Author: Alana Levin, Variant
Compiled by: Hu Tao, ChainCatcher
At Variant, the core of our investment philosophy is the belief that people should be able to own their money, identity, and data.
We seek out large markets that can support and expand the ability of individuals and organizations to access and own the resources they need for daily life. Our investments in crypto networks have turned many of these ideas into reality. These networks are coordination protocols centered on sovereignty and autonomy.
However, many questions remain about how to evaluate the value of these networks. Different protocols and projects vary greatly in their goals, so the key fundamental metrics for tracking success and predicting growth also differ.
We believe all tokens can be categorized into one of two types: Store of Value (SOV) assets or equity-like instruments. In particular, we find the Store of Value framework very useful for evaluating first-layer blockchains (L1s)—one of the largest and most important monetary coordination protocols in the modern financial system.
Through in-depth discussion, we have identified a series of fundamental metrics for understanding, evaluating, and tracking the future development of these networks. This article aims to elaborate on part of this thought process, hoping to provide a useful reference for others thinking about these assets.
L1 Assets Can Serve as Stores of Value
One of our core frameworks is that L1s can be analyzed and modeled as stores of value.
So, what kind of asset qualifies as a good store of value? Our key fundamentals are as follows (roughly in order of importance):
Technical Durability: Will this asset still exist in 5-10 years? To what extent will its appearance/function remain unchanged?
Scarcity: Is this asset widely available and easy to obtain? How easily can this asset be inflated? How predictable is its inflation curve?
Censorship Resistance: How easy is it for a single entity to seize this asset? To what extent can economic activity associated with this asset be prevented or shut down?
Economic Productivity: Can this asset be used to facilitate economic activity? How useful is it in finance, for example, does it have collateral value?
Memetics: Do others consider this asset to have store-of-value functionality? An important characteristic of any currency is social consensus on its value and utility.
Liquidity: Is this asset widely accessible to all who wish to include it in their portfolio (regardless of size)? We consider this last because it is often a downstream effect of mimetic behavior; liquidity tends to beget more liquidity, and the greater the interest in a given asset, the more likely its scale (relative to inflationary currencies) is to grow. Bitcoin was not very liquid in its first few years, but it is now one of the most liquid assets in the world.
Few markets are larger than the total addressable market (TAM) for stores of value. Gold—the largest and most widely recognized store of value—has a market capitalization of $31 trillion. Silver also has a market cap of $4 trillion. We believe that some L1s have the potential to become superior stores of value.
Sovereign Wealth Fund Assets
Currently, three L1 assets stand out as highly likely to become major stores of value: Bitcoin (BTC), Ethereum (ETH), and ZEC. In our framework, they each excel in different dimensions.
Bitcoin dominates in memetic recognition, earning the moniker 'digital gold.' The powerful reflexivity of strong memes is a potent force and an important fundamental consideration for any store-of-value contender: the more people believe Bitcoin has store-of-value properties, the more likely peripheral groups are to believe it as well. Over the past fifteen years, individuals, funds, corporations, institutions, and even nations have invested in this belief.
Ethereum may be more technically durable than Bitcoin. It is easier to upgrade, and its roadmap provides transparent, trackable, and verifiable insight into the future plans of its developer community. Looking ahead—and at new risks posed by innovations like quantum computing—we view this adaptability as a strength, not a flaw. The core belief of any high-quality sovereign asset is that it will still exist in ten years. Ethereum has already demonstrated strong resilience, enduring significant technical and social challenges—such as The DAO hack, The Merge, etc.—and we believe it will continue to thrive in this regard.
ZCash excels in censorship resistance and privacy. The mere option provided by its shielded pools (ZCash's private transaction feature) allows individuals to avoid risks of future wealth confiscation or pervasive state surveillance. This is an enduring advantage of ZCash, offering individuals a long-term path to protect their assets.
Overall, stores of value are a multi-trillion dollar market. This is evident from the current state. We believe this sector will continue to grow at a high speed, and multiple stores of value can coexist.
However, surveying today's market landscape, despite digital sovereign stores of value (SOVs) surpassing gold or silver on many of the aforementioned fundamental metrics, they still represent only a small fraction of the total SOV market. For us, this presents an ambitious and exciting opportunity.
