Table of Contents
Jonah Weinstein from Skycatcher reveals why the crypto analyst class is fundamentally misunderstanding Layer 1 tokens, and introduces a revolutionary valuation framework that could reshape how we think about the entire $3.5 trillion crypto market.
Key Takeaways
- Current REV/DCF analysis treats L1 tokens like companies, but they're actually money – and money doesn't accrue value like equity shares
- The RSOV (Realized Store of Value) framework measures net dollar inflows into staking and DeFi, not transaction fees
- Bitcoin gets valued as "digital gold" while everything else gets relegated to cash flow analysis – this creates massive opportunity disparity
- ETH's RSOV is $120 billion vs $350 billion market cap, showing 2.9x price-to-realized-value ratio compared to Sui's 185x
- Store of value demand doesn't face supply constraints like blockspace – ETH supply grows 0.5% while blockspace can scale 100x
- The TAM for digital non-sovereign money is $45 trillion (vs current $2.5 trillion), representing 20x potential upside
- L1 tokens that can be censored (like Sui freezing hacker funds) become "bad money" but still money, not DCF assets
- REV is naturally incorporated into RSOV as validators stake their earnings, creating an elegant unified framework
- Ethereum at 15% of Bitcoin's market cap has much higher than 15% probability of reaching equal monetary status
The Trillion Dollar Valuation Problem
Here's the thing that's been driving me crazy about crypto valuation discussions: we're essentially debating how to value the entire crypto market. Layer 1 tokens make up about 95% of the total $3.5 trillion crypto market cap. Bitcoin alone is $2.3 trillion. Add Ethereum at $350 billion, Solana, Sui, Bittensor – we're talking about almost everything that matters.
Yet somehow, the analyst consensus has decided that Bitcoin gets to be valued like "digital gold" with comparisons to the $19 trillion gold market, while every other L1 token should be valued using discounted cash flow like they're software companies. This creates a massive arbitrage opportunity that most people are missing.
Jonah Weinstein from Skycatcher is here to explain why this entire framework is backwards, and why the "money vs. company" distinction isn't just academic theory – it's the difference between seeing a 20x TAM or settling for equity market comparisons.
- The current consensus treats Bitcoin as a "special snowflake" that gets monetary valuation while everything else gets DCF treatment
- This arbitrary distinction ignores how these assets actually function and accrue value in practice
- Layer 1 tokens don't earn revenue in external currencies – they earn more of themselves, making DCF analysis circular
- The store of value use case dwarfs the payments use case for all L1 tokens, not just Bitcoin
The history here matters. We've been through multiple valuation frameworks – MV=PQ from monetary theory, stock-to-flow models, relative valuation to gold. Each had limitations, but the current REV/DCF approach might be the most fundamentally flawed because it misunderstands what these assets actually are.
Why REV Analysis Misses the Forest for the Trees
Let's start with what REV actually measures. It's the total dollar value that users pay to validators for transaction processing. It's clean, measurable, and feels like traditional cash flow analysis. The problem? It's treating symptoms, not causes.
When someone buys an NFT on Ethereum during 2021 mania and pays $500 in gas fees, or when they ape into a Solana memecoin with 20% slippage, REV captures those transaction costs. But here's what REV misses: those high fees represent a massive transfer of ETH and SOL from spenders to stakers – from short-term users to long-term holders.
- REV measures validator revenue in native tokens, not external currencies like traditional DCF requires
- High REV periods coincide with massive supply sinks as tokens flow from spenders to stakers
- The payment use case faces massive supply expansion as blockspace scales, while store of value doesn't
- REV trends toward zero as networks scale, but store of value demand can grow indefinitely
Jonah makes this point brilliantly: "If one person owned the entire supply of Apple stock, Apple would still be worth its discounted cash flows. But if one person owned all the ETH, that ETH would be worthless because no one else could pay fees or participate in the network."
That's the Metcalfe's Law element that DCF analysis completely ignores. Money is a network effect. Its value depends on how many people are using it as money, not on the cash flows it generates for validators.
L1 Tokens Are Money: The Ground Truth Definition
Here's where things get philosophical, but in a way that has massive practical implications. Money has a specific definition: any asset primarily used for payments and as a store of value. It's not subjective – it's based on actual usage patterns.
Look at how L1 tokens actually get used. Every transaction on these networks requires payment in the native token. You can't pay Ethereum gas fees in USDC. You can't pay Solana transaction costs in anything but SOL. That's the payments use case, and it's definitionally required for these networks to function.
But the bigger use case is store of value. People stake these tokens, earning duration risk and yield. They deposit them in DeFi protocols as collateral. They hold them in wallets across time horizons. These aren't speculative trades – they're monetary behaviors.
- Fiat currencies fit this definition through payments and bank deposits/bonds for store of value
- Gold fits this definition when people hoard it and use it for transactions (historically)
- Copper would become money if people started using it for payments and store of value
- L1 tokens meet both criteria through required network payments and staking/DeFi usage
The key insight is that L1 blockchains sit somewhere between nation-state fiat currencies and commodity money like gold. They have economies, GDP, and "taxes" (gas fees), but they're also programmatic and autonomous rather than government-controlled.
