Forward the Original Title‘深入 Metis：探讨其投资前景’

TL;DR

• Metis, as the first Ethereum rollup to adopt decentralized sequencers, has distinctively positioned itself in the competitive Layer 2 landscape with its unique value proposition, multifaceted bullish catalysts, and competitive valuation.
• In the mid to long term, Metis is expected to experience significant growth driven by four major bullish catalysts: the implementation of the Dencun Upgrade, the introduction of spot Ethereum ETF, the launch of a sequencer pool, and the ecosystem expansion driven by the Metis Ecosystem Development Fund.
• To provide further insights into a reasonable valuation for $METIS, we developed a valuation model based on comparative analysis, considering factors such as total value locked, stablecoin amount, and DEX volume. The result indicates a potential price range of $188.17 to $258.29 for $METIS, suggesting that $METIS has the potential to experience a 2 to 2.9-fold increase from its current market price.
• Looking Ahead, Metis presents considerable growth potential. The imminent launch of its sequencer pool is poised to ignite liquid staking and restaking narratives into its ecosystem, potentially catalyzing a new influx of capital, and the Metis EDF could help it to bridge the gap with leading competitors such as Arbitrum and Optimism in terms of ecosystem robustness.

1. Introduction

As the market witnessed a significant resurgence since Q4 2023, various narratives regained momentum, with associated tokens demonstrating strong performance. While Bitcoin-related narratives like spot ETFs and BRC-20/Ordinals have been the major drivers of recent bull runs, signs indicate that the excitement around these narratives is cooling, as evidenced by the slowdonw of inscriptions activiities and Bitcoin entering a correction phase. This shifting market sentiment presents an opportune moment to identify potentially trending narratives for future uptrends. In this context, Metis, with its unique value proposition, multifaceted bullish catalysts, and competitive valuation compared to other Layer 2 (L2) tokens, has caught our attention.

Our previous report, “@GryphsisAcademy/diving-into-metis-the-unique-layer-2-solution-for-true-decentralization-80645f76b4be">Diving into Metis: The Unique Layer 2 Solution for True Decentralization,” offered a comprehensive analysis of Metis from a fundamental standpoint, exploring its technical features and recent developments. In this report, we shift our focus to an investment perspective on Metis. We begin with a brief overview of Metis and its key bullish catalysts. We then delve into Metis’s valuation, primarily through comparative analysis, to assess its potential in the current market. Finally, we conclude with insights into Metis’s future prospects and strategies for considering investment positions in $METIS.

2. A Recap on Metis

Launched in May 2021, Metis is an Ethereum Layer 2 (L2) scaling solution designed to enhance the efficiency and scalability of decentralized applications (dApps) and their users. What distinguishes Metis from its peers are its three core features: decentralized sequencer, hybrid rollup technology, and versatile token utilities. A critical challenge faced by major Ethereum rollups is the reliance on centralized sequencers, which poses a single point of failure and contradicts the foundational ethos of blockchain and cryptocurrency.

While networks like Arbitrum and Optimism are developing fraud-proof and validity-proof systems to bolster network decentralization, tangible progress in decentralizing sequencers remains elusive. This situation raises concerns not only about network control and revenue concentration but also about the potential risks to the network and broader crypto community if these centralized sequencers are compromised.

In contrast, Metis is on track to become the first Ethereum rollup to decentralize its sequencer. This pivotal move not only addresses critical security concerns but also demonstrates Metis’s commitment to a community-centric model. By decentralizing the sequencer, Metis not only enhances network resilience but also ensures a more equitable distribution of sequencer-generated revenue among its users. This approach reflects a significant shift towards aligning network operations with the decentralized principles of the broader cryptocurrency ecosystem.

Introduced in March 2023, hybrid rollup merges the optimistic rollup framework with zero-knowledge proofs, and represents one of the highest development priorities for Metis. The primary objective of this hybrid approach is to combine the scalability benefits of optimistic rollups with the security and finality features inherent in zero-knowledge rollups.

