Due to people writing about it here, @Pantera recently told me to check out C.R.E.A.M. Finance as he doesn't use DeFi but knows I do.
He did so at a wonderful time as I was just evaluating new DeFi opportunities under this correction that shook the golden ratio quite a bit with the overall TLV decreases and market cap adjustments.
Thus, I added C.R.E.A.M. Finance to my "to analyze" list.
I went over the numbers on three different DeFi projects today, and I mainly focused on the golden ratio which measures some info like:
Fully Diluted Market Cap;
Market Cap;
Total Locked Value;
I then thought about what these numbers and the golden ratio mean or what may be the reason behind the values I reached.
Finally, I compare these values with Val's Golden Ratio indicators and reach my final conclusion:
Is the DeFi Project worth diving into?
Here's what I found out!
Fundamental Analysis: Setting Up the Math
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: What Does the Data Tell Us?
Full Diluted Market Cap: $ 18.6 billion
Total Locked Value: $ 4.4 billion
GR: 4.22 x
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.
PancakeSwap: What Does the Data Tell Us?
Full Diluted Market Cap: $2,5 billion
Total Value Locked: $3,7 billion
GR: 0.67 x
I know a lot of people get a bit turned off by PancakeSwap being on Binance Smart Chain, but I for one hold a stake in the project because I see a lot of value in it.
Let me explain.
PancakeSwap is among the best solutions out there in terms of GUI, Features and Devs making people feel safe.
These variables are very important in maintaining the masses happy and in keeping and attracting investors.
On the other hand, the pools there are not only consistent and profitable but by their nature keep the "money printing" to the minimum.
Finally, the GR was even lower than it is now, when I got in the GR was 0.32 x and it shows as it has been climbing towards its true fundamental value.
As of today, yes these numbers are fresh, the GR sits at 0.67 x which makes it a great buy.
I'm buying into PancakeSwap and increasing my positions.
C.R.E.A.M. Finance: What Does the Data Tell Us?
Full Diluted Market Cap: $451 million
Total Value Locked: $1,3 billion
GR: 0.34 x
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.
I'm buying into C.R.E.A.M. Finance.
In Conclusion: Buying Into PancakeSwap and C.R.E.A.M. Finance
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.
Remember nobody knows what the markets will do.
Cheers!
Follow Me!
Main Sponsors: @Pantera @MicroReylatos , @Macronald
GOOD JOB