Metaplex is a foundational protocol serving all types of assets in the Solana ecosystem and is a direct beneficiary of the ongoing Meme craze that has continued since the beginning of the year.
Author: Alex Xu
1. Introduction
If one were to identify which L1 has developed the best business during this bull market cycle, most people's answer would be: Solana.
Whether in terms of active address count or fee revenue, Solana's market share in L1 has rapidly expanded:
Active address count: Solana's share of active addresses has grown from 3.48% to 56.83%, a year-on-year increase of 1533%;
L1 monthly active address market share, data source: tokenterminal
Fees: Solana's fee revenue share has increased from 0.62% to 28.92%, a year-on-year increase of 4564%.
L1 monthly fee revenue market share, data source: tokenterminal
The Meme wave has been the core driving force behind the rapid growth of various key metrics for Solana during this cycle. In addition to Solana, other projects like Raydium have also benefited from the Meme wave, with active Meme trading contributing massive transaction and protocol revenue, leading to recent price highs.
In this article, I will focus on another project that has benefited from the massive asset issuance on Solana: Metaplex.
This article will present and discuss the following four questions:
What is Metaplex's business positioning and business model? Does it have a moat?
How is Metaplex's business data, and how is its business development?
What is the background of the Metaplex team and its financing situation? How to evaluate the project team?
What is the current valuation level of Metaplex, and is there a margin of safety?
This article reflects my thoughts as of the time of publication, which may change in the future. The views expressed are highly subjective and may contain errors in facts, data, or reasoning logic. Criticism and further discussion from peers and readers are welcome, but this article does not constitute any investment advice.
The following is the main text.
2. Metaplex's Business Positioning and Business Model
The Metaplex protocol is a digital asset creation, sales, and management system built on Solana and supporting SVM (Solana Virtual Machine). It provides developers, creators, and businesses with tools and standards to build decentralized applications. The types of crypto assets supported by Metaplex include NFTs, FTs (fungible tokens), real-world assets (RWA), game assets, DePIN assets, and more.
Recently, Metaplex has also horizontally expanded its business into other foundational service areas within the Solana ecosystem, such as data indexing (Index) and data availability (DA) services.
In the long term, Metaplex is expected to become one of the most important multi-domain foundational service projects in the Solana ecosystem.
2.1 Metaplex's Product Matrix
As a system for asset issuance, management, and standards, Metaplex serves both NFTs and fungible tokens. The products listed below constitute a comprehensive matrix serving the assets of the Solana ecosystem.
Core
Core is a new generation NFT standard on the Solana blockchain. Core adopts a "single account design," which significantly reduces minting costs and computational power while supporting advanced plugins and mandatory royalty payments.
Background Knowledge: Solana's Account Model
To understand the advantages of the "single account design" architecture, one must first understand the account model of the Solana blockchain and the traditional storage methods for NFTs.
On the Solana blockchain, all state storage (such as token balances, NFT metadata, etc.) is associated with specific accounts. Each account can store a certain amount of data, and the size of the account is limited, requiring rent to maintain the storage of this data. Therefore, efficiently managing on-chain accounts and storing data is a key issue that developers on Solana need to consider.
Traditional NFT Design
In traditional NFT design, each NFT typically has multiple accounts to store different pieces of information. For example, a typical NFT might involve the following accounts:
Main account: stores ownership information of the NFT (e.g., who the current holder is).
Metadata account: stores the NFT's metadata (e.g., name, description, image link, etc.).
Royalty account: stores information related to creator royalties.
While this multi-account design is flexible, it brings some issues in practice:
Complexity: Managing and interacting with multiple accounts increases complexity, especially when frequent data queries and updates are needed.
Costs: Each account requires rent to maintain its storage state, and more accounts mean higher costs.
Performance: Involving multiple accounts may require more blockchain resources during operations, affecting performance and transaction speed.