In the realm of rollups, two critical metrics are confirmation time and finalization time. Currently, optimistic rollups offer rapid confirmation times but are hampered by extended finalization periods due to the 7-day challenge window. In contrast, zero-knowledge proofs can validate transaction authenticity almost instantaneously once the prover generates the proof and the verifier confirms it. As such, the synergy between the two technologies could significantly enhance Ethereum’s scalability.

Upon successful implementation, Metis’s hybrid rollup will introduce several significant improvements. Key among these are accelerated transaction finality, reducing the waiting period from 7 days to just 4 hours. Additionally, the incorporation of zk proofs promises to bolster the overall security of transactions. Moreover, the efficient data management enabled by zk proofs will ensure that each transaction contains only the essential data, thus boosting network throughput.

$METIS, the native token of Metis, distinguishes itself from other Layer 2 tokens like $ARB and $OP through its multifaceted utilities. While $ARB and $OP primarily function as governance tokens, $METIS extends its utility to Proof-of-Stake (PoS) staking and network gas usage. The dual role of $METIS as both a staking and gas token infuses it with fundamental value. As Metis’s network adoption and usage increase, so too does the demand for $METIS, driven by its tangible utility within the network’s operations. In the context of governance, while decentralized ethos often makes governance a key aspect of token utility, the opportunity for users to earn additional yield through staking can be far more compelling, particularly for retail investors who are typically profit-driven. Therefore, the utility of $METIS adds a significant layer of appeal, setting it apart in a crowded field of Layer 2 tokens.

For more details on the technical features of Metis, check out @GryphsisAcademy/diving-into-metis-the-unique-layer-2-solution-for-true-decentralization-80645f76b4be">our previous report.

3. Bullish Catalysts

3.1 Dencun Upgrade

The upcoming Dencun upgrade for Ethereum, set for release this year, is a significant development for the Ethereum network, with EIP-4844 being its standout feature. This upgrade aims to substantially reduce fees on L2 solutions by introducing a new transaction type known as “Blobs.” Current estimates suggest that Blobs could reduce L2 fees by up to 90%. Such a drastic reduction is expected to boost network activity on L2s, including on platforms like Metis.

According to data from L2Fees, Metis already ranks as the second most cost-effective option for sending $ETH and the third most affordable for token swaps. The implementation of the Dencun Upgrade is likely to further enhance Metis’s fee advantage, potentially leading to increased activity on its network.

Moreover, major upgrades like Dencun often spark market speculation, particularly around $ETH and ETH Beta tokens. Market participants tend to actively engage in speculation leading up to significant updates. As a major Ethereum L2 token, $METIS is likely to see an inflow of speculative capital as the Duncun Upgrade nears, leading to heightened trading activity and increased interest in the token.

3.2 Spot Ethereum ETFs

The narrative surrounding spot ETFs, particularly for Ethereum, is gaining significant traction. Following the approval of spot Bitcoin ETFs, it’s logical to anticipate Ethereum as the next asset in line for similar regulatory acceptance. The potential approval of a spot Ethereum ETF would not only signify government recognition and enhance its reputation but could also lead to considerable capital inflows, exerting upward pressure on its price.

While Ethereum does possess characteristics distinct from Bitcoin, possibly complicating its approval process, this could result in multiple speculation events as the market trying to bet on the approval everytime relevant news is released and deadlines are approaching. This happens to Bitcoin, and is highly likely for Ethereum too, especially there are other narratives surrounding Ethereum, such as the Dencun Upgrade. Despite the spot Bitcoin ETFs approval appears the be a “sell the news” event as Bitcoin is now in a correction phase, the introduction of spot ETFs has made accessing Bitcoin easier than ever for the general public, offering undeniable long-term benefits.

As such, Ethereum Layer 2 tokens, particularly those with robust value propositions like $METIS, stand to benefit significantly. As Ethereum experiences price appreciation, its associated Layer 2 tokens, often referred to as ‘ETH Beta,’ could see amplified gains due to their smaller market capitalizations. Metis, with its unique features and solid value proposition, is well-positioned to potentially outperform its peers during such market developments.

