Preface
This article aims to learn and spread knowledge related to REV, so that we can have a more comprehensive evaluation and interpretation of the public chain. We should learn knowledge inclusively, look at the existing debates on REV dialectically, and avoid using any indicator parameters in isolation to avoid some potential negative effects.
1. Related articles:
Valuing blockchains: The great REV debate
2. Important boards:
Chain Comparison: Overview - Analytics Dashboard - Blockworks
3. REV Interpretation:
3.1 What is REV?
REV stands for Real Economic Value, which is an indicator that measures the total amount of fees paid by users to the public chain.
REV stands for Real Economic Value and is a measure of how much users pay to use a chain, in total.
REV is to public chains like revenue is to businesses. Evenue is to businesses as REV is to Chains.
"REV consists of both in-protocol transaction fees and out-of-protocol tips that users pay for transaction execution, so it measures the [aggregate] monetary demand to transact onchain." - @blockworksres
- But of course there are differences in details, and it is not completely equivalent to the concept of revenue for a company, and there are also many controversies here.
- Note that the "/" in ∑ (Out of protocol tips/MEV) after the formula should be a parallel relationship, not a division relationship. The complete formula should be as follows to reduce ambiguity:
- REV = ∑(In-protocol fees) + ∑(Out-of-protocol tips) + ∑(MEV)
- It is not recommended to pay attention to the authenticity of specific data and the implementation path here, because the marginal return rate of digging and verifying these data is low. We know the calculation method and the ready-made data dashboard as a reference for valuation.
There is currently widespread debate in CT about whether REV should be maximized:
- **REV Maxis：**We believe that maximizing REV will help reduce the marginal cost of the network/expand the user base/achieve sustainable revenue growth.
- **REV Minimalists:** believe that REV is a poor long-term value indicator because it will soar during speculative bubbles and is not suitable for blockchains like Bitcoin where REV is almost zero. The minimum viable REV should be implemented to reduce its possible negative economic impact.
However, the focus of this article is not to discuss whether REV should be maximized or minimized, but only to focus on the application of REV itself and what kind of help and reference it can bring to us. Readers are requested to think rationally and view this indicator dialectically.
3.2 Recent Features
The REV share data within 5 years shows that:
- ETH is dominant in 2020-2023;
- In 24 years, SOL took the new leadership position;
- TRON’s REV is also considerable and is also increasing.
Judging from REV in the past three months, SOL, TRON, and ETH are the leaders of REV, corresponding to the above figure.
If we directly compare it with the on-chain income, the biggest feature directly reflected by REV is that it greatly increases the influence weight of non-user-side income factors.
The calculation formula of REV tells us that it includes Out of Protocol Tips (or MEV) in addition to user needs. Therefore, it is not difficult to find that among all public chains, Solana's MEV can significantly help improve its REV, thereby further improving its potential valuation space (the valuation application of REV will be mentioned later, so I will not expand on it here).
We invited DeepSeek to help us summarize the linkage analysis method of the two indicators:
3.3 Advantages and Disadvantages of REV (@mteamisloading)
advantage:
- Compared to the number of active addresses and transaction volume, REV is more difficult to manipulate, especially when part of REV is destroyed;
- It can well indicate the historical activity of retail investors in each chain.
shortcoming:
- Has a certain hysteresis;
- It cannot reflect the entire situation of a public chain, and valuation cannot be based on it in isolation;
- Although it is difficult, there is still the possibility of manipulation;
- There are some deviations, and in some cases MEV and REV are much higher than the average;
- On some public chains where the MEV infrastructure is immature, REV is small, which may lead to some unfair valuations.
In general, we need to look at REV dialectically like MEV, and avoid applying any indicators and methods in isolation and metaphysically.
3.4 Superimposed FDV valuation method: F/R multiplier
By adding FDV and evaluating it with REV, we will get a multiplier of FDV/REV.
Such a multiplier is somewhat similar to the price-to-earnings ratio (P/E Ratio). Its core logic is to measure the degree of premium that the market places on project valuation. That is , the larger the F/R multiplier, the larger the possible valuation bubble and the more optimistic (or more speculative) the market's expectations for project growth. Conversely, the smaller the bubble, the more closely the valuation is aligned with possible reality. In vertical comparison, it may also be used to represent relative undervaluation.
From this, we can give a concept of F/R multiplier:
The FDV/REV multiplier measures a project's FDV (market expectations) versus its annualized actual economic revenue (current profitability), reflecting the premium the market pays for each unit of revenue.
It can be seen that:
- BTC has the highest F/R multiplier, implying a long-term narrative and liquidity premium;
- SOL and Tron have lower F/R multiples, suggesting that the market may view their revenue capabilities as stronger or their valuations as more reasonable.
