Author: Alana Levin, Variant
Compiler: 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 look for large markets where applications can support and expand the ability of individuals and organizations to access and own the resources they need in daily life. Our investments in crypto networks have turned many of these ideas into reality. These networks are coordination protocols with sovereignty and self-custody at their core.
However, many questions remain about how to value these networks. Different protocols and projects vary greatly in their goals, and therefore the key metrics for tracking success and predicting growth also differ significantly.
We believe all tokens can be categorized into one of two groups: 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)—among 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 share some of our 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 makes an asset a good store of value? Our key fundamentals are as follows (roughly in order of importance):
Technological Durability: Will this asset still exist in 5-10 years? To what extent will its appearance/function remain unchanged?
Scarcity: Is the asset widely available and easily accessible? How easy is it to inflate the supply? How predictable is its inflation curve?
Censorship Resistance: How easily can a single entity seize the asset? To what extent can economic activity associated with the asset be blocked or shut down?
Economic Productivity: Can the asset be used to facilitate economic activity? How useful is it in finance, e.g., does it have value as collateral?
Memetics: Do others view this asset as a store of value? An important characteristic of any currency is societal consensus on its value and utility.
Liquidity: Is the asset widely accessible to all who wish to include it in their portfolio (regardless of size)? We place this last because it is often a downstream effect of memetics; liquidity tends to beget more liquidity, and the greater the interest in an asset, the more likely its size (relative to inflationary currencies) is to grow. Bitcoin was not very liquid in its early years, but now it is one of the most liquid assets in the world.
Few market sizes can exceed the total addressable market (TAM) for stores of value. Gold—the largest and most widely recognized store of value—has a market cap of $31 trillion. Silver's market cap reaches $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 having a high potential to become major stores of value: Bitcoin (BTC), Ethereum (ETH), and ZEC. In our framework, each excels in different dimensions.
Bitcoin holds a dominant position in memetic perception, often dubbed "digital gold." The powerful reflexivity of strong memes is a formidable force and a crucial fundamental for any store of value contender: the more people believe Bitcoin is a store of value, the more likely peripheral groups are to believe it is a store of value. Over the past fifteen years, individuals, funds, corporations, institutions, and even nations have invested in this belief.
Ethereum may be more technologically durable than Bitcoin. It is easier to upgrade, and its roadmap provides transparent, trackable, and verifiable insight into the developer community's future plans. Looking ahead—and at new risks posed by innovations like quantum computing—we view this adaptability as an advantage, not a flaw. At the heart of any high-quality sovereign asset is the belief it will still exist a decade from now. Ethereum has already demonstrated strong resilience, withstanding 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 shielded pools (ZCash's privacy feature for transactions) allows individuals to avoid future risks of wealth confiscation or extensive state surveillance. This is a lasting advantage of ZCash, offering individuals a long-term path to protect their assets.
Overall, the scale of store of value markets is in the trillions of dollars. This is evident from the current state alone. We believe this area 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 (SOVs) outperforming gold or silver on many of the fundamental metrics mentioned above, their share of the total SOV market remains very small. For us, this represents an ambitious and exciting opportunity.
