Source:Felipe Montealegre,Theia Research

Compiled by: Shaofaye123, Foresight News

Good projects often appear in the most easily overlooked places. When talking about successful investment cases, people often think of Tesla, Apple and Amazon, but looking back, you will be surprised to find that most investors made their first pot of gold in niche industries such as insurance brokerage, auto parts, and pharmaceutical services. It may be easier to get returns from early-stage potential companies that are not widely discussed by the public.

We believe that the token market offers this opportunity, especially the Telegram bot Banana Gun. Banana Gun is one of the projects with the best economics in the entire chain. It benefits from price-insensitive users, valuable order flow, and meaningful economies of scale. The front-end market is one of the largest markets in the chain economy. Its fundamentals are often misunderstood, so Banana Gun's valuation is quite cheap relative to other projects.

This article will introduce the five most important but lesser-known features of Banana Gun. Banana Gun has: (i) a high-quality user base; (ii) a moat built on economies of scale; (iii) potential pricing power from the quality of order flow; (iv) a larger market opportunity than is generally understood; and (v) good fundamentals.

Banana Gun has the most valuable users in the on-chain economy

Banana Gun is a Telegram bot that allows users to trade tokens on the EVM and SVM. Users who frequently trade on-chain can perceive the inconvenience of trading even on DEXs such as Uniswap and Raydium. This is similar to trading directly through the New York Stock Exchange without using front-end tools such as Robinhood or Interactive Brokers. Banana Gun provides convenient trading directly from Telegram, while providing features such as sniping, copying, and anti-RUG. These features are very important to Banana Gun's core trading group.

The core users of Banana Gun are speculative traders who can take high risks in the hope of getting excess returns. They are the most valuable users in the on-chain economy because they are active (i.e. high trading volume) and lack price elasticity (i.e. high income). They buy volatile Memecoins in the hope of getting a 100x return. These users can make a fortune in a few weeks, lack price elasticity, and don't care about paying about 75bps.

The importance of user value can be compared with a Memecoin trader and a liquid token fund. Assume that a Memecoin trader manages $100,000, occasionally snipes, and rotates to new positions every week. According to common estimates, it will generate $2 million in trading volume and about $20,000 in fees in 3 months. The liquid token fund can only trade after the approval of the investment committee and seeks the best fees. The liquid fund generated 5 million in trading volume and about $10,000 in fees in the same 3 months, even though it manages $30 million in funds.

Banana Gun is expected to generate $7.8 billion worth of transactions and $60 million in cash flow each year, with a cumulative user base of 151,000 and an average daily user base of about 5,000. These are all accumulated high-quality users.

Banana Gun has a deep moat based on economies of scale

Banana Gun users focus on functionality, user experience, and trade execution.

Active traders don’t switch between Telegram Bots, they value convenience more. Therefore, it is really important to be multi-chain and have all the features they need. This is why it is easier to be the largest Telegram Bot on EVM than the largest Telegram Bot on Solana.

Active traders also focus on quite a few advanced features like sniping. The interesting thing about these features is that many of them lead to natural monopolies. Think about the sniping process. Only one Telegram Bot can successfully snipe for its users, and this is always the Telegram Bot that pays the most. This means that the biggest bot or the bot with the most snipers is most likely to win. This is exactly what the market has shown, with Banana Gun winning 88% of the snipes. Other users have almost no chance of winning a snipe from a Banana Gun user.

These features require considerable infrastructure investment. Good infrastructure is needed to ensure best execution, as users expect low latency and high speed. Other facilities are also needed to implement features such as anti-RUG, which requires Banana Gun to scan the memory pool, determine if the token issuer is withdrawing liquidity, and place the transaction of the user selling the token on it in the next block. It is estimated that Banana Gun spends about $3.6 million per year on infrastructure. For projects with lower market share, spending $3.6 million on infrastructure is unsustainable, even if they can develop similar products.

