Original article by: Alex Xu, Research Partner at Mint Ventures
1. Introduction
If you were to ask which L1 has the best business development in this bull market cycle, most people would answer: Solana.
Whether in terms of active addresses or transaction fee income, Solanas market share in L1 has expanded rapidly:
Active Addresses: Solana’s share of active addresses increased from 3.48% to 56.83%, a year-on-year increase of 1533%;
L1 monthly active address market share, data source: tokenterminal
Fees: Solana’s Fee revenue share increased 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 Solana’s core indicators during this cycle. In addition to Solana, Dex such as Raydium also benefited from the Meme wave. The active Meme transactions have contributed huge amounts of transaction and protocol revenue to it, and its price has recently reached a new high in this round.
In this article, I will focus on another project that will benefit from Solana’s massive asset issuance: Metaplex.
This article will present and discuss the following four questions:
What is Metaplexs business positioning and business model? Does it have a moat?
What are Metaplex’s business data and how is the business developing?
What is Metaplex’s team background and financing situation? How do you evaluate the project team?
What is the current valuation level of Metaplex? Is there any safety margin?
This article is the authors interim thinking as of the time of publication. It may change in the future, and the views are highly subjective. There may also be errors in facts, data, and reasoning logic. Criticism and further discussion from colleagues and readers are welcome, but this article does not constitute any investment advice.
The following is the main text.
2. Metaplex’s business positioning and business model
The Metaplex protocol is a digital asset creation, sales, and management system built on Solana and SVM-enabled blockchains, which provides developers, creators, and businesses with tools and standards for building decentralized applications. The types of crypto assets supported by Metaplex include NFT, FT (homogeneous tokens), real-world assets (RWA), game assets, DePIN assets, etc.
Metaplex has also recently expanded its business horizontally to other basic service areas of the Solana ecosystem, such as data indexing (Index) and data availability (DA) services.
In the long run, Metaplex is expected to become one of the most important multi-field basic service projects in the Solana ecosystem.
2.1 Metaplex Product Matrix
As an asset issuance, management and standard system, Metaplex serves both NFTs and homogeneous tokens. The products listed below constitute a comprehensive matrix serving Solana ecosystem assets.
Core
Core is the next-generation NFT standard on the Solana blockchain. Core adopts a single-account design, which greatly reduces the cost of minting and computing power, and supports advanced plug-ins and mandatory payment of royalties.
Background: Solana’s Account Model
In order to understand the advantages of the single account design architecture, you need to first understand the account model of the Solana blockchain and the storage method of traditional NFTs.
On the Solana blockchain, all state storage (such as token balances, NFT metadata, etc.) is associated with a specific account. Each account can store a certain amount of data, but the size of the account is limited, and rent needs to be paid to maintain the storage of this data. Therefore, how to efficiently manage accounts and store data on the chain is a key issue that developers on Solana need to consider.
Traditional NFT Design
In traditional NFT design, each NFT usually has multiple accounts to store different information. For example, a typical NFT may involve the following accounts:
Master account: stores the ownership information of the NFT (such as who is the current holder).
Metadata account: stores the metadata of the NFT (such as name, description, image link, etc.).
Royalty Account: Stores information related to creator royalties.
Although this multi-account design is more flexible, it will bring some problems in actual operation:
Complexity: Managing and interacting with multiple accounts adds complexity, especially when data needs to be queried and updated frequently.
Fees: Each account needs to pay rent to maintain its storage status, and more accounts means higher fees.
Performance: Since multiple accounts are involved, operations may require more blockchain resources, affecting performance and transaction speed.
Advantages of “Single Account Design”
In response to the above problems, Metaplex Core proposed the single account design standard. The single account design stores all NFT-related information (such as ownership, metadata, royalties, etc.) in one account, which simplifies the account structure, reduces account costs, improves interaction efficiency, and enhances the scalability of NFT. This design is particularly suitable for implementing large-scale NFT projects (such as games, Depin, etc.) on high-performance, low-cost blockchains such as Solana.
