Author: Alex Xu, Research Partner at Mint Ventures
1. Introduction
If one were to name the best performing L1 in this bull market cycle, most people's answer would be Solana.
Whether in terms of active addresses or fee revenue, Solana's market share in L1 has rapidly expanded:
Number of active addresses: The share of active addresses on Solana has grown from 3.48% to 56.83%, a year-on-year increase of 1533%;
L1 monthly active addresses market share, data source: tokenterminal.
Fees: Solana's fee revenue share has grown from 0.62% to 28.92%, a year-on-year increase of 4564%.
L1 monthly fee revenue market share, data source: tokenterminal
The meme wave is the core driving force behind the rapid growth of various core indicators in this cycle for Solana. Besides Solana, projects like Raydium, which also benefit from the meme craze, have experienced massive trading and protocol revenue due to meme trading activity, with their prices recently hitting new highs in this cycle.
The author will focus on another project that benefits from Solana's massive asset issuance: Metaplex.
This article will present and discuss the following four questions:
What is the business positioning and business model of Metaplex? Does it have a moat?
How is Metaplex's business data, and how is the business developing?
What is Metaplex's team background and funding situation, and how to evaluate the project team?
What is the current valuation level of Metaplex, and is there a margin of safety?
This article reflects my stage thoughts as of publication; changes may occur in the future, and the views presented are highly subjective, and may contain errors in facts, data, and reasoning logic. Criticism and further discussion from peers and readers are welcome, but this article does not constitute any investment advice.
The following is the main text part.
2. Business Positioning and Business Model of Metaplex
The Metaplex protocol is a digital asset creation, sale, and management system built on Solana and supporting the Solana Virtual Machine (SVM), providing developers, creators, and enterprises with tools and standards for building decentralized applications. The types of crypto assets supported by Metaplex include NFTs, fungible tokens (FTs), real-world assets (RWA), game assets, DePIN assets, and more.
Recently, Metaplex has also expanded horizontally into other basic service areas in the Solana ecosystem, such as data indexing and data availability services.
In the long term, Metaplex is expected to become one of the most important multi-domain foundational service projects in the Solana ecosystem.
2.1 Metaplex's Product Matrix
As an asset issuance, management, and standard system, Metaplex serves both NFTs and fungible tokens, and the products listed below constitute a comprehensive matrix of services for assets in the Solana ecosystem.
Core
Core is the next-generation NFT standard on the Solana blockchain, adopting 'single account design', significantly reducing minting costs and computational power while supporting advanced plugins and mandatory royalty payments.
Background knowledge: Solana's account model
To understand the advantages of the 'single account design' architecture, one must first understand the account model of the Solana blockchain and the traditional storage method of NFTs.
On the Solana blockchain, all state storage (such as token balances, NFT metadata, etc.) is associated with specific accounts. Each account can store a certain amount of data, and the size of the account is limited, requiring payment of rent to maintain this data storage. Therefore, how to efficiently manage on-chain accounts and store data is a key issue that developers on Solana need to consider.
Traditional NFT Design
In traditional NFT design, each NFT typically has multiple accounts to store different pieces of information. For example, a typical NFT might involve the following accounts:
Main account: stores ownership information of NFTs (e.g., who is the current holder).
Metadata account: stores metadata of NFTs (such as name, description, image link, etc.).
Royalty account: stores information related to creator royalties.
While this multi-account design is more flexible, it can lead to some issues in practical operation:
Complexity: Managing and interacting with multiple accounts increases complexity, especially when frequent queries and updates are needed.
Costs: Each account needs to pay rent to maintain its storage state, and more accounts mean higher costs.
Performance: Operations involving multiple accounts may require more blockchain resources, affecting performance and transaction speed.
Advantages of the 'single account design'
Metaplex Core has proposed the 'single account design' standard to address the above issues. The single account design consolidates all information related to NFTs (such as ownership, metadata, royalties, etc.) into one account, simplifying the account structure, reducing account costs, improving interaction efficiency, and enhancing the scalability of NFTs. This design is particularly suitable for implementing large-scale NFT projects (such as games, Depin, etc.) on high-performance, low-cost blockchains like Solana.