All of these provide Banana Gun with a deep moat. As an early investor in the Telegram Bot space, we have witnessed dozens of projects enter the market with strong capital and excellent founders, but none of them can take market share from Banana Gun.

Banana Gun's valuable order flow gives it potential pricing power

Banana Gun is one of the most important players in the order flow space. It is on track to send $50 million in priority fees and bribes to miners in 2024. According to (Decentralization of Ethereum’s Builder Market) (Yang 2024), Banana Gun plays a key role in about 40% of MEV Boost auctions. According to (Decentralizing Monopolistic Power in DeFi) (Markovich 2024), Banana Gun’s order flow is the largest driver of profitability for Titan, the second largest miner on Ethereum.

Banana Gun does not charge for order flow, but we believe this will change over time. This could be through an order flow auction built directly into the Ethereum protocol, or through direct transactions with miners. It is too early to speculate, but we believe that a large portion of this $50 million will be returned to Banana Gun users over time. Banana Gun is both a profitable project and a systemically important protocol in the Ethereum ecosystem.

Solana + Web Applications = Huge Market Opportunity

Banana Gun is releasing its Solana features. Solana is a more lucrative market for Telegram Bots, and competition is less mature. It is estimated that the YTD on Solana can reach $280 million. Trojan, a mature operator similar to Banana Gun, entered the Solana market earlier this year and is expected to have revenue of more than $100 million in 2024. While it will be difficult to fully replicate Trojan's experience, Banana Gun can still carve out a place on Solana.

Banana Gun is building its own web app. The idea is to build a web app that looks like Binance to users but runs entirely on-chain. It will take a few years to fully develop this product (on-chain financial primitives need to continue to improve), but the Banana Gun team has already started launching token trading through the enhanced web app.

This is a massive market that should benefit from all the users and order flows we have discussed so far. In traditional markets, 40% of volume is done through frontends, and we expect similar results on-chain. Ultimately, the Banana Gun team is focused on the same mission, which is to control as much high-value order flow as possible, whether on the EVM or SVM, on Telegram or WebApp.

Fundamentals

The Banana Gun team has been thoughtful in allocating funds. The company has an operating income of $60 million, and returns 40% of the income to token holders as dividends, and the remaining 60% of the income will be returned to Banana Gun for growth plans and to pay expenses. But as the team accumulates more funds, it is believed that more rewards will be returned to users.

The team's design of the TGE also explains its success to some extent. The team holds 10% of the Banana Gun token supply when it launches in 2023, half of which will be unlocked in five years and the other half in eleven years. This is exactly the distribution model the team hopes to build a long-term project. The tokens unlocked in eleven years can also earn income, which provides more motivation for the Banana Gun team to continuously increase revenue and distribute it to token holders. Its TGE design is an important basis for the market value of Banana Gun.

Our view on market cap is that analysts should relate float market cap to time horizons. If a project has $100M float market cap and another $900M fully diluted market cap that no one can tap for 10 years, then don't consider the extra $900M. If a project has $100M float market cap and another $900M of venture funding that's about to unlock in the next 18 months, then definitely consider the extra $900M. Most cases are somewhere in between.

Banana Gun has a fully diluted market cap of $690 million, but this figure includes about 64% of the tokens issued to the treasury. This fund was issued in the early stages of Banana Gun's development and is considered a strategic reserve. Before the business had any substantial revenue, the team had always stated that it would destroy tokens when they were unlocked, and has permanently destroyed about 26% of the tokens.

We can adjust Banana Gun's market cap from ~$690M to $250M, since only 35% of tokens will be issued. This is a preliminary estimate. We can then add a safety margin to the estimate and assume that Banana Gun will find a productive use for ~30% of the remaining funds. This results in an adjusted market cap of $345M. Based on this adjusted market cap, Banana Gun is trading at ~5.75x P/E (= $345M / $60M). This represents a significant price increase after the Binance listing.