Variant: Three types of L1 assets are highly likely to become the main means of value storage
Author: Alana Levin, Variant
Compiled by: 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 seek large markets that can support and expand individuals and organizations' access to and ownership of the resources needed for everyday life. Our investments in crypto networks have turned many of these ideas into reality. These networks are coordination protocols centered on sovereignty and autonomy.
However, there are still many questions about how to assess the value of these networks. Different protocols and projects vary greatly in their objectives, and therefore, the important fundamental metrics for tracking success and predicting growth also differ.
We believe that all tokens can be categorized into one of two types: store of value (SOV) assets or equity-like instruments. Notably, we think that the store of value framework is very useful for evaluating Layer 1 blockchains (L1) — L1 is one of the largest and most important monetary coordination protocols in the modern financial system.
After in-depth discussions, we have identified a set of fundamental metrics for understanding, assessing, and tracking the future development of these networks. This article aims to outline some of our thought processes, hoping to provide useful references for others considering these assets.
L1 assets can serve as a means of storing value
One of our core frameworks is that L1 can be analyzed and modeled as a store of value.
So, what kind of assets qualify as good means of storing value? Our key fundamental elements are as follows (roughly in order of importance):
Technical durability: Will the asset still exist in 5-10 years? To what extent will its appearance/functionality remain unchanged?
Scarcity: Is the asset widely available and easy to obtain? How easy is it for the asset to experience inflation? How predictable is the inflation curve?
Censorship resistance: How easy is it for a single entity to seize the asset? To what extent can economic activities related to the asset be blocked or shut down?
Economic productivity: Can the asset be used to facilitate economic activities? How useful is it in the financial sector, for example, does it have collateral value?
Memetics: Do others perceive this asset as having store of value functionality? An important characteristic of any currency is the societal consensus on its value and use.
Liquidity: Is this asset widely applicable to all who wish to include it in their portfolios (regardless of size)? We place this last because it is often a downstream result of mimetic behavior; liquidity tends to bring more liquidity, and the greater the interest in a particular asset, the more likely its scale (relative to inflationary currency) will grow. Bitcoin had low liquidity in its early years, but it has now become one of the most liquid assets in the world.
Few market sizes can surpass the total market size (TAM) of store of value means. Gold — the largest and most widely recognized store of value — has a market capitalization of $31 trillion. Silver's market capitalization has also reached $4 trillion. We believe that some L1s are poised to become superior means of storing value.
Sovereign wealth fund assets
Currently, three L1 assets stand out as highly likely to become major means of storing value: Bitcoin (BTC), Ethereum (ETH), and ZEC. In our framework, they excel in different dimensions.
Bitcoin dominates in memetic recognition, often referred to as "digital gold." The strong reflexivity of a powerful meme is a significant force and important fundamental consideration that any competitor for a store of value must face: the more people believe Bitcoin has store of value functionality, the more likely fringe groups are to believe it as well. Over the past fifteen years, individuals, funds, corporations, institutions, and even nations have invested in this belief.
Ethereum may be technically more durable than Bitcoin. It is easier to upgrade, and its roadmap provides transparent, traceable, and verifiable insights into the future plans of the developer community. Looking ahead — and considering new risks brought by innovations like quantum computing — we believe this adaptability is an advantage rather than a flaw. The core of any quality sovereign asset lies in the belief that it will still exist a decade from now. Ethereum has demonstrated strong resilience, having withstood 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 protection. The options provided by its shielded pools (ZCash's privacy transaction feature) allow individuals to avoid the risk of future wealth confiscation or extensive state surveillance. This is a lasting advantage of ZCash, providing individuals with a long-term means of protecting their assets.
Overall, the value scale of store of value means reaches trillions of dollars. This is evident from the current situation. We believe this sector will continue to grow rapidly, and multiple means of storing value can coexist.
However, looking at the current market landscape, despite digital sovereign wealth funds (SOV) outperforming gold or silver on many of the aforementioned fundamental metrics, their proportion of the total SOV market remains small. For us, this presents an ambitious and exciting opportunity.
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