Disclaimer: This is not financial advice. Anything stated in this article is for informational purposes only and should not be relied upon as a basis for investment decisions. Triton may maintain positions in any of the assets or projects discussed on this website.
TL;DR
Introduction
Investing in ‘fundamentals’ in crypto may come across as an oxymoron to many who understand the industry largely from mainstream news coverage or to those who checked out after the market collapse in 2022 and still assume the industry is dead. And yet, that is exactly what we as a fundamentals-focused liquid fund do: users, revenues, cash flows and long-term sustainable outlooks all matter. Many still incorrectly associate digital assets with only Bitcoin or other payment tokens and memecoins, and as such unfortunately write off the entire sector because there is no ‘fundamental value’. That could not be further from the truth.
In the past we have explained how native gas tokens are fundamentally productive assets for this new and increasingly internet-native paradigm the world is in going forward. We also explored how there are increasingly massive markets being unlocked within crypto that will in due-course expand to traditional equity and fixed income markets. We also recently released a 40-page deep dive into the fundamentals of Ethereum and its native token ETH with contributions from John Pfeffer, former partner at KKR and globally renowned investor. If you have not seen this last piece yet, we highly recommend taking a look for some (ahem) light reading: whatisethereumworth.com.
But what do the fundamentals of digital assets actually look like in a liquid portfolio? In this post, we’ll share several high-level insights into our current liquid book and how those underlying protocols performed throughout 2024. For this, we’ll ignore chains or the few private positions we have as those either have wholly different economics (see our ETH report referenced above) or have no token against which to mark prices currently.
Real revenues
Top line: revenues are real, and they are growing rapidly. Over the last twelve months, our 16 liquid portfolio positions generated $1.02B in revenues that accrue to the protocols and their token holders. This latter condition is important as there are many exceptional protocols in the market that generate incredible amounts of fees from users, both those fees ultimately go to different stakeholders in the ecosystem. Uniswap is the prime example of this: throughout 2024, Uniswap generated $1.01B in fees but exactly $0 of that accrued to the UNI token holders. Rather, 100% of those fees were passed on to liquidity providers and Uniswap Labs’ own frontend earned them a separate $75M.
An especially impressive detail of the $1.02B revenue our investments generated? $1.02B is less than half of those same projects’ current run rates based on December 2024 numbers. That is, our liquid portfolio generated nearly $180M in revenues in December alone, for a 12-month forward run rate of $2.15B. This does not even factor in any growth and given we are just entering a new period of innovation and adoption of digital assets across the world, there is every reason to expect those numbers to grow from here.
Speaking of which, revenue numbers are only useful in the context of growth. Looking back one year ago to December 2023, our current portfolio projects earned just $25.7M in revenues. That represents a 594% growth in aggregate revenues over the course of the year if we compare December YoY performance. Can you define them as ‘recurring’ in the traditional sense? That is more difficult to take as granted given the rapidity of capital movement on chain, lack of contracts/lock-in subscriptions, composability of protocols, and general overall cyclicality of the industry. But for some, you definitely can. Geodnet, for example, monetizes its satellite-signal correction technology through off chain B2B subscriptions from robotics and hardware companies. Pay-for-use protocols that monetize via user transaction fees are more subject to variability and less secure over the long run.
An incredibly powerful aspect of digital assets is the net margins on those revenues. Whereas Google earns 24% net margin and Microsoft a lofty 37%, digital asset investments pass through far more of that top line cash to investors. How is that possible? The efficiency and scale of digital asset protocols are often unmatched by any traditional business. Ethena, for example, currently generates over $46M per full-time employee. For reference, Google generates just $1.7M and Microsoft $1.1M. Obviously the scale is different, but at a $1.2B run rate, Ethena’s efficiency is outstanding.
Source: Ethena
That efficiency directly benefits token holders. For example, Geodnet programmatically directs 80% of its revenues towards buying back its tokens off the open market – a functionality akin to traditional share repurchases – and then permanently burning those tokens to remove them from circulation. BananaGun, a trading application, simply shares 40% of its trading revenues with token holders ($60M in 2024), paid out in ETH and SOL from the fees they earn. HoudiniSwap, a crosschain swap platform, uses 100% of its revenues to buy back its tokens and then redistributes those in-kind to stakers, generating real yields of 25%+ and recently spiking to over 100% in December. Aerodrome similarly directs 100% of the revenues it earns to veAERO holders ($240M in 2024), acquired by staking its native token for a preset length of time. Throughout most of 2024, Aerodrome yielded over 50%. Importantly, these all represent real yields. That is, an investor that receives that yield can often immediately sell those tokens into cash if they desire (or in the case of Aero, they compound at that rate until their lock expires or sell their ve NFT).
With all of that said, it is also true that there are many tokens in the market that have strong revenues and cash flow but are wildly overvalued based on any reasonable growth forecasts. As a fundamentals-focused manager, we adhere to strict valuation frameworks and underwriting, and pride ourselves in avoiding the vaporware and mind-boggling valuations of projects that are still all too common. Given the irrationality, inefficiency and frequent bouts of exuberance of the industry, our systematic approach means we will happily watch from the sidelines as Fartcoin runs up 2875% in 3 months (yes, that is a real token making headlines that is currently valued at $1.2B). The wealth effect created by episodes like that, however, as well as the underlying use that those manias generate for the infrastructure in the space, are net beneficial and often result in substantial earning potential for the critical protocols underpinning the activity.
But that also means we can comfortably justify the positions in our book and sleep easy knowing every valuation is supported by the strength of the underlying project and not purely subject to the frequently shifting tides of the industry. To quantify that, our liquid book has an aggregate P/R (LTM) of 16.6 and P/R on forward runrate of just 7.9 (as of December 31). As we pointed out before, this is on what are incredibly high-margin revenues that are growing at explosive rates.
Additional yield from staking is the cherry on top. Though we are very conservative when it comes to taking on additional contract risk, we will opportunistically stake our assets when the return justifies the marginal risk and any associated unbonding periods or penalties. As such, we have only a select few assets staked in our book, but those still generate an aggregate 6% yield at current rates. As protocols are further battle tested and Lindy approves in 2025, we will look to increase this exposure judiciously to further boost yields and expect that to grow to above 10% in the new year.
Conclusion
Gone are the days when one can simply wave their hands and dismiss digital assets as being fundamentally worthless with zero intrinsic value. Fundamentals-focused investors like us at Triton are laser focused on deploying capital into the highest quality projects in the industry and in turn expect to be rewarded over the long run. The revenues and cash flows returned are substantial and growing rapidly. Given the inefficiency of the market and difficulty in deploying capital in the space, the opportunity for outsized returns over long horizons have never been higher as the industry continues to strengthen its foothold around the world.
Undoubtedly there are periods when the latest hype-driven vertical drastically departs from the market more broadly, as tokenized AI agents are now or as memecoins have in the past. Those periods of mania serve as fantastic bellwethers for the state of crypto infrastructure and are useful in stress testing chains and new protocols but often fail to have the requisite underlying strength that a long-term rational investor would be comfortable deploying capital into at scale. Instead, we’ll happily own the land, building and court while we cheer on the more risk-agnostic players from the sidelines.
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