Bubblegum
Bubblegum is a program used by Metaplex to create and manage compressed NFTs (cNFTs). Through compression technology, creators can mint a large number of NFTs at a very low cost. The minting cost of 100 million NFTs is only 500 SOL (compared to the traditional minting method, the cost has been reduced by more than 99%), providing unprecedented scalability and flexibility. It is precisely because of the introduction of Bubblegum technology that large-scale and low-cost NFT minting has become possible. DePIN projects such as Render and Helium have begun to migrate to Solana, and have also spawned innovative NFT platforms such as DRiP. The following table lists the application examples of Bubblegum by these three representatives.
Token Metadata
The Token Metadata program allows additional data to be attached to homogeneous and non-homogeneous assets on Solana. Token Metadata is naturally important for information-rich NFTs, but in fact, most homogeneous token projects on Solana also need to use Token Metadata.
What most people don’t know is that all tokens created on Pump.fun, the largest meme distribution platform on Solana, rely on Metaplex’s metadata service. Now the biggest demand for Token Metadata no longer comes from NFTs, but from massively distributed meme projects.
For the Meme project, the benefits of using the Token Metadata program when issuing tokens are very obvious:
The first is to ensure the standardization and compatibility of its issued tokens. Using Metaplexs Metadata service, these tokens will be more easily recognized by mainstream wallets (such as Phantom, Solflare), and more easily displayed by trading platforms with their names, icons and other additional information, as well as seamlessly integrated by other Solana applications.
The second is to provide on-chain storage and transparency. The Metaplex Metadata service stores the metadata of tokens on the chain, making the information and data of tokens easier to verify and preventing tampering.
The additional information such as pictures and texts provide multi-dimensional materials for Meme speculation, making meme no longer just a name and a string of contracts, and providing materials for the dissemination, secondary creation and narrative of Meme.
New Meme tokens are constantly being refreshed on pump.fun. Source: pump.fun
As the Meme craze on Solana continues to heat up, more than 90% of Metaplexs protocol revenue has already been contributed by homogeneous tokens (Meme). This actual situation is inconsistent with the public perception that Metaplex is an NFT base protocol for the Solana ecosystem, and there is a serious cognitive gap.
Candy Machine
Metaplex’s Candy Machine is the most commonly used NFT minting and issuance program on Solana, enabling efficient, fair, and transparent launch of NFT collections.
Other product array
Other Metaplex services include:
MPL-Hybrid: A hybrid NFT storage and management solution that aims to combine the advantages of on-chain and off-chain storage to provide an efficient and economical storage method for NFTs. It is particularly suitable for storing large files (such as high resolution) or NFT projects that need to be dynamically updated.
Fusion: NFT merging function allows users to merge multiple NFTs into a new NFT, which can be used to enhance the users interactive experience and provide more gameplay for NFT projects. It can be used in games, collections, and art projects.
Hydra: An efficient, scalable, and large-scale NFT minting solution designed specifically for projects that need to mint large quantities of NFTs, such as games, social platforms, or loyalty programs.
…
Metaplexs existing product list (asset services category) is as follows:
Image source: Metaplex Developer Documentation Aura
Aura
In addition, in September, the Metaplex Foundation officially launched Metaplex Aura, a decentralized indexing and data availability network (testnet) for Solana and SVM. Through the indexing and data availability services provided by Aura, Solana and other blockchain projects that adopt the SVM standard can read asset data more efficiently, support batch operations at a lower cost, and reduce their operating costs by more than 99%, as shown below:
Comparison of the cost of large-scale asset operations after adopting Aura, source: Metaplex official
When the product preview was released, Metaplex also listed the cooperation agreements that support the product, many of which are well-known projects in the Solana ecosystem, and they will also be potential users of Aura in the future.
Source: Metaplex official Twitter
From asset service systems to data indexing and data availability service protocols, with the horizontal expansion of services, Metaplex is developing into a full-stack basic service platform for the Solana ecosystem.
2.2 Metaplex’s Business Model
Metaplexs business model is simple and easy to understand, which is to charge fees by providing services related to on-chain assets. Some of the services in the product array mentioned above are free, and some are charged.
Although Metaplexs direct partners are other projects on Solana, like a TOB expansion business, most of its fees come from small projects or retail users using large B-side projects, including project parties that create various types of homogeneous tokens, and individual users of Mint NFT.
