CRYPTO VALUATION

Are yield farming tokens really undervalued?

Between huge opportunity and value trap

Published in
5 min readMay 10, 2021

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Yield farming is a fast-growing market with new competitors created every week. We can number at least 25 yield farming platforms, and that’s only on Binance Smart Chain. As always, I will try to give you rational explanations and an approach to detect opportunities but also how to avoid some traps. Let’s jump in and look at their current valuation.

How to determine their fair value?

In the Defi space, I like to use the golden ratio. I quickly explain it in a previous article about PancakeSwap valuation. I think it’s the more convenient way to value such tokens. Nonetheless, as I’m going to explain, we should restate some figures.

The golden ratio is the Fully Dilutive Valuation (or the market cap in the case of unlimited supply) divided by the Total Locked Value (TVL). You can also use an average of this ratio to smooth peaks in TVL or FDV. In absolute term, below 1x the token is undervalued; above 1x it’s overvalued; equal to 1x it’s fairly valued.

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ValExplorer
Coinmonks

DeFi analyst looking for undervalued cryptocurrencies across the blockchains.