A version of this article appeared in our The Decentralised newsletter on December 2. Sign up here.Hey all, Liam here. Decentralised finance has a reputation for pulling projects’ valuations out of thin air, but new research suggests those values aren’t just a fugazi.Greenfield, a Berlin-based venture firm, argues that three key metrics provide far more explanatory power for why valuations move in any direction than any other variable. By closely tracking the fees a protocol generates, its total value locked, and its revenue, Greenfield concludes that investors can typically make better bets on which projects will succeed. What’s more, a model that uses these indicators typically outperforms analytical models that track Bitcoin and Ethereum performance, as well as models that incorporate social sentiment, such as followers on X. This thesis holds at three and six-month horizons. Most importantly, however, it shows that the so-called fundamentals narrative that’s been kicking around X this year is much more than a meme.“The longer you give the market to play out, the more you actually see that there is a divergent performance based on fundamentals versus just everything being correlated to broader market moves,” Felix Machart, a partner at Greenfield and the paper’s co-author, told DL News.It’s not a silver bullet, of course. Investors also need to be aware of temporary spikes in activity related to token incentives, as well as a product’s defensibility amid mounting competition.And fickle social sentiment can create a noisy investing landscape, at least in the short term. Over one month, for example, fundamental measures offer less explanatory power for valuations than the model that tracks the price of Bitcoin and Ether alone, according to Greenfield’s analysis. The analysts also highlight the importance of a token’s volume on decentralised exchanges, active users, daily transactions, and a protocol’s treasury value as additional metrics, albeit with less explanatory power. Maturing marketsFor those outside of the crypto space, the analysis seems pretty intuitive. A company’s stock will typically rise if it experiences higher revenues quarter after quarter. So, why shouldn’t DeFi protocols?For one, protocols aren’t companies. Their decentralised nature and how they create investor value can differ. Machart says, for instance, that one can consider token buybacks and yield from staking as revenue, since value accrues to token holders regardless. DeFi protocols are also far younger than traditional capital markets. Greenfield’s analysis, spanning 2021 to 2025, isn’t the final word on the matter, either. Far from it. The report ends with additional research questions to expand the data set used, incorporate even more onchain analytics, and extend the timeline for measuring the thesis. Still, the analysis is meaningful — especially as institutional investors begin tiptoeing into the sector. “It just proves that you can invest based on an expectation of future fundamentals playing out,” Machart said. “Market outcomes are not just random and purely hype driven.”“We actually can see trends that show the market is maturing.”Liam Kelly is DL News’ Berlin-based DeFi correspondent. Have a tip? Get in touch at [email protected].A version of this article appeared in our The Decentralised newsletter on December 2. Sign up here.Hey all, Liam here. Decentralised finance has a reputation for pulling projects’ valuations out of thin air, but new research suggests those values aren’t just a fugazi.Greenfield, a Berlin-based venture firm, argues that three key metrics provide far more explanatory power for why valuations move in any direction than any other variable. By closely tracking the fees a protocol generates, its total value locked, and its revenue, Greenfield concludes that investors can typically make better bets on which projects will succeed. What’s more, a model that uses these indicators typically outperforms analytical models that track Bitcoin and Ethereum performance, as well as models that incorporate social sentiment, such as followers on X. This thesis holds at three and six-month horizons. Most importantly, however, it shows that the so-called fundamentals narrative that’s been kicking around X this year is much more than a meme.“The longer you give the market to play out, the more you actually see that there is a divergent performance based on fundamentals versus just everything being correlated to broader market moves,” Felix Machart, a partner at Greenfield and the paper’s co-author, told DL News.It’s not a silver bullet, of course. Investors also need to be aware of temporary spikes in activity related to token incentives, as well as a product’s defensibility amid mounting competition.And fickle social sentiment can create a noisy investing landscape, at least in the short term. Over one month, for example, fundamental measures offer less explanatory power for valuations than the model that tracks the price of Bitcoin and Ether alone, according to Greenfield’s analysis. The analysts also highlight the importance of a token’s volume on decentralised exchanges, active users, daily transactions, and a protocol’s treasury value as additional metrics, albeit with less explanatory power. Maturing marketsFor those outside of the crypto space, the analysis seems pretty intuitive. A company’s stock will typically rise if it experiences higher revenues quarter after quarter. So, why shouldn’t DeFi protocols?For one, protocols aren’t companies. Their decentralised nature and how they create investor value can differ. Machart says, for instance, that one can consider token buybacks and yield from staking as revenue, since value accrues to token holders regardless. DeFi protocols are also far younger than traditional capital markets. Greenfield’s analysis, spanning 2021 to 2025, isn’t the final word on the matter, either. Far from it. The report ends with additional research questions to expand the data set used, incorporate even more onchain analytics, and extend the timeline for measuring the thesis. Still, the analysis is meaningful — especially as institutional investors begin tiptoeing into the sector. “It just proves that you can invest based on an expectation of future fundamentals playing out,” Machart said. “Market outcomes are not just random and purely hype driven.”“We actually can see trends that show the market is maturing.”Liam Kelly is DL News’ Berlin-based DeFi correspondent. Have a tip? Get in touch at [email protected].