Author: Marc Arjoon, CFA (@marcarjoon)
Compiled by DeepChain TechFlow
Shenchao Overview: The crypto industry has long debated the valuation metrics for blockchains—whether protocol fee revenue (REV), active addresses, DEX trading volume, or network effect laws best explain blockchain market capitalization. Chartered Financial Analyst (CFA) Marc Arjoon provides rigorous empirical testing through multi-year time series regressions on major Layer 1 assets.
Empirical research shows that, in the short term, price volatility across all major Layer 1 blockchains remains dominated by Bitcoin’s beta coefficient. In the long-term valuation context, Ethereum has become completely decoupled from its protocol revenue; on-chain valuations now exhibit strong correlations with total value locked (TVL) and stablecoin supply, reflecting a market tendency to treat blockchain tokens as liquidity-seeking monetary assets rather than traditional discounted cash flow enterprises.
Short-term pricing mechanism: Layer 1 tokens are primarily driven by the Bitcoin beta coefficient.
In short: Over any investment horizon relevant to traders, the price performance of Layer 1 tokens is essentially driven by Bitcoin's beta.
I performed a regression analysis comparing the monthly log changes in market capitalization for various Layer 1 blockchains against Bitcoin, then incorporated four on-chain time series metrics: real protocol revenue (REV) denominated in native tokens, active addresses, DEX trading volume, and stablecoin supply.
Chart: Regression analysis of L1 market cap changes against Bitcoin and on-chain metrics
The Illusion of Dollar Valuation: The Disconnect Between Native Tokens and Actual Protocol Revenue
Looking deeper, dollar-denominated metrics often paint an overly optimistic picture of fundamentals. This is because, when the native token price rises, transaction fees paid in the native token appear larger in dollar terms, and total value locked (TVL) is largely just the market value of the native token.
Chart: Comparison of Real Protocol Revenue Denominated in Native Tokens vs. USD
Ethereum's revenue decoupling: policy design, not demand collapse
Ethereum is the most prominent example of a protocol whose real revenue (REV) is decoupled from its network market capitalization.
During the week of the Dencun upgrade, Ethereum's cumulative real protocol revenue over the past 12 months was $ billion, declining to $ billion by August 2025, a 60% decrease.
Yet, at the same time, its market capitalization rose逆势 from $ billion to $ billion. This is an intentional policy design choice, not a collapse in genuine demand. The introduction of blob fees and the increase in gas limits were originally intended to reduce the price of Layer 1 block space.
The 2025 rebound in Ethereum's price will primarily be driven by demand from spot ETFs and corporate treasury allocations.
Chart: Divergence between Ethereum's protocol revenue and market capitalization over the past 12 months
Solana’s Resonance Effect: Protocol Revenue and Market Capitalization Moving in Sync
Solana is a classic example where protocol revenue and network market capitalization move in tandem.
Since January 2023, Solana’s protocol revenue and market capitalization over the past 12 months both increased by approximately 15 times, peaking in the same week at $ billion and $ billion, respectively.
Subsequently, both indicators declined in tandem, currently falling to $ billion and $ billion, respectively.
Chart: Synchronized trend of Solana's protocol revenue and market capitalization over the past 12 months
Active Addresses and Trading Volume: Weak Correlation and Cyclical Divergence
I then examined the number of active addresses alongside decentralized exchange (DEX) trading volume. Over a full cycle, active addresses and market capitalization exhibit a synchronized drift trend, a phenomenon most clearly evident on Solana and TRON.
However, on the weekly timeframe, this correlation weakens significantly, and substantial divergences occur.
Since January 2022, Ethereum's active addresses have increased by 26%, while its market cap has declined by 34%; in contrast, Solana's active addresses have grown 17-fold, yet its market cap has risen by only 17%.
Chart: Comparison of Cyclical Trends Between Active Addresses and Market Capitalization
DEX trading volume tracks market cap more closely than the number of addresses, especially on Solana, where both metrics began rising from their 2023 lows and reached their peaks together.
However, it should be noted that DEX trading volume is denominated in USD, so some of the fit is attributable to price volatility of the tokens themselves. As tokenized assets increase their share of trading volume, we can further test whether this relationship still holds.
Chart: Tracking the trend of DEX trading volume versus market capitalization
Empirical measurement of Metcalfe's Law: Network value approaches the square root of the number of addresses.
Metcalfe’s Law provides a classic model for evaluating these Layer 1 networks. The law states that the value of a network is proportional to the square of the number of its users (with an exponent of 2).
Chart: Network value fitting under Metcalfe's Law
Fitting market capitalization against active addresses yields an elasticity index of 0.56 on Ethereum and 0.62 on Solana and BNB. Thus, the expansion of actual value more closely follows the square root of address growth rather than the square.
