-functioning code and investing significant capital in customer acquisition. So I managed to walk into both of the traps mentioned above.

⛓️So what keeps projects alive? (network effect)

If anything can be copied, what provides the fundamental value that underlies crypto fundamental analysis? The answer is the Network Effect.

The best example of this is Bitcoin itself. From a technological perspective, Bitcoin's code is now outdated: it's slow, expensive, and unable to run complex smart contracts. Almost all subsequent blockchains are "better" than it on paper. Yet Bitcoin is the most successful, simply because it was the first.

Global trust, brand recognition, and hundreds of billions of USD in liquidity cannot simply be “cloned” along with the code. When you analyze fundamentals in crypto, the deepest economic moat is always the network effect, not the technology itself.

👁️Risk management and transparency

Full-fledged crypto fundamental analysis includes not only valuation metrics, but also risk management. In the traditional stock market, professional analysts rely on Bloomberg Terminal and Yahoo Finance to extract company data. In the world of DeFi and blockchain, the challenge is that fundamental data, TVLs, inflation rates, and your own yields are scattered across dozens of different smart contracts and networks.

Opacity and smart contract risks can be mitigated by using the right strategy and tools. While proper diversification is key for stocks and other assets, it is absolutely critical for DeFi projects.

Apart from proper prior research, smart contract risks can only be reduced by diversification. The goal is to prevent the loss of all your assets due to a hidden flaw in a smart contract. This means that you are forced to hold your assets in countless places and in several different tokens (tokens are mostly smart contracts themselves, so they carry their own risks, even if this risk is lower than in the case of complex smart contracts). However, tracking a properly diversified portfolio is not trivial, and for this you will definitely need a portfolio tracker where you can see your exposure to each token or project. It doesn't hurt to be able to track the value of your rewards as well.

We can help you with this with our portfolio tracker specialized in DeFi projects, where you can track the contents of multiple web3 wallets at once, along with your stocks and ETFs, providing full coverage for your financial portfolio.

💡Crypto fundamental analysis and proper portfolio tracking together make DeFi risks manageable. With the right strategy and the right professional tools, these risks become manageable. Try our Portfolio Tracker: iO Charts Portfolio Manager

Frequently Asked Questions (FAQ)

1. Is it really possible to evaluate a cryptocurrency on a fundamental basis?

Yes. While Bitcoin behaves more like “digital gold” in crypto fundamental analysis (where supply/demand dominates), smart contract platforms (like Ethereum) and DeFi protocols operate like software companies. They have real users, provide services, and generate revenue from transaction fees that can be measured using traditional financial metrics (e.g., P/E ratio).

2. Where can I find reliable on-chain (blockchain) data for analysis?

Since the blockchain is public, many professional data analytics companies (such as Token Terminal, DefiLlama, or Dune Analytics) collect and visualize revenue, TVL, and active users. We can recommend the iO Charts portfolio manager to measure the performance of your own investments.

3. Why is FDV (Fully Diluted Valuation) so important for a shareholder?

In the traditional market, when you look at a company’s market cap, it pretty much captures the value of the company. In crypto, it’s common for a project to launch with only 10% of its tokens in circulation (Market Cap), with the remaining 90% going to early investors and developers over the coming years. FDV shows the value of the network at 100% supply, thus highlighting the incredible dilution (selling) pressure – one of the most important aspects of crypto fundamental analysis.

4. Is a “Token Burn” exactly the same as a share buyback?

Essentially, yes. When a company buys back shares, the remaining shares receive a larger share of the profits and voting rights. When a blockchain protocol uses its proceeds to buy its own tokens and burn them to an inaccessible address, it reduces the total supply, creating deflationary pressure that increases the fundamental value of the remaining tokens in the long run.

5. Why do I need a portfolio manager for fundamental crypto investing?

Crypto fundamental analysis alone is not enough if you don’t have a complete view of your portfolio. In a traditional brokerage account, all your data is in one place. In crypto, your portfolio is often spread across 4-5 different blockchains, decentralized exchanges, and lending protocols. A dedicated portfolio manager (like iO Charts) automatically aggregates your positions and calculates the returns you’ve earned in real time, so you can see the “big picture” based on the data. If that doesn’t convince you, check out our other articles: you can get these here.

Legal and liability statement (aka. disclaimer): My articles contain personal opinions, I write them solely for my own entertainment and that of my readers. The articles published here do NOT in any way exhaust the scope of investment advice. I have never intended, do not intend, and am unlikely to provide such in the future. What is written here is for informational purposes only and should NOT be construed as an offer. The expression of opinion is NOT in any way considered a guarantee to sell or buy financial instruments. You are SOLELY responsible for the decisions you make, and no one else, including me, assumes the risk.