Bubblegum
Bubblegum is Metaplex's program for creating and managing compressed NFTs (cNFTs). Through compression technology, creators can mint a large number of NFTs at a very low cost; the cost for minting 100 million NFTs is only 500 SOL (achieving over 99% cost reduction compared to traditional minting methods), providing unprecedented scalability and flexibility. It is also the introduction of Bubblegum technology that has made large-scale low-cost NFT minting possible, prompting DePIN projects like Render and Helium to migrate to Solana, and giving rise to innovative NFT platforms like DRiP. The table below lists examples of these three representatives' applications of Bubblegum.
Token Metadata
The Token Metadata program allows for the addition of extra data to fungible and non-fungible assets on Solana. Token Metadata is naturally significant for information-rich NFTs, but in reality, most fungible token projects on Solana also require the use of Token Metadata.
What many people do not know is that the largest meme issuance platform on Solana, Pump.fun, relies on Metaplex's metadata services for all tokens created. Currently, the greatest demand for Token Metadata does not come from NFTs, but from a large number of meme projects being issued.
For meme projects, using the Token Metadata program during token issuance has obvious benefits:
First is to ensure the standardization and compatibility of the issued tokens. Tokens that use Metaplex's Metadata services will be more easily recognized by mainstream wallets (such as Phantom, Solflare) and displayed correctly on trading platforms regarding their name, icon, and other additional information, and seamlessly integrated into other Solana applications.
Second is to provide on-chain storage and transparency. Metaplex Metadata services store the metadata of tokens on-chain, making it easier to verify the information and data of the tokens and preventing tampering.
The additional information provided by the image text gives multiple dimensions of material for the speculation of memes, making memes no longer just a name and a series of contracts, but providing materials for the dissemination, secondary creation, and narrative of memes.
New meme tokens continuously emerging on pump.fun, source: pump.fun
With the ongoing popularity of memes on Solana, over 90% of Metaplex's protocol revenue has already been contributed by fungible tokens (memes), which contradicts the common perception that 'Metaplex is a foundational NFT protocol' and highlights a significant cognitive dissonance.
Candy Machine
Metaplex's Candy Machine is the most commonly used NFT minting and issuance program on Solana, capable of efficiently, fairly, and transparently launching NFT collections.
Other product arrays
Other services of Metaplex also include:
MPL-Hybrid: A hybrid NFT storage and management solution designed to combine the advantages of on-chain and off-chain storage, providing an efficient and economical storage method for NFTs, particularly suitable for storing large files (such as high-resolution images) or NFT projects that require dynamic updates.
Fusion: NFT merging function, allowing users to merge multiple NFTs into a new NFT, enhancing user interaction experience and providing more gameplay for NFT projects, applicable to games, collectibles, and art projects.
Hydra: An efficient, scalable large-scale NFT minting solution designed specifically for projects that need to mint a large number of NFTs (such as games, social platforms, or loyalty programs).
……
Metaplex has the following product list (asset service type):
Image source: Metaplex developer documentation
Aura
Additionally, in September, the Metaplex Foundation officially announced the launch of Metaplex Aura—a decentralized indexing and data availability network serving Solana and SVM (Testnet). Through the indexing and data availability services provided by Aura, Solana and other blockchain projects adopting the SVM standard can read asset data more efficiently and support batch operations at a much lower cost, reducing operational costs by over 99%, as shown in the figure below:
Cost comparison of large-scale asset operations before and after adopting Aura, source: Metaplex official Twitter
When the product announcement was released, Metaplex also listed the cooperative agreements supporting the product, many of which are well-known projects in the Solana ecosystem and will also potentially be Aura's future users.
Source: Metaplex official Twitter
From an asset service system to data indexing and data availability service protocols, with horizontal expansion of services, Metaplex is evolving into a full-stack foundational service platform for the Solana ecosystem.
2.2 Metaplex's Business Model
The business model of Metaplex is simple and understandable, charging for services related to on-chain assets. Some services in the previously mentioned product array are free, and some are charged.
Although Metaplex's direct partners are other projects on Solana, functioning as a TOB expanded business, most of its charges come from small projects or retail users using large B-end projects, including those creating various fungible token projects and individual users minting NFTs.
In my view, charging dispersed users is a better business model compared to charging large B-end projects (like Pump.fun) because:
Users of small projects or retail users tend to make more emotional decisions and are less sensitive to prices compared to B-end users because the service price of Metaplex is a small proportion of their total expenditure. The absolute fees paid by each small user are not high, but when the number is sufficiently large, the total fee can be quite considerable.