In my opinion, charging decentralized users is a better business model than charging large-scale cooperative projects on the B side (such as Pump.fun), because:
Small project users or retail users make decisions more emotionally and are not as price sensitive as B-side users. This is because the price of Metaplex services accounts for a very low proportion of their total costs. The absolute cost paid by each small user is not high, but when the number is large enough, the total cost is very considerable.
B-side projects can become distribution channels for their services, helping Metaplexs services reach more decentralized users. Metaplex itself does not need to spend extra energy and costs on marketing and channels.
The user base is more dispersed and less concentrated, so it is more difficult to bargain with basic service providers such as Metaplex. Metaplex is able to maintain the profit margin of its products and even raise prices when appropriate.
Specifically, the fees for Metaplex products on Solana are as follows:
Image source: Metaplex developer documentation
It can be seen that the absolute charge for a user to call Metaplexs product service is actually not expensive. For example, the fee for a user to mint an NFT is only 0.0015 SOL; a Meme issuer only needs 0.01 Sol to use Token Metadata to add graphic and text introductions to his Meme project. Such costs are negligible or basically negligible compared to the users expected benefits.
Of course, it should be noted that the issuance of a large number of homogeneous tokens represented by Meme has brought income to Metaplex on the one hand, but the sustainability of the Meme craze is questionable on the other hand, which will also affect the sustainability of Metaplexs income. Even for a strong like Solana, the fluctuation of its Meme popularity is also quite large. In the coldest week of September, the number of new tokens on Dex was only about 1/3 of the hottest week in May, and in mid-November, this number doubled 10 times.
The number of new tokens added to Solana Dex each week. Source: Dune
2.3 Metaplex’s Moat
In the business world, the moat of an enterprise or project may come from many advantages, such as cost advantages brought by scale and geographical location, value accumulation brought by network effects, high user stickiness and premium ability brought by brand effects, and competitive barriers brought by administrative franchises and patents.
For projects with strong moats, in the competitive landscape, when later competitors enter the same track, they find it difficult to catch up, or the comprehensive cost of catching up is very high, so high that it is far greater than their expected returns, so that there are relatively few competitors in this track; financially, it is reflected in the projects steadily increasing profitability, and the proportion of marketing and development costs relative to revenue is not high.
In the Web3 field, there are not many projects with strong moats, such as Tether in the stablecoin field and Aave in the centralized lending field.
In my opinion, 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 Metaplexs tools and protocols for asset issuance and management, they will inevitably face high time, technical and economic costs if they want to switch the projects assets to other protocols for management.
Second, when the Metaplex asset format (including NFT and FT) becomes the standard within the Solana ecosystem and becomes a consensus for compatible design of various infrastructures and applications within the ecosystem, it will also become a priority for new developers and projects to choose Metaplex asset formats with stronger ecological compatibility when choosing asset service platforms.
Thanks to Metaplexs moat, there is currently a lack of projects in the Solana ecosystem that can compete with it, which ensures Metaplexs strong profitability, and this part will be analyzed in the next section.
In addition to asset services, the data indexing and data availability services that Metaplex is currently testing are also expected to create a second business growth curve for Metaplex in the future. Considering that the target of this service is highly overlapping with Metaplexs original customer base, its newly expanded business may also be more easily accepted and experienced by existing cooperative customers.
3. Metaplex business data: PMF is fully confirmed, and core data grows strongly
Metaplex’s current core business is to provide asset-related services. We can observe the core indicators such as the number of active users of its services, the number of asset minting projects, and protocol revenue.
3.1 Metaplex Monthly Active Users
Metaplex monthly active users refer to the unique addresses that have transacted with the Metaplex protocol each month.
Metaplex monthly active addresses, data source: Metaplex Public Dashboard, the same below
We can see that as of the date of this writing (2024.11.30), Metaplexs latest monthly active user count is 844,966, a new monthly record high and a year-on-year increase of 253%.
3.2 Number of assets minted by the agreement
The number of assets minted by the protocol refers to the types of assets minted through the Metaplex protocol
Metaplex monthly asset casting types
As of the date of this writing (2024.11.30), Metaplex’s data also hit a record high, with the total number of minted asset types exceeding 1.44 million in November.