This isn't just theoretical. When Russia got sanctioned and couldn't access dollar reserves, they started buying gold. When the Sui network froze hacker funds, sophisticated users moved their wealth to Ethereum. These are monetary behaviors in response to censorship risk.
Introducing RSOV: Measuring What Actually Drives Value
The RSOV (Realized Store of Value) framework tracks the two primary drivers of store of value demand for L1 tokens: the realized value of tokens staked and the realized value of tokens in DeFi. It's inspired by Bitcoin's realized cap metric but adapted for smart contract platforms.
Here's how it works: instead of just looking at when tokens last moved (like Bitcoin's realized cap), RSOV tracks the dollar value when tokens get locked into specific store of value use cases. When someone stakes 100 ETH at $2,500, that adds $250,000 to realized staking value. When they deposit ETH into Maker, Uniswap, or Morpho, that adds to realized DeFi value.
The magic is that this measures actual net inflows of dollars into the network that are staying in the network. It's not about short-term speculation or trading activity – it's about people converting other currencies into the L1 token and committing it to long-term holds.
- RSOV only increases with real on-chain transactions, not price appreciation
- It measures the aggregate cost basis of value locked in store of value use cases
- Unlike REV, it naturally incorporates all fee revenue as validators stake their earnings
- It provides a fundamental floor valuation based on cumulative dollar inflows
Current RSOV numbers tell an interesting story. Ethereum's RSOV is around $120 billion versus a $350 billion market cap, giving it a 2.9x price-to-RSOV ratio. Compare that to Sui at 185x – meaning the market is pricing in massive future growth in store of value usage that hasn't materialized yet.
Why Store of Value Beats Payments Every Time
The reason RSOV focuses almost entirely on store of value rather than payments comes down to supply dynamics. When blockspace demand increases, networks can scale to meet that demand. Ethereum is working toward 100x scaling through rollups. Solana keeps increasing throughput. The supply of the thing being purchased (blockspace) can expand dramatically.
But when store of value demand increases, the supply response is completely different. ETH supply grows maybe 0.5% per year. If you're staking, your share of the network doesn't get diluted at all – you earn the inflation. So demand growth isn't met with proportional supply growth.
This creates completely different price dynamics. In commodities, supply growth is the enemy of price appreciation. When oil demand increases, producers drill more wells. When store of value demand increases for L1 tokens, there's no equivalent supply response.
- Blockspace scales 100-500% year-over-year, making transaction costs deflationary
- L1 token supply grows 0-2% per year regardless of demand growth
- Store of value demand can grow 200-400% annually without triggering supply responses
- This asymmetry makes store of value the dominant long-term value driver
Jonah makes an important distinction about which parts of REV might be durable. Data availability (what rollups pay for) will likely trend toward zero as networks scale. But transaction ordering and sequencing has fundamental constraints – one transaction must come before another until we live in a quantum world with multiple timelines.
Even then, this durable REV gets captured by stakers and incorporated into RSOV as they compound their earnings rather than selling for dollars.
The $45 Trillion Opportunity Hidden in Plain Sight
Here's where the TAM (Total Addressable Market) comparison gets really interesting. If you value L1 tokens as companies using DCF, you're comparing them to equity markets. If you value them as money using frameworks like RSOV, you're comparing them to the global money supply.
The current digital crypto money market is about $2.5 trillion. The analog and government-based money market (physical cash, bank reserves, plus gold) is around $45 trillion. That's an 18x difference, and we're only about 15-20 years into this transition.
Think about it: has there ever been a case where the digital disruptor didn't eventually surpass the analog incumbent it was replacing? Music, photography, communications, commerce – digital always wins long-term because it's more efficient, accessible, and programmable.
- Current L1 token market cap: $2.5 trillion
- Traditional money + gold market: $45 trillion
- This represents conservative 18x potential upside over coming decades
- Digital money offers 24/7 liquidity, programmability, and censorship resistance
- Government money faces accelerating crisis conditions that drive alternative demand
The key insight is that Bitcoin is just the Trojan horse. People buy it first because "it changes the least" compared to other crypto assets. But as the space matures, other L1 tokens offer superior monetary properties: they're more programmable, more transparent in their monetary policy, and increasingly autonomous.
The market hasn't figured this out yet, which creates the opportunity.
REV and RSOV: Complementary, Not Competing
One of the most elegant aspects of the RSOV framework is how it naturally incorporates REV rather than competing with it. When validators earn fees, they have a choice: sell those earnings for dollars or stake them to compound returns. Most sophisticated validators choose the latter.
This means REV automatically flows into RSOV as validators add their fee earnings to staking contracts. Higher REV leads to higher staking yields, which attracts more staking inflows, which increases RSOV. It's a virtuous cycle rather than an either/or choice.
The correlation between all-time highs in price and all-time highs in REV isn't coincidental. But the causation runs deeper than "high fees = high price." High fee periods represent massive wealth transfers from short-term users to long-term stakers, creating permanent supply sinks.