Advantages of "Single Account Design"
Metaplex Core addresses the above issues by proposing a "single account design" standard, which consolidates all NFT-related information (such as ownership, metadata, royalties, etc.) into a single account. This simplifies the account structure, reduces account costs, improves interaction efficiency, and enhances the scalability of NFTs. This design is particularly suitable for implementing large-scale NFT projects (such as games, DePIN, etc.) on high-performance, low-cost blockchains like Solana.
Bubblegum
Bubblegum is the program used by Metaplex to create and manage compressed NFTs (cNFTs). Through compression technology, creators can mint a large number of NFTs at an extremely low cost, with the minting cost for 100 million NFTs being only 500 SOL (achieving over 99% cost reduction compared to traditional minting methods), providing unprecedented scalability and flexibility. It is precisely due to the introduction of Bubblegum technology that large-scale, low-cost NFT minting has become possible, leading DePIN projects like Render and Helium to migrate to Solana and giving rise to innovative NFT platforms like DRiP. The following table lists examples of applications of Bubblegum by these three representatives.
Token Metadata
The Token Metadata program allows for the attachment of additional data to fungible and non-fungible assets on Solana. Token Metadata is naturally important for information-rich NFTs, but in reality, most fungible token projects on Solana also need to use Token Metadata.
What many people do not know is that the largest Meme issuance platform on Solana, Pump.fun, relies on Metaplex's metadata service for all tokens created. Currently, the largest demand for Token Metadata does not come from NFTs but from the massive issuance of Meme projects.
For Meme projects, using the Token Metadata program when issuing tokens has clear benefits:
First, it ensures the standardization and compatibility of the issued tokens. By using Metaplex's Metadata service, these tokens will be more easily recognized by mainstream wallets (such as Phantom, Solflare) and displayed correctly on trading platforms with their names, icons, and other additional information, as well as seamlessly integrated into other Solana applications.
Second, it provides on-chain storage and transparency. The Metaplex Metadata service stores the token's metadata on-chain, making it easier to verify the information and data of the tokens, and preventing tampering.
Additional information such as images and text provides multi-dimensional material for the speculation of Memes, making Memes more than just a name and a string of contracts, and providing material for the dissemination, secondary creation, and narrative of Memes.
New Meme tokens continuously appearing on pump.fun, source: pump.fun
As the Meme craze continues to heat up on Solana, over 90% of Metaplex's protocol revenue has already been contributed by fungible tokens (Meme), which contradicts the public perception that "Metaplex is a foundational NFT protocol in the Solana ecosystem," indicating a serious cognitive gap.
Candy Machine
Metaplex's Candy Machine is the most commonly used NFT minting and issuance program on Solana, capable of efficiently, fairly, and transparently launching NFT collections.
Other Product Array
Metaplex's other services include:
MPL-Hybrid: A hybrid NFT storage and management solution designed to combine the advantages of on-chain and off-chain storage, providing an efficient and economical storage method for NFTs, particularly suitable for storing large files (such as high resolution) or NFT projects that require dynamic updates.
Fusion: An NFT merging function that allows users to merge multiple NFTs into a new NFT, enhancing user interaction and providing more gameplay for NFT projects, applicable to games, collectibles, and art projects.
Hydra: An efficient, scalable large-scale NFT minting solution specifically designed for projects that need to mint a large number of NFTs (such as games, social platforms, or loyalty programs).
……
The current product list of Metaplex (asset service category) is as follows:
Image source: Metaplex developer documentation
Aura
In addition, in September, the Metaplex Foundation officially announced the launch of Metaplex Aura—a decentralized indexing and data availability network (testnet) serving Solana and SVM. Through the indexing and data availability services provided by Aura, Solana and other blockchain projects adopting the SVM standard can read asset data more efficiently and support batch operations at a lower cost, reducing operational costs by over 99%, as shown in the figure below:
Cost comparison of large-scale asset operations before and after adopting Aura, source: Metaplex official Twitter
When the product preview was released, Metaplex also listed the partner agreements supporting this product, many of which are well-known projects in the Solana ecosystem, and they will also be potential users of Aura in the future.