Chart: Fit of the elasticity coefficient between market capitalization and active addresses
The core issue is that the growth rate of active addresses will gradually slow down as the network develops, not just a matter of exponential size.
Since January 2016, the number of active Bitcoin addresses has increased by only 1.3 times, while its market capitalization has grown 252-fold. Ethereum follows the same pattern: since February 2018, its active addresses have increased by 2.6 times, while its market capitalization has risen by 4.5 times, with changes in active addresses accounting for 84% of the market cap movement. Solana is currently in a shorter cycle, but the overall trend remains consistent.
Chart: Long-term comparison of active address growth rate versus market cap multiple
Public Chain Valuation Multiples Test: Mean Reversion Failure and Revenue Predictive Power
I then tested six valuation multiples on these chains: the Metcalfe multiple, the Odlyzko multiple (number of users multiplied by the natural logarithm), NVT based on stablecoin transfer volume, market cap divided by DEX trading volume, market cap divided by protocol revenue (Mcap/REV), and market cap divided by total stablecoin supply.
A practical valuation model requires its multiples to reliably revert to the mean and effectively predict future returns when in undervalued ranges.
However, testing showed that no multiplier consistently exhibits mean-reversion characteristics. The market cap-to-revenue ratio (Mcap/REV) is the only metric that, when at low valuation percentiles across multiple public blockchains (Ethereum and TRON), can predict positive returns over the subsequent 13 weeks.
Chart: Comparison of Valuation Multiples Forecasting Performance for Six Common Public Blockchains
Differences in Holder Structure: Staked Capital vs. Long-Term Hodler Base
From holders' coin-holding behavior, no Layer 1 has as deep a base of long-term holders as Bitcoin.
Even including native staking, only 4% of Solana’s supply and 10% of Ethereum’s supply have remained inactive for over three years, compared to Bitcoin’s long-term inactive proportion of 42%.
Chart: Comparison of the percentage of token supply held for over 3 years
Meanwhile, the top 100 non-staked Solana addresses control 49% of the circulating SOL supply, compared to 27% for Ethereum’s top 100 addresses and 17% for Bitcoin’s.
The number of addresses holding $100,000 or more is approximately 66,000 for Solana, 538,000 for Ethereum, and 3.67 million for Bitcoin (this may largely reflect differences in the total market capitalization of each asset).
Chart: Concentration of Unstaked Liquid Tokens and Distribution of Large Holders
The true pricing anchor for Ethereum: peer capital volume, not on-chain interactions.
Focusing on Ethereum, an interesting phenomenon is that its pricing mechanism is relative to the capital size of its competitors, rather than being based solely on on-chain activity.
Among the leading public blockchains, Ethereum holds 59% of total market capitalization, 53% of stablecoin supply, 60% of stablecoin transaction volume, 70% of DeFi TVL, 75% of tokenized real-world assets (RWA), and 76% of lending protocol TVL.
In comparison, Ethereum accounts for only 5% of active addresses and approximately 1% of on-chain transactions.
Chart: Comparison of Ethereum's share of capital accumulation and activity among public blockchains
Cross-chain correlation analysis: Total locked value and stablecoin-driven market cap ranking
This pattern holds broadly across different blockchains. When ranked by market capitalization, the rankings of various blockchains closely align with their rankings by total value locked (TVL) (Spearman rank correlation coefficient of 0.87) and show strong correlation with rankings by stablecoin supply (0.63).
However, the correlation coefficient between market capitalization ranking and on-chain transaction volume is only 0.17, and with active addresses it is only 0.45, indicating an extremely weak association.
Chart: Rank correlation analysis between market capitalization and TVL, stablecoin supply, and trading activity
Notably, ETH itself no longer constitutes the majority of TVL composition on Ethereum, significantly reducing the metric's autocorrelation and enhancing its relevance.
Chart: Evolution of Asset Composition of Total Value Locked on the Ethereum Chain
Although this is merely a horizontal ordering rather than a complete causal model, it aligns closely with the regression results of the time series—even when applied to a sample of over 40 public blockchains.
Another significant difference lies in the structure of token holders. Spot ETFs and corporate treasuries currently hold 11.9% of Ethereum’s total supply, roughly in line with Bitcoin’s 12.2% and significantly higher than Solana’s 7.9%.
Chart: Percentage of Token Supply Held by Spot ETFs and Corporate Treasuries
Final Thoughts on Public Chain Valuation: Competing for the Monetary Asset Characteristics of Capital Accumulation
The key takeaway is that Layer 1 valuation drivers depend less on the volume of on-chain interactions processed by the network and more on how much capital it can attract and retain.
Bitcoin remains the dominant force driving short-term price movements. At least for now, the market prices Layer 1 assets less as businesses earning profits from fee cash flows and more as monetary assets competing for capital accumulation and liquidity share.