What is more noteworthy is that 94% of the assets are homogeneous tokens, and only 6% are NFTs. In January this year, this figure was 18.6% to 81.4%, which means that from the perspective of business volume, Metaplex’s main business is now homogeneous token asset services, not NFT services. Most of the minting and issuance of homogeneous assets came from the Meme craze.
Metaplexs monthly asset minting ratio
3.3 Agreement income
Agreement Revenue refers to the payments Metaplex receives for providing services.
Metaplex Monthly Protocol Revenue
As of the date of this writing (2024.11.30), Metaplexs monthly contract revenue reached US$3.3 million, also a record 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, Metaplexs business revenue is quite organic and does not involve direct token subsidies. It is a typical project that has achieved PMF (product-market fit).
From the data in this section, we can see:
As the underlying asset protocol, Metaplex directly benefits from the development of Solana’s ecosystem. Its core indicators rise in tandem with Solana’s core indicators, especially protocol revenue.
Metaplex benefits from the activity of both NFT and FT. It is not just an NFT asset service agreement. After Meme, if Solana can emerge with more active tracks, such as Depin, games, and RWA, the demand space for Metaplex will be further opened up.
Metaplex’s business needs are organic and it does not rely on token subsidies to generate revenue
Next, let’s take a look at the team behind the Metaplex project and the situation of the project token.
4. Metaplex team: an ecological OG 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 Stanfords symbolic systems major (which focuses on the design of human-computer interaction systems), Stephen Hess was also one of Solanas earliest employees (Solana had just been launched for a year when he joined). At that time, Solana co-founder Raj invited him to join Solana as the head of the product department. During his tenure, he was involved in the development of Solana Stake Pools (Solanas staking system), SPL governance system, and Wormhole. He was also a member of the team for the first version of Solanas NFT standard, which eventually evolved into Metaplex.
In January 2022, shortly after Metaplex was founded, Metaplex received a strategic investment of US$46 million from institutions such as Multicoin, Jump and Alameda. Based on the 10.2% share corresponding to the strategic round of financing in the token allocation table, it can be estimated that the valuation of Metaplexs US$46 million financing at the time was about US$450 million, which was a very high first-round valuation even during the bull market.
Just as Metaplex was about to celebrate its first anniversary, in November 2022, FTX collapsed due to huge financial bad debts. Although Metaplexs financial situation was not directly affected by the collapse of FTX, Stephen Hess quickly announced the decision to lay off employees on Twitter, and was ready for the impending depression of the Solana ecosystem at the time. Later, it was proved that his approach at the time was very correct. He had a clear understanding of the future and did not have the habit of spending money lavishly like many Web3 teams in cost control.
According to Metaplexs current Linkedin information, the team size is more than 10 people, which is still quite lean. However, judging from the project work reports it releases monthly, this lean team has strong delivery capabilities and enterprising spirit in products, and is very efficient in product iteration and new product development.
Metaplexs monthly work report, source: official blog
Looking back at the work experience and project development history of Metaplex’s founder, Metaplex basically meets the author’s comprehensive conception of an excellent Web3 team:
The core members have education, work skills and experience backgrounds that match the entrepreneurial project and have no bad credit records.
Close to the core circle of the public chain ecosystem, with smooth dialogue channels, and product concepts recognized by the public chain ecosystem community
Good product sense (few detours), hardworking, and good delivery
Have cost control awareness and don’t spend money recklessly
Received top VC investment in the industry and possessed excellent comprehensive business resources
In addition, 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. These tokens were originally held by FTX. The comprehensive cost of the purchase was roughly US$0.2-0.25 (with certain lock-up terms).
5. MPLX: Token Utility and Valuation Levels
5.1 Basic information of tokens
Metaplexs protocol token is MPLX, with a total supply of 1 billion.
Image source: Project White Paper
The specific token distribution is as follows:
Creators and early supporters 21.9%, of which 50% will be distributed in the form of airdrops within one year (the first airdrop will start in September 22), and the remaining 50% will be released monthly in the following year;
Metaplex DAO 16%, no lock-up, distributed according to DAO proposal;
Metaplex Foundation 20.31%, no lock-up;
10.2% for the strategic round, 50% of which will be issued one year after the first airdrop (September 22), and the remaining 50% will be unlocked monthly in the following year;
Partner Everstake 10%, locked for two years (locked until September 2024), linearly released in one year, unlocking in progress;
Metaplex Studios 9.75%, locked for one year (locked until September 2023), released linearly over two years, unlocking in progress;
The community airdropped 5.4%, which will be released immediately;
Founding consultants account for 3.34%, which is locked for one year and released linearly over one year. All of them have been unlocked.