B-end projects can become distribution channels for its services, helping Metaplex's services reach more decentralized users, without Metaplex needing to spend extra effort and costs on marketing and distribution.
The user base is more dispersed with low concentration, making it harder for basic service providers like Metaplex to negotiate pricing. Metaplex has the ability to maintain product profit margins and even raise prices at appropriate times.
Specifically, the charging standards for Metaplex products on Solana are as follows:
Image source: Metaplex developer documentation
It can be seen that the absolute fee for users to individually invoke Metaplex's product services is not expensive; for example, the fee for a user to mint an NFT is only 0.0015 SOL; for a meme issuer issuing a project, using Token Metadata to add textual and visual information to their meme project costs only 0.01 SOL. Such costs are negligible compared to the expected benefits for users.
Of course, it should be noted that the large-scale issuance of fungible tokens represented by memes has brought revenue to Metaplex on one hand, while the sustainability of the meme craze is in doubt, which will also affect the sustainability of Metaplex's revenue. Even strong as Solana, the fluctuations in meme popularity are considerable; during the coldest week in September, the number of newly listed tokens on Dex was about one-third of that in May at its hottest, while this number increased tenfold again in mid-November.
Number of new token varieties added weekly on Solana Dex, source: Dune
2.3 Metaplex's Moat
In the business world, a company's/project's moat may come from various aspects of advantages, such as cost advantages brought by scale and location, value accumulation brought by network effects, high user stickiness and pricing power brought by brand effects, competitive barriers brought by administrative licenses and patents, etc.
Projects with strong moats are reflected in the competitive landscape when later competitors entering the same track find it hard to catch up, or the comprehensive costs of catching up are so high that they far exceed their expected returns, resulting in relatively few competitors in that track; financially, it reflects that the project has a steadily increasing profit capability, with the cost of marketing and development being relatively low compared to revenue.
In the Web3 field, there are not many projects with strong moats, such as Tether in the stablecoin space and Aave in the centralized lending space.
In my view, Metaplex is also a project with a moat, and its moat comes from 'high switching costs' and 'setting standards'.
First, when developers and users rely heavily on Metaplex's tools and protocols for asset issuance and management, switching to another protocol for managing the project's assets will inevitably face high time, technical, and economic costs.
Secondly, when Metaplex's asset formats (including NFTs and FTs) become the standard in the Solana ecosystem, and a consensus is reached for various infrastructures and applications within the ecosystem to be compatible with this standard, it will also lead new developers and projects to prioritize the selection of Metaplex's asset formats, which have stronger ecological compatibility.
Thanks to Metaplex's moat, there are currently very few projects in the Solana ecosystem that can compete with it, ensuring Metaplex's strong profitability, which will be analyzed in the next section.
Beyond asset services, Metaplex is also testing data indexing and data availability services, which are expected to create a second growth curve for Metaplex in the future. Considering that the target audience for this service overlaps significantly with Metaplex's existing customer base, its newly expanded business may be more easily accepted and experienced by existing cooperative clients.
3. Metaplex Business Data: PMF is fully validated, core data shows strong growth
Metaplex's current core business is to provide services related to assets. We can observe its active user numbers, the number of projects minting assets, and core indicators like protocol revenue.
3.1 Metaplex Monthly Active Users
Metaplex monthly active users refer to independent addresses that have conducted transactions with the Metaplex protocol each month.
Metaplex monthly active addresses, data source: Metaplex Public Dashboard, same below
We can see that as of the date of writing (November 30, 2024), Metaplex's latest number of monthly active users reached 844,966, setting a new monthly historical high, an increase of 253% year-on-year.
3.2 Number of Assets Minted Through the Protocol
The number of assets minted through the protocol refers to the types of assets minted via the Metaplex protocol.
Number of monthly asset minting types in Metaplex
As of the date of writing (November 30, 2024), the data from Metaplex also reached a historical high, with over 1.44 million total minted asset types in November.
It is worth noting that 94% of the assets are fungible tokens, with only 6% being NFTs. This data was 18.6% for NFTs and 81.4% for fungible tokens in January this year, meaning that in terms of business volume, Metaplex's current main business has become fungible token asset services rather than NFT services. Most of the fungible asset minting and issuance comes from the meme craze.
Proportion of monthly asset minting types in Metaplex
3.3 Protocol Revenue
Protocol revenue refers to the fees received by Metaplex for providing services.