Source: Metaplex official Twitter
From an asset service system to data indexing and data availability service agreements, with the horizontal expansion of services, Metaplex is evolving into a full-stack foundational service platform for the Solana ecosystem.
2.2 Metaplex's Business Model
Metaplex's business model is straightforward: it charges for providing on-chain asset-related services. Some services in the product array mentioned above are free, while others are paid.
Although Metaplex's direct partners are other projects on Solana, resembling a B2B expansion business, most of its revenue comes from small projects or retail users using large B-end projects, including project parties creating various fungible tokens and individual users minting NFTs.
In my view, charging decentralized users rather than large B-end projects (like Pump.fun) is a better business model because:
Small project users or retail users make more emotional decisions and are less price-sensitive than B-end users. For them, the service prices of Metaplex represent a very low proportion of their total expenditure. The absolute fees paid by each small user are not high, but when the number is large enough, the total fees become quite considerable.
B-end projects can serve as distribution channels for its services, helping Metaplex's services reach more decentralized users without requiring additional effort and costs in marketing and channels.
The user base is more decentralized and less concentrated, making it harder for service providers like Metaplex to face pricing pressure. Metaplex has the ability to maintain product profit margins and even raise prices at appropriate times.
Specifically, the charging standards for Metaplex products on Solana are as follows:
Image source: Metaplex developer documentation
It can be seen that the absolute fees for users to call Metaplex's product services individually are not expensive. For example, the fee for a user to mint an NFT is only 0.0015 SOL; a Meme issuer using Token Metadata to add text and image descriptions to their Meme project only needs 0.01 SOL for one use. Such costs are negligible compared to users' expected returns.
Of course, it should be noted that the large-scale issuance of fungible tokens represented by Memes has brought revenue to Metaplex, but the sustainability of the Meme craze is questionable, which may also affect the sustainability of Metaplex's revenue. Even for a strong player like Solana, the volatility of Meme popularity is significant. During the coldest week in September, the number of new tokens listed on Dex was only about 1/3 of that during the hottest month in May, while this number surged tenfold again in mid-November.
Number of new token varieties added weekly on Solana Dex, source: Dune
2.3 Metaplex's Moat
In the business world, a company's or project's moat may come from various advantages, such as scale, cost advantages from geographical location, value accumulation from network effects, high user stickiness and premium capability from brand effects, and competitive barriers from administrative licenses and patents.
Projects with strong moats manifest in the competitive landscape when later competitors find it difficult to catch up in the same track or face high comprehensive costs that far exceed their expected returns, resulting in fewer competitors in that track. Financially, such projects exhibit stable and gradually increasing profitability, with marketing and development costs representing a low proportion of income.
In the Web3 space, there are not many projects with strong moats, such as Tether in the stablecoin sector and Aave in the centralized lending sector.
In my opinion, Metaplex is also a project with a moat, and its moat comes from "high switching costs" and "standard-setting."
First, when developers and users become deeply reliant on Metaplex's tools and protocols for asset issuance and management, switching their project's assets to other protocols will inevitably incur high time, technical, and economic costs.
Second, when Metaplex's asset formats (including NFTs and FTs) become the prevailing standard within the Solana ecosystem, forming a consensus for compatibility design among various infrastructures and applications within the ecosystem, this will also lead new developers and projects to prioritize choosing Metaplex's asset formats with stronger ecological compatibility when selecting asset service platforms.
Thanks to Metaplex's moat, there are currently few projects in the Solana ecosystem that can compete with it, ensuring Metaplex's strong profitability, which will be analyzed in the next section.
Moreover, beyond asset services, the data indexing and data availability services that Metaplex is currently testing are also expected to create a second growth curve for Metaplex in the future. Considering that the target audience for this service overlaps significantly with Metaplex's existing customer base, its newly expanded business may be more easily accepted and experienced by existing cooperative clients.
