Due Diligence on Blockchains

How to do due diligence on cryptocurrencies like they were companies.

Due Diligence on Blockchains
Photo by Scott Graham / Unsplash

This week, the guys over at Bankless dug into a mechanism to diligence cryptocurrencies: daily fees to issuance rates. The primary thing blockchains are “selling” is blocks (space to transact on the blockchain) and that is “paid for” in the form of transaction fees. One can calculate a daily income for a blockchain by way of the daily fees generated.  The other side of this is viewing the amount blockchains pay people to secure the blockchain, either via mining, staking, etc, as their “expenses”.  This is measured by the daily issuance rate of a blockchain – eg. how much of a token is printed and distributed to people helping to secure the blockchain.

Early in a blockchain’s lifecycle, one would expect the issuance rate to be much higher than the fee rate, and for that ratio to adjust over time as the ecosystem grows and the demand grows for blocks on the blockchain.  Here’s a relevant breakdown of some of the largest cryptocurrencies:

Blockchain Issuance Rate 7 Day Daily Fee Avg
Ethereum $53,496,833 $33,681,031
Bitcoin $41,104,684 $510,344
Compound $1,558,634 $795,684
Aave $707,168 $1,225,690