As the Solana community is about to vote on SIMD-0550 “Double Disinflation Speed” and SIMD-0553 “Resource Fees,” Max Resnick—former head of research at Consensys and now a key Solana ecosystem developer—published a long-form essay attempting to answer a more fundamental question than the two proposals themselves: how should a Layer 1 blockchain be valued in the first place?
Resnick believes that the current way the crypto market values L1 chains is much like the stock market in the late 1920s: the market is full of growth stories, yet lacks a framework that can translate those stories into asset value.
“Record high numbers of developers,” “record high trading volume,” “tokens will become money,” “digital oil,” and “options on the future financial system”—these narratives may not be wrong. But Resnick emphasizes that if you can’t explain how these activities ultimately translate into tokenholder surplus, then it can’t be considered a complete valuation model.
L1 can also be valued using the stock approach
Resnick approaches it from traditional finance’s asset pricing theory.
In (The Theory of Investment Value) published by John Burr Williams in 1938, he proposed that the value of a stock is essentially its present value after discounting future dividends. Merton Gordon later further pointed out that, just like other assets, a stock’s value comes from the future income that holders expect to receive.
In other words, a company does not simply deserve a certain valuation because it is "important," "growing fast," or has "technology that can’t be replaced." What truly matters is: how much value shareholders ultimately are able to capture from the economic activity the company creates.
Resnick believes the same logic should be applied to L1 tokens.
For blockchains, the revenue created by the network can mainly return to token holders in two ways: first, fees are burned—economically similar to corporate share buybacks; second, fees are distributed to stakers—similar to corporations paying dividends to shareholders.
So even if a blockchain processes millions of transactions every day, it does not necessarily mean its token must have the same degree of value.
If most of the economic surplus generated by transactions is ultimately captured by applications, validators, MEV searchers, or other intermediaries—without flowing back to token holders—then massive transaction activity may only create limited tokenholder value.
Conversely, for a chain with lower transaction volume, if it can convert a higher proportion of economic activity into token-holder收益, theoretically it could actually have higher asset value.
Staking rewards are not revenue, and inflation can’t be directly counted as a cost.
Another key element in this framework is how to handle the most common blockchain “inflationary staking rewards.” Resnick argues that staking rewards paid through token issuance cannot be directly treated as revenue created by the blockchain, nor should they be directly treated as costs paid to the network.
The reason is that the new tokens are only created by the protocol and then distributed to stakers. In essence, holders with no staking are diluted, and value is redistributed to stakers.
From the perspective of all token holders combined, this value will cancel out—one part added and the other subtracted offset each other.
That’s also why Resnick thinks you can’t simply conclude “Solana is losing money” just because Solana pays a large amount of SOL▲ as rewards to validators and stakers.
Of course, analysts could list inflation rewards as costs. But then they would also have to treat newly issued tokens as the corresponding source of value; otherwise, the entire accounting model would become distorted.
Similar problems also exist with token holdings and spending by the foundation.
For example, if an analyst already treats Foundation spending as operating costs, then unspent foundation tokens cannot also be fully included again in a valuation model of circulating supply; otherwise, it could lead to double counting.
Resnick therefore argues that L1 valuations should at least be built on a clear and consistent set of classification standards for Revenue, Cost, and Total Supply.
Not all transaction fees have the same value.
However, even if you confirm that transaction fees are truly the income worth observing, the problem is not over.
Resnick especially emphasizes “revenue quality.” When analyzing SaaS companies in the stock market, investors place great importance on ARR (annual recurring revenue) because the sustainability of recurring revenue is far higher than that of one-off revenue. The same concept can be applied to blockchains.
For example, one dollar’s worth of fees generated by long-term stable financial activity cannot justify the exact same valuation multiple as one dollar’s worth of fees from airdrop farming, meme coin mania, a liquidation wave, or short-term network congestion.
What truly matters are two things: sustainability and defensibility.
Investors need to determine whether users pay because the blockchain provides irreplaceable economic utility, or simply because short-term speculative activity is flowing in. After subsidies end and volatility declines, will these revenues still exist?