On the other hand, **FDV may be inflated due to the release of tokens, thus affecting short- and medium-term valuations. We can also use the circulating market value Market Cap as an auxiliary reference, which can more truly reflect the current market's recognition of the project's value - thereby establishing an MC/R or M/R multiplier. Such a multiplier is also more suitable for evaluating the market's pricing efficiency of project revenue in the short term, **but I will not expand on it here, and the principles and algorithms can be copied.
Here we just ask DeepSeek to use a table to summarize and compare four valuation methods including PE and PS:
| index | Core Definition | Data Dependency | Advantages | Limitations | Typical application scenarios |
|---|---|---|---|---|---|
| PE | Market value/ Net profit | Stable profits and consistent accounting standards | Directly reflects profit premium, suitable for mature enterprises | Ignoring growth potential, loss-making companies cannot be calculated | Traditional industries with stable profits, such as consumer goods and manufacturing |
| PS | Market value/sales | Income authenticity and comparability | Applicable to loss-making/high-growth enterprises, focusing on revenue scale | Ignoring cost structure makes it impossible to measure earnings quality | Technology startups, high-growth sectors (such as SaaS) |
| FR | Fully diluted valuation/annualized on-chain revenue | Token full circulation assumption, annualized income | Reflecting long-term narrative and liquidity premium | FDV is artificially high (unlocked tokens), and revenue volatility is disturbing | Assess the long-term valuation of public chains (such as Bitcoin and Ethereum) |
| MR | Market capitalization/annualized on-chain revenue | Proportion of circulating tokens and sustainability of income | Short-term pricing is more realistic and avoids the interference of diluted valuation | Ignore the selling pressure of unlocked tokens and rely on income stability | Projects with high circulation rate (Solana), reference for short-term trading decisions |
3.5 Differences and connections with MEV
Since the two names are similar and the former is a component of the latter, it is natural to associate them with each other. We might as well put the two together for a comparative analysis, focusing on their different roles in valuation, in order to better understand the two indicators.
We know that MEV is the maximum extractable value, which is the profit obtained by specific participants by exploiting the native characteristics of on-chain transactions, such as price delays, loan liquidation, transaction visibility, etc.
MEV is usually manifested as arbitrage, liquidation, front-running, sandwich attack, etc. It is a neutral term in itself. Let's ask DeepSeek to make a comparison table:
| Dimensions | Advantages of MEV | Disadvantages of MEV |
|---|---|---|
| Network Participants | ✅Increase validator income and enhance network security (high returns attract more nodes) | ❌Ordinary users’ transactions are preempted, gas fees soar, and the user experience deteriorates |
| Ecological health | ✅Reflects market activity (arbitrage and liquidation demand are signs of healthy liquidity) | ❌Malicious MEV (such as sandwich attacks) damages user trust and leads to ecological loss |
| Decentralization | ✅Small nodes can make up for the income gap through MEV capture (theoretical) | ❌In reality, MEV is often monopolized by large mining pools/professional robots, exacerbating centralization |
| Economic Model | ✅MEV income can be captured by the protocol (such as EIP-1559 destroying part of the gas fee) | ❌Unallocated MEV may become a systemic risk (such as validator collusion) |
Therefore, in the valuation system, MEV and REV are actually two completely different concepts. The composition of REV has been mentioned in the formula at the beginning, which is actually composed of MEV. Combined with our current understanding of REV, we can get:
- In fact, MEV should be used more as a micro-indicator in valuation to measure the health of the network and some strategic value allocation;
- REV is actually more macro, focusing on the premium of the overall revenue of the public chain itself;
- The ratio of MEV to REV can be combined for dynamic monitoring as an auxiliary indicator of ecological health (a low ratio indicates health, a high ratio indicates risk) .
4. Conclusion
Conclusion 1 (@mteamisloading): REV is not equal to the value capture of the native token on the chain.
- REV has advantages and disadvantages and should not be used or referenced in isolation;
- In many cases, REV will be destroyed and returned to users through incentive mechanisms, or paid to verification node operators as operating expenses, thereby reducing the nominal REV.
Conclusion 2 (@mteamisloading): The FDV/REV ratio (similar to the P/E ratio) is inherently different across chains (and companies).
- For tokens, factors such as yield and currency premium will significantly affect the price. Moreover, the quality and sustainability of REV on different chains are also different.
Conclusion 3 (@mteamisloading): Blockchain is not a business, and native tokens are not equity.
Conclusion 4 (@mteamisloading): The views of REV Minimalists may not necessarily be desirable, and maximizing REV has a lot to say about the long term.
Conclusion 5: REV combined with many indicators can form a relatively comprehensive observation system.
- We discussed the linkage between REV and Fees in the article;
- Discussed the reference value of F/R multiplier and M/R multiplier for public chain valuation;
- The differences and connections with MEV are discussed, and the public chain health indicators of MEV/REV are given.
- The reasonable and flexible use of these combined indicators can provide us with a relatively comprehensive perspective when evaluating public chains.
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