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Uniswap Vs. PancakeSwap Vs. C.R.E.A.M.: Fundamental Analysis and Golden Ratio
Ok, first off I need to let you know how I analyzed these projects.
As said previously, I calculated the Golden Ratio (GR) for them.
To do this, I simply went over the Fully Diluted Market Cap and divided it by the Total Locked Value, or TLV, of the DeFi Platform.
This nets me a number that tells me the relation between what is "in the vault" and how the platform is valued now.
This means that it tells me how far above or how far below the investment is priced at fundamentally.
A balanced project needs to have a result somewhere between 0.15 and 7.
Then I compare it to Val's Golden Ratio Chart:
1 is the true value of the platform in fundamental terms.
A number above 1 means that either the platform is overvalued or the community expects the TLV to rise by the proportion until the result nets 1.
This is why this fundamental analysis is both mathematical and thought-provoking as you need to interpret the numbers to know if the conclusion you just reached is valid or due to some psychological or fundamental argument leading to either an undervaluation or overvaluation.
Uniswap sits on the laurels of being the first of its kind and it shows.
The total locked value is of 4.4 billion, and if you would consider the marketcap in itself the numbers didn't seem to be that wrong.
However, calculating the golden ratio spells some problems for Uni... you see, the GR of 4.22 x isn't the highest, but it does mean that for the platform to be fairly valued it needed to increase its TLV by more than triple!
If you think BSC and other chain projects are going to turn to ETH in the next scaling update when the fees normalize, and you believe that the TLV will rise to make this 4.22 x bet a fair deal, then you're free to do so.
I, for one, don't believe the TLV will increase that much anytime soon and the Golden Ratio is too high for me to buy-in.
I am not going to buy into UNI...
Again, fundamentally, there is no reason to value any DeFi solution over 1 GR.
The relatively new kid on the block @Pantera told me about.
Its full diluted market cap is very small and usually, I wait for projects like these to increase in size... but as I was thinking about this size thing I noted that it has TLV of $1.3 billion which is insane for a fully diluted market cap of $451 million.
No surprise here, the Golden Ratio is 0.34 x, the same value PancakeSwap had when I got in and I didn't regret it one bit.
Thus, buying into C.R.E.A.M. Finance is a no-brainer as well.
So, in conclusion to this post, I'm buying into PancakeSwap and CREAM Finance.
Of course, you have to consider the reasons behind what these numbers tell you, but this post will give you the tools you need to calculate the most vital aspect of any DeFi Project: The value it truly has... what's in the vault... what TLV amount it needs to have to justify the valuation or the amount it is undervalued by.
With these numbers, Pancake and Cream seem solid choices, but only time will tell.