Metaplex Monthly Protocol Revenue
As of the date of writing (November 30, 2024), Metaplex's monthly protocol revenue reached $3.3 million, also setting a historical high.
It should be noted that, unlike many projects in the Web3 world that rely on token subsidies to drive product demand and spend project tokens in exchange for protocol revenue, Metaplex's business revenue is quite organic, without direct token subsidies, and is a typical project that achieves PMF (product-market fit).
From the data in this section, we can see:
As a foundational asset protocol, Metaplex directly benefits from the development of the Solana ecosystem, with its core indicators rising in tandem with Solana's core indicators, especially protocol revenue.
Metaplex benefits from the activity of both NFTs and FTs, not just as an 'NFT asset service protocol'. After the meme craze, if more active tracks emerge in Solana, such as Depin, games, RWA, Metaplex's demand space will also be further opened up.
The demand for Metaplex's services is organic, and it can generate revenue without relying on token subsidies.
Next, let's take a look at the team behind the Metaplex project and the status of the project token.
4. Metaplex Team: Ecosystem OGs Close to the Core Circle of Solana
Stephen Hess
The founder of Metaplex is Stephen Hess, who is also the chairman of the Metaplex Foundation. He founded Metaplex Studios in November 2021.
As a graduate of Stanford's Symbolic Systems program (which focuses on the design of human-computer interaction systems), Stephen Hess is also one of the earliest employees of Solana (he joined when Solana had just launched for a year). At that time, Solana co-founder Raj invited him to join Solana as the head of the product department. His work during his tenure included the development of Solana Stake Pools (Solana's staking system), the SPL governance system, and Wormhole. He was also a member of the team for the first version of the Solana NFT standard, which eventually evolved into Metaplex.
In January 2022, shortly after the founding of Metaplex, it received a strategic investment of $46 million from institutions like Multicoin, Jump, and Alameda. Based on the 10.2% share in the token allocation table corresponding to this strategic round of financing, it can be estimated that the valuation of Metaplex at that time was around $450 million, which is quite high for a first-round primary valuation even during a bull market.
Just as Metaplex was about to celebrate its first anniversary, in November 2022, FTX collapsed due to massive financial write-offs. Although Metaplex's financial situation was not directly affected by the FTX collapse, Stephen Hess quickly announced layoffs on Twitter, preparing for the impending downturn in the Solana ecosystem. In retrospect, his actions at that time proved to be very correct; he had a clear understanding of the future and did not have the habit of overspending like many Web3 teams.
According to the current LinkedIn information of Metaplex, the team size is over 10 people, still quite lean, but from the monthly project work reports released, this lean team shows strong delivery capability and ambition in product development, achieving high efficiency in product iteration and new product development.
Metaplex's monthly work report, source: official blog
Looking back at the work history of Metaplex's founder and the project's development history, Metaplex basically meets my comprehensive conceptualization of an excellent Web3 team:
Core members possess educational, work skills, and experience backgrounds that match the entrepreneurial project, without credit violations.
Close to the core circles of the public chain ecosystem, with smooth communication channels, and product ideas recognized by the public chain ecosystem community.
Good product intuition (few detours), diligent and proactive work, with good delivery results.
Awareness of cost control, not overspending.
Secured investment from top-tier VCs, possessing excellent comprehensive business resources.
Additionally, on September 9, 2024, The Block disclosed that well-known institutions including Pantera Capital and ParaFi Capital purchased a large number of Metaplex (MPLX) tokens from Wave Digital Assets this year, which were originally held by FTX, with a comprehensive purchase cost of approximately $0.2-$0.25 (with certain lock-up terms).
5. MPLX: Token Utility and Valuation Level
5.1 Basic Information about the Token
The protocol token of Metaplex is MPLX, with a total supply of 1 billion.
Image source: Project white paper
The specific token allocation is as follows:
Creators and early supporters account for 21.9%, of which 50% will be distributed in the form of airdrops within a year (the first airdrop starting in September 2022), and the remaining 50% will be released monthly over the next year.
Metaplex DAO accounts for 16%, with no lock-up, distributed according to DAO proposals.
Metaplex Foundation accounts for 20.31%, with no lock-up.
Strategic round accounts for 10.2%, with 50% released in the first airdrop (September 2022) one year later, and the remaining 50% unlocked monthly in the following year.