More importantly, can a public chain raise prices without pushing transactions, applications, and order flow somewhere else.
Resnick: The market may be undervaluing Solana and Ethereum’s pricing power
Resnick believes that the crypto market has actually made two mistakes in opposite directions in the past.
On the one hand, the market may overestimate the quality of blockchain revenue, because a large share of on-chain activity is speculative, reflexive, and cyclical. The spike in fees during a bull market may not be sustainable long term.
But on the other hand, investors may also be underestimating the network effects of mature L1s.
Liquidity, applications, wallets, infrastructure, users, developers, on-chain assets, and order flow reinforce one another, forming a moat for large public chains that is stronger than what appears on the surface.
So Resnick proposes an important judgment: the pricing power of existing large blockchains like Solana and Ethereum may be stronger than the market generally assumes, meaning that increasing prices may not cause demand to fall proportionally.
This also brings the issue back to the fee reform Solana is currently discussing.
If transaction fees rise by 10%, transaction volume may drop by 6% to 8%.
The most straightforward method is to simply raise blockchain transaction fees.
But Resnick reminds us: Revenue = Price × Quantity
Raising transaction fees can increase the revenue generated per transaction, but it may simultaneously reduce transaction demand. Therefore, whether total revenue ultimately increases or decreases depends on the price elasticity of demand.
Resnick said that in his past research he used randomness in EIP-1559 pricing adjustments. The results showed that when prices rose by 10%, transaction demand might fall by about 6% to 8%.
And this is only short-term price volatility.
If prices remain high over the long term, applications may further optimize code, reduce on-chain operations, or even migrate directly to other blockchains—so the way long-term demand responds could become more complex.
The public-chain problem: transferring $10 versus transferring $100 million might cost roughly the same
This is also one of the biggest structural problems with the current blockchain fee system as Resnick sees it: different transactions have completely different willingness to pay.
Traditional L1 fees are closer to resource-based pricing: if a transaction uses how much compute, consumes how much blockspace, uses how much storage, and other resources, then fees are charged according to those resource consumption. But a small-value wallet transfer, a high-value stablecoin transfer, and a DeFi position about to be liquidated can create completely different economic value and the maximum price users are willing to pay—despite all potentially consuming similar compute resources.
This is the difference between resource-based pricing (charging based on resource usage) and value-based pricing (charging based on transaction value / willingness to pay). But the issue Resnick points out is: even if resource costs are the same, it does not mean the economic value of the transactions and the willingness to pay are the same.
Bot trading is especially sensitive.
Based on Solana data, Resnick found that an address belonging to a single fee payer that performs more than 250 transactions within one epoch is more likely to be a bot. These strategies usually have very thin margins, so a small price increase could drastically reduce transactions.
That is to say, if Solana raises prices for all transactions uniformly, the first thing to disappear would likely be these high-frequency, low-profit transactions.
Anatoly Yakovenko proposes: SPL token transfers charge 0.5 basis points
Therefore, compared with simply raising gas fees across the board, a more ideal approach may be to enable the blockchain to practice some degree of “differential pricing.”
Solana co-founder Anatoly Yakovenko recently proposed a direction: charge a 0.5 basis point fee on every SPL token transfer—equivalent to 0.005% of the transaction amount.
This design is more closely aligned with the model used by centralized exchanges, which charge a certain percentage of fees based on the transaction amount.
For example, even if two transfers use exactly the same compute resources, a $100 transfer and a $1 million transfer may theoretically have completely different fee amounts users are willing to pay.
Resnick believes that for financial activity, notional volume often reflects users’ willingness to pay better than compute consumption.
So one approach is to modify the Token Program directly, so that token transfers charge a very low percentage fee based on the transfer amount. High-value transfers naturally pay more, while low-value transfers keep costs low.
This article is republished with authorization from: (Chain News)
Original title: (Can blockchain be saved? Researchers reassess the valuation for Layer 1 public chains—how can narratives be translated into token holder value?)
Original author: Neo
"Can blockchain be saved? Researchers reassess valuation for Layer 1 public chains—how can narratives be translated into value for token holders?" This article was first published in "Crypto City"