- During NFT mania, ETH flowed from NFT buyers to validators who staked earnings
- During memecoin mania, SOL accumulated in bonding curves and staking contracts
- High REV periods accelerate the transfer from spenders to savers/stakers
- This creates durable RSOV growth that persists after fee levels normalize
Think about Solana's memecoin ecosystem. Every failed memecoin leaves $50-5,000 of SOL locked in abandoned bonding curves and liquidity pools. That's not just REV – that's permanent supply removal that shows up in RSOV calculations.
Layer 2s: Parasitic or Symbiotic?
The L2 debate becomes much clearer through an RSOV lens. Current L2s did reduce Ethereum mainnet fee revenue, which compressed staking yields and discouraged inflows. That's bad for RSOV growth in the short term.
But L2s also enable massive amounts of ETH to be used in DeFi protocols across different chains. Someone buying ETH and using it as collateral on Base or Arbitrum increases ETH's realized DeFi value regardless of which chain it happens on. The L1 captures store of value demand even when economic activity moves to L2s.
The next generation of "based rollups" (where L2s still use L1 for significant sequencing) could provide the best of both worlds: maintaining fee revenue for L1 validators while enabling the scale necessary for mass DeFi adoption.
- Early L2s displaced L1 sequencing revenue, hurting staking yields
- But L2s enabled more ETH usage in DeFi across multiple chains
- Based rollups could restore L1 fee revenue while maintaining L2 scale benefits
- The net effect on RSOV depends on the balance between these factors
The key insight is that RSOV captures value regardless of where the economic activity happens, as long as people are buying and holding the L1 token for store of value purposes.
Investment Implications: Buying Reality, Selling the Dream
Jonah's mentor once told him: "I want to be buying reality and selling the dream." The reality is that all L1 tokens accrue value the same way – through net inflows of people selling other currencies to buy and hold the native token. The dream is that only Bitcoin gets to be valued as money while everything else trades on cash flows.
This creates a massive opportunity for analysts who understand the actual value drivers. When you look at Ethereum trading at 15% of Bitcoin's market cap, the question becomes: what's the probability that ETH eventually achieves similar monetary status to Bitcoin? If it's higher than 15% (which seems reasonable), then ETH is significantly undervalued.
The bottom-up catalysts support this view. Real-time proving, based rollups, potential block time reductions, and scaling improvements could dramatically increase ETH staking yields. Higher yields attract more inflows, which increases RSOV, which provides fundamental support for higher prices.
- ETH offers superior monetary properties: programmability, transparency, autonomous monetary policy
- 85% of on-chain finance built on EVM where ETH is the base asset
- Multiple technical catalysts could increase staking yields and attract inflows
- Current market treats it like a technology company rather than a monetary asset
The framework also helps identify overvalued assets. Sui's 185x price-to-RSOV ratio suggests the market is pricing in massive future growth that may not materialize, especially given recent censorship incidents that undermine its monetary credibility.
Beyond ETH: The Multi-Snowflake World
The current consensus assumes Bitcoin is the only "special snowflake" that gets monetary valuation while everything else gets relegated to DCF analysis. But that's like saying only gold can be money while silver, copper, and other metals must be valued as industrial commodities.
In reality, monetary systems tend toward diversity. Different money serves different purposes: Bitcoin for maximum conservatism and unchanging properties, Ethereum for programmable money and DeFi, Solana for high-throughput applications. Each can capture significant portions of the $45 trillion monetary TAM.
The RSOV framework provides a way to evaluate all L1 tokens on equal footing, then differentiate based on actual monetary properties: censorship resistance, inflation rates, network effects, and ecosystem development.
- Bitcoin: Maximum monetary conservatism, established store of value status
- Ethereum: Programmable money, dominant DeFi ecosystem, improving monetary policy
- Solana: High throughput, growing memecoin/gaming ecosystem, newer monetary narrative
- Others: Various niches and specializations within the broader monetary landscape
The question isn't which single token wins, but how much of the total monetary TAM each can capture over the coming decades.
The Call to Action for Analysts
This is version 1.0 of the RSOV framework. Jonah is explicitly calling for other analysts to help improve and refine it. There are store of value use cases the current framework might miss – ETF inflows, off-chain institutional custody, or other on-chain behaviors that represent people holding L1 tokens for monetary purposes.
The data infrastructure also needs work. Getting clean, reliable RSOV data requires significant first-person research and custom data pipelines. Platforms like Artemis, Blockworks, and DeFi Llama could help standardize and improve these metrics.
But the bigger opportunity is philosophical: recognizing that L1 tokens are money, not companies, and building valuation frameworks that reflect that reality rather than forcing them into inappropriate DCF models.
- Download the Excel template and experiment with RSOV calculations
- Identify additional store of value use cases that could be measured on-chain
- Help data platforms build better infrastructure for RSOV tracking
- Apply the framework to evaluate different L1 tokens on comparable terms
The crypto industry is still in the 1940s of fundamental valuation, equivalent to when Warren Buffett bought his first stock before DCF was widely understood. The analysts who figure out crypto's equivalent of DCF will have massive advantages in the coming decades.
The difference is that crypto's fundamental driver might not be cash flows at all – it might be monetary demand. And if that's true, we're looking at a much bigger opportunity than most people realize.