Partner Everstake accounts for 10%, locked for two years (locked until September 2024), released linearly over one year, currently unlocking.
Metaplex Studios accounts for 9.75%, locked for one year (locked until September 2023), released linearly over two years, currently unlocking.
Community airdrop accounts for 5.4%, released immediately.
Founding advisors account for 3.34%, locked for one year, released linearly over one year, all unlocked.
Founding partners account for 3.1%, locked for one year, released linearly over one year, all unlocked.
According to the currently provided circulation data, the circulation rate of MPLX is 75.6%, with most already in circulation, especially the investors' shares, which have basically achieved circulation with minimal unlock pressure.
The portion of 'unreleased' tokens mainly comes from shares controlled by Metaplex DAO and the Metaplex Foundation, tokens held by the treasury, and the unlocked portions of Everstake and Metaplex Studios.
5.2 Token Utility
Currently, the utility of MPLX is mainly for governance voting. Additionally, since March 2024, Metaplex has announced that it will use 50% of the protocol revenue for token repurchases (including historically accumulated protocol revenue), with repurchased tokens entering the treasury for developing the protocol's ecosystem.
The protocol officially began repurchasing tokens in June 2024, subsequently repurchasing MPLX tokens with 10,000 SOL every month, a practice that has continued for 5 months to date.
Due to the rapid increase in protocol revenue, next month Metaplex will raise the monthly amount for protocol repurchase from 10,000 SOL to 12,000 SOL.
In addition to governance and repurchase, the next scenario for MPLX will be activated by the aforementioned Aura function. After the Aura function officially goes live, MPLX is expected to become a staking asset for Aura nodes, capturing the income generated by Aura.
5.3 Protocol Valuation
When measuring Metaplex's valuation, we still use comparative valuation methods, but considering that there are no comparable competitive products in the same track within Solana, I ultimately chose Raydium, which is also part of the Solana ecosystem and has similarly benefited from the meme craze this year with a significant increase in protocol revenue and also has a repurchase mechanism, as a reference for comparative valuation.
From the comparison of protocol revenue and market capitalization, Metaplex's valuation is slightly higher.
It should be emphasized that while the two projects share some commonalities, they remain two distinct tracks within the same ecosystem with significant differences in business positioning. The above valuation comparisons only hold a certain reference value.
5.4 Potential Driving Factors and Risks
Overall, the advantages of Metaplex are quite evident:
Positioned in the upstream ecosystem of asset services, holding the authority to set asset standards, and directly benefiting from the prosperity of the Solana ecosystem.
The product PMF has been fully validated, achieving positive cash flow without relying on token subsidies, and has a relatively clear business moat.
Based on existing business, actively expanding a second growth curve.
The team's overall quality is good, closely aligned with the core circle of the ecosystem, diligent and proactive, with awareness of cost control.
The token has a repurchase mechanism, and the project's absolute market cap is relatively low (circulating market cap of over $260 million, FDV over $350 million), with a relatively light structure.
The potential upward driving forces for Metaplex's market value in the future include:
Apart from memes, other active tracks are emerging in the Solana ecosystem, further expanding the market for asset issuance, whether it is Depin, games, RWA, or long-cold NFTs.
Metaplex can go live on larger trading platforms, such as Binance or Coinbase, to gain better liquidity premiums (considering the project's quality and relatively low market cap, I think it is worth the listing team to consider, as projects with real business needs and positive cash flows are scarce in the market).
Directly increase service fees. The current base of charges is relatively low, and the project has the ability to raise prices. Even with a 100% increase, the fees paid to Metaplex for asset creation remain a very low proportion for users and can be ignored.
Of course, Metaplex also faces some potential risks and challenges, such as:
The decline of the Solana meme craze has led to a rapid decrease in asset minting numbers and a reduction in business revenue.
Metaplex's current income is charged once based on the types of assets created, and those projects with relatively fixed asset types cannot provide sustained revenue for Metaplex in the long term.
Summary
Contrary to the perception of most investors that 'Metaplex is an NFT asset protocol', in fact, Metaplex serves as a foundational protocol for all types of assets in the Solana ecosystem and is a direct beneficiary of the meme craze that has continued since the beginning of the year.
If we continue to be optimistic about the Solana ecosystem in the future, then Metaplex, occupying the 'asset issuance and management' upstream ecological position, is worth our long-term attention.