3.3 Sequencer Pool and Liquid Staking/Restaking Narrative

Metis’ decentralized sequencer stands as one of its most significant value propositions, driving much of its recent market attention. The sequencer pool is currently undergoing Phase 1 of its three-phase community testing. In this phase, users engage with Metis dApps on the Sepolia testnet, while developers conduct stress tests and refine the sequencer pool in preparation for its mainnet launch. This community testing phase is a strong indicator of the progress in the sequencer pool’s development and suggests an imminent launch. Successful deployment is anticipated to positively influence the price of $METIS, as major protocol upgrades often act as powerful catalysts in the crypto market. Moreover, due to market inefficiencies, prices tend to rise even after such news has been public for some time.

The launch of the sequencer pool will also introduce liquid staking/restaking to the Metis ecosystem, a narrative that has gained significant traction in DeFi, evident from the growth of Ethereum liquid staking ecosyste, in the past year. Liquid staking offers numerous possibilities, such as the development of lending protocols and collateral debt positions based on $stMETIS, or restaking protocols that leverage various forms of staked $METIS tokens.

These applications could substantially increase the TVL of the Metis network and boost demand for $METIS, potentially creating a virtuous cycle of growth. Even if Metis’ liquid staking ecosystem doesn’t reach the scale of Ethereum’s, achieving a fraction of it still indicates substantial growth potential. Once liquid staking in the Metis ecosystem starting to gain traction, there is also a potential for a supply shock in $METIS.

3.4 Upcoming Ecosystem Growth

When evaluating the intrinsic value of a L2 token, it’s important to consider the extent of economic activities supported by the network. This reflects the usage and adoption of the network itself. Therefore, events that stimulate economic activities within an L2 network’s ecosystem can be viewed as bullish catalysts for its native token.

In December 2023, Metis launched the Metis Ecosystem Development Fund (“Metis EDF”), a substantial initiative with 4.6 million $METIS allocated to foster development, liquidity, activity, and broader adoption within the Metis ecosystem. The majority of this fund is earmarked for incentivizing sequencer staking, with about 35% dedicated to ecosystem development. Similar initiatives, like Arbitrum’s STIP and Optimism’s RetroPGF, have positively impacted their ecosystems. Given that protocols within Metis are generally smaller in scale compared to those on Arbitrum and Optimism, the Metis EDF is expected to have an even more pronounced impact. Smaller-cap tokens typically offer higher percentage returns, potentially attracting yield-seeking users to the Metis ecosystem in pursuit of significant gains.

Developers play a key role in the growth of a network’s ecosystem. The presence of even a single popular dApp can dramatically increase a chain’s TVL, with GMX on Arbitrum serving as a prime example. On January 8, WAGMI announced its deployment on Metis. Developed by Daniele Sestagalli, a renowned developer whose projects have attracted billions of dollars in TVL to ecosystems like Avalanche and Fantom, WAGMI’s move to Metis is seen as a positive development. While it’s premature to claim that WAGMI will replicate Daniele’s past success, this deployment certainly adds a positive dimension to Metis’s growth trajectory and is indicative of developers’ recognition to the network’s growth potential. Additionally, to onboard new projects, the Metis community utilizes a platform named Candidac for project approvals. Currently, Candidac has over 30 projects in its approval queue, highlighting the growing interest in the Metis ecosystem. This also serves as a testament to the confidence builders have in Metis’s potential and capabilities.

4. Valuation

To provide further insights into a reasonable valuation for $METIS, we developed a valuation model based on comparative analysis, which involves selecting specific metrics to evaluate $METIS’s relative standing within the L2 landscape. The objective of this model is to estimate a potential price range for $METIS by assuming it achieves the average or median performance of the sector. The model also incorporated a range of discounts and premiums into its calculations considering the influence of both bullish and bearish factors on token price

The analysis began with gathering market data for various L2 networks. This data includes key metrics such as price, market capitalization, fully diluted value, total value locked , the amount of stablecoins on each network, and the 30-day decentralized exchange volume. From this data, we calculated three ratios: FDV/TVL, FDV/Stables, and FDV/Volume. We chose TVL, stablecoins, and DEX volume as our key metrics because they are indicative of an L2 network’s robustness. Together, these metrics provide a view of an L2 network’s economic health and activity, which are vital for assessing the valuation of its associated token.

