Author:Alana Levin,Variant
Compiler:Hu Tao,ChainCatcher
At the core of our investment philosophy at Variant is the belief that people should be able to own their own money, identity, and data.
We look for large markets that support and expand access to and ownership of the resources individuals and organizations need for daily life. Our investments in crypto networks have turned many of these ideas into reality. These networks are coordination protocols built around sovereignty and self-custody.
However, questions remain about how to value these networks. Different protocols and projects have vastly different goals, so the important fundamental metrics for tracking success and predicting growth vary greatly.
We believe all tokens can be classified into one of two categories: Store of Value (SOV) assets or equity-like instruments. In particular, we find the store of value framework very useful for evaluating Layer 1 (L1) blockchains—the largest and most important money coordination protocols in the modern financial system.
Through deep exploration, we have identified a series of fundamental metrics for understanding, evaluating, and tracking the future development of these networks. This article aims to share part of our thought process, hoping to provide a useful reference for others thinking about these assets.
L1 Assets Can Act as Stores of Value
One of our core frameworks is that L1s can be analyzed and modeled as stores of value.
So, what makes an asset a good store of value? Our key fundamentals are as follows (roughly ordered by 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 acquire? How easy is it to inflate this asset? 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 blocked 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 perceive this asset as a store of value? An important feature of any currency is that society reaches consensus on its value and utility.
Liquidity: Is this asset widely accessible to everyone who wants it in their portfolio (regardless of size)? We place this last because it is often a downstream effect of mimetic behavior; liquidity tends to beget more liquidity, and the greater the interest in an asset, the more likely its scale (relative to inflationary currencies) is to grow. Bitcoin wasn't very liquid in its first few years, but now it's one of the world's most liquid assets.
Few markets have a larger Total Addressable Market (TAM) than stores of value. Gold—the largest and most widely recognized store of value—has a market capitalization of $31 trillion. Silver's market cap is also $4 trillion. We believe some L1s have the potential to become superior stores of value.
Sovereign Wealth Fund Assets
Currently, three L1 assets stand out as strong candidates to become primary stores of value: Bitcoin (BTC), Ethereum (ETH), and ZEC. In our framework, they each excel in different dimensions.
Bitcoin dominates the memetic mindshare, famously known as 'digital gold.' The strong reflexive nature of the meme is a powerful force and a crucial fundamental consideration for any store of value contender: the more people believe Bitcoin is a store of value, the more likely it is for those on the fringes to believe it is a store of value. Over the past fifteen years, individuals, funds, companies, 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 what the developer community is planning for the future. Looking ahead—and at new risks presented by innovations like quantum computing—we view this adaptability as a strength, not a flaw. At the heart of any quality sovereign asset is the belief it will still exist in a decade. Ethereum has already demonstrated strong resilience, weathering significant technical and social challenges—such as The DAO hack, the Merge, and more—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 pool (ZCash's private transaction feature) gives individuals a way to potentially avoid future wealth confiscation or pervasive state surveillance. This is a durable advantage for ZCash, providing individuals a long-term path to protect their assets.
Overall, the value of stores of value amounts to tens of trillions of dollars. This is evident just from the status quo. We believe this space will continue to grow at a high speed, and multiple stores of value can coexist.
However, looking at today's market landscape, despite digital sovereign stores of value (SOV) outperforming gold or silver on many of the fundamental metrics mentioned above, they still represent only a small fraction of the total SOV market. For us, this represents an ambitious and exciting opportunity.