3.1% for the founding partners, locked for one year, released linearly over one year, all unlocked.
According to the current official circulation data, the circulation rate of MPLX is 75.6%, and most of it is already in circulation, especially the investors shares, which have basically been circulated, and the unlocking selling pressure is relatively small.
The “uncirculated” portion of the total comes mostly from shares controlled by Metaplex DAO and the Metaplex Foundation, tokens held by the treasury, and portions not unlocked by Everstake and Metaplex Studios.
5.2 Token Utility
Currently, the utility of MPLX is mainly governance voting. In addition, Metaplex announced in March 2024 that it will use 50% of the protocol revenue to repurchase tokens (including historical accumulated protocol revenue) in the future. The repurchased tokens will enter the treasury and be used to develop the protocol ecosystem.
The protocol officially began to repurchase tokens in June of 24 years. Since then, 10,000 SOL has been used to repurchase MPLX tokens every month, which has lasted for 5 months so far.
Due to the rapid increase in protocol revenue, Metaplex will increase the monthly amount of protocol repurchase from 10,000 SOL to 12,000 SOL next month.
In addition to governance and repurchase, the next scenario of MPLX will be activated by the Aura function mentioned above. After the Aura function is officially launched, MPLX is expected to become the pledged asset of the Aura node and capture the income generated by Aura.
5.3 Protocol Valuation
When measuring the valuation of Metaplex, we still use the comparative valuation method, but considering that Metaplex has no competing projects in the same track as Solana, the author finally chose Raydium, which belongs to the Solana ecosystem, has also benefited from the Meme craze this year and has greatly increased its protocol revenue, and also has a repurchase mechanism, as a reference for comparative valuation.
From the comparison between protocol revenue and protocol market value, Metaplex has a higher valuation.
However, it should be emphasized that although the two projects have some similarities, they are still two tracks of an ecosystem with very different business positioning. The above valuation comparison only has a certain reference value.
5.4 Potential drivers and risks
Overall, the advantages of Metaplex are obvious:
Located in the upstream ecological niche of the asset service track, it has the right to formulate asset standards and directly benefits from the prosperity of the Solana ecosystem
The product PMF has been fully verified, can achieve positive cash flow without relying on token subsidies, and has a relatively clear business moat
Actively expand the second growth curve based on existing business
The team has good overall quality, is close to the core circle of the ecosystem, is diligent and enterprising, and has a sense of cost control
The token has a repurchase mechanism, and the absolute market value of the project is relatively low (circulating market value of 260 million+, FD V350 million+), so the plate is relatively light.
The potential upward drivers of Metaplex’s market value in the future are:
In addition to Meme, the Solana ecosystem has other active tracks, further expanding the market for asset issuance, whether it is Depin, games, RWA, or NFT, which has been cold for a long time.
Metaplex can be listed on larger trading platforms, such as Binance or Coinbase, to obtain better liquidity premiums (in terms of the quality of the project and the lower market value, I think it is worth considering for the coin listing team. Projects with real business needs and positive cash flow are scarce in the market)
Directly increase the service fee. The current base of the fee is low, and the project has the ability to raise the price. Even if the price is increased by 100%, the asset creation fee paid to Metaplex is still extremely low for users and can be ignored.
Of course, Metaplex also faces some potential risks and challenges, such as:
Solana Meme craze fades, causing asset minting to drop rapidly and business revenue to decrease
Metaplex’s current revenue is a one-time payment based on the type of assets created. Projects with relatively fixed asset types cannot bring Metaplex sustained income in the long term.
Summarize
Contrary to the impression of most investors that Metaplex is an NFT asset protocol, in fact, Metaplex is a basic protocol that serves all types of assets in the Solana ecosystem, and is a direct beneficiary of the Meme craze that has continued from the beginning of the year to the present.
If we continue to be optimistic about the Solana ecosystem in the future, then Metaplex, which occupies the upstream ecological niche of asset issuance and management, is worthy of our long-term attention.