Our analysis then calculates the ranges for each of the three metrics (FDV/TVL, FDV/Stables, and FDV/Volume) using both average and median values. This approach is taken to mitigate potential biases that could result from relying exclusively on extreme values within the data set. By considering both the average and median, we aim to achieve a more balanced and representative understanding of $METIS’s position within the L2 space.

To further refine the analysis and account for potential market variations, we introduce a discount-premium range of -10% to +10%. This range is applied to the lower and higher ends of the calculated price range for $METIS. Specifically, the lower end of the price range is derived by taking the lesser of the average or median value for each metric and multiplying it by 0.9 (representing a 10% discount). Conversely, the higher end of the price range is obtained by taking the greater of the average or median value for each metric and multiplying it by 1.1 (representing a 10% premium).

In determining the final price range for $METIS, our valuation model applies a weighted average to the price estimates derived from the three ratios: FDV/TVL, FDV/Stables, and FDV/Volume. The weighting is distributed as follows: 40% for FDV/TVL, 20% for FDV/Stables, and 40% for FDV/Volume. This allocation reflects the belief that FDV/TVL and FDV/Volume are more indicative of a network’s economic activity compared to the stablecoin amount. The outcome of this weighted approach yields a final price range of $188.17 to $258.29 for $METIS. This range suggests that $METIS has the potential to experience a 2 to 2.9-fold increase from its current market price.

Please note that this model and its results are based on current market conditions and assumptions about the relative importance of different metrics. Actual market performance may vary due to a multitude of factors, including but not limit to changes in market dynamics, broader economic conditions, and specific developments within the Metis network or the broader Layer 2 ecosystem. Therefore, the presented price range should be considered as a rough assesment but not as a definitve future price. Readers should consider this model as one of many tools in their decision-making process and should conduct their own research and analysis before making investment decisions.

5. Idea Expression

From a fundamental perspective, $METIS appears attractive due to its unique value proposition, upcoming bullish catalysts, and potential for strong market cap growth. One strategy to leverage bullish market factors involves trading these events. However, this demands precise market timing and considerable expertise in selecting entry points, particularly when employing leverage. For many retail investors, an effective strategy to leverage these positive factors could be dollar-cost averaging (“DCA”). This approach involves investing a fixed dollar amount at regular intervals, which helps in building a position over time while mitigating the impact of market volatility.

DCA allows investors to contribute to their investment irrespective of market conditions, thus reducing the emotional stress often associated with market timing, a common challenge in the volatile crypto market. The strategy also averages out the purchase price over time. When bullish catalysts materialize, investors might consider de-risking a portion of their holdings. The extent and timing of such actions would depend on individual investment goals, time horizons, and risk tolerance

It’s crucial to note, however, that this strategy operates under the assumption of a positive long-term outlook for the token. Hence, thorough research and due diligence are essential before initiating any investment. Given the unpredictable and highly volatile nature of the crypto market, it’s also important to only invest funds that one can afford to lose.

6. Conclusion

Metis, as the first Ethereum rollup to adopt decentralized sequencers, has distinctively positioned itself in the competitive L2 landscape. This move towards enhanced decentralization is a significant step, showcasing Metis’ commitment to aligning with the core values of the crypto community. It’s encouraging to see projects like Metis not just acknowledging the importance of decentralization but actively pioneering in this realm.

Looking forward, Metis presents considerable growth potential. The imminent launch of its sequencer pool is poised to ignite liquid staking and restaking narratives into its ecosystem, potentially catalyzing a new influx of capital. Additionally, the Metis EDF plays a pivotal role in accelerating the growth and development of the network’s ecosystem, helping to bridge the gap with leading competitors such as Arbitrum and Optimism. Given these developments, Metis remains a focal point of our attention, and we will continue to closely track its progress and future developments.

Disclaimer：

1. This article is reprinted from [@GryphsisAcademy/diving-into-metis-a-look-into-its-investment-perspectives-6b33296ee72f">Gryphsis Academy]. Forward the Original Title‘深入 Metis：探讨其投资前景’. All copyrights belong to the original author [Gryphsis Academy]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
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