3. Metaplex Business Data: PMF Fully Verified, Core Data Strong Growth
Metaplex's current core business is providing asset-related services. We can observe its active user count, the number of asset minting projects, and protocol revenue as key indicators.
3.1 Metaplex Monthly Active Users
Metaplex monthly active users refer to the unique addresses that have transacted with the Metaplex protocol each month.
Metaplex monthly active addresses, data source: Metaplex Public Dashboard, same below
As of the date of this writing (November 30, 2024), Metaplex's latest monthly active user count reached 844,966, setting a new monthly historical high with a year-on-year increase of 253%.
3.2 Number of Assets Minted Through the Protocol
The number of assets minted through the protocol refers to the types of assets minted via the Metaplex protocol.
Metaplex monthly asset minting types
As of the date of this writing (November 30, 2024), this data for Metaplex also reached a historical high, with the total number of minted asset types exceeding 1.44 million in November.
More notably, 94% of these assets are fungible tokens, with only 6% being NFTs. This data was 18.6% for fungible tokens and 81.4% for NFTs in January of this year, indicating that in terms of business volume, Metaplex's main business has now shifted to fungible token asset services rather than NFT services. Most of the minting and issuance of fungible assets has come from the Meme craze.
Proportion of monthly asset minting types for Metaplex
3.3 Protocol Revenue
Protocol revenue refers to the fees received by Metaplex for providing services.
Metaplex monthly protocol revenue
As of the date of this writing (November 30, 2024), Metaplex's monthly protocol revenue reached $3.3 million, also setting a new historical high.
It should be noted that unlike many projects in the Web3 world that rely on token subsidies to drive product demand and exchange project tokens for protocol revenue, Metaplex's business revenue is quite organic and does not involve direct token subsidies, making it a typical project that has achieved PMF (Product-Market Fit).
From the data in this section, we can see:
As a foundational asset protocol, Metaplex directly benefits from the ecological development of Solana, with its core indicators rising in tandem with Solana's core indicators, especially protocol revenue.
Metaplex benefits from the activity of both NFTs and FTs, and is not just an "NFT asset service protocol." After the Meme craze, if Solana can see the emergence of more active sectors, such as DePIN, gaming, and RWAs, the demand space for Metaplex will be further opened up.
The demand for Metaplex's services is organic, and it can generate revenue without relying on token subsidies.
Next, let's take a look at the team behind the Metaplex project and the status of the project token.
4. Metaplex Team: Ecosystem OGs Close to the Core Circle of Solana
Stephen Hess
The founder of Metaplex is Stephen Hess, who is also the chairman of the Metaplex Foundation. He founded Metaplex Studios in November 2021.
As a graduate in Symbolic Systems from Stanford (a program focused on the design of human-computer interaction systems), Stephen Hess is also one of the earliest employees of Solana (he joined when Solana had just launched a year prior). At that time, Solana co-founder Raj invited him to join Solana as the head of the product department. During his tenure, he worked on projects including Solana Stake Pools (Solana's staking system), the SPL governance system, and the development of Wormhole. He was also a team member for the first version of the Solana NFT standard, which eventually evolved into Metaplex.
In January 2022, shortly after Metaplex was founded, it secured a strategic investment of $46 million from institutions such as Multicoin, Jump, and Alameda. Based on the 10.2% share corresponding to the strategic round financing in the token allocation table, it can be estimated that this round of $46 million financing valued Metaplex at around $450 million, which is quite high for a first-round valuation even during a bull market.
However, just as Metaplex was about to celebrate its first anniversary, in November 2022, FTX collapsed due to massive financial losses. Although Metaplex's financial situation was not directly affected by the FTX collapse, Stephen Hess quickly announced layoffs on Twitter, preparing for the impending downturn in the Solana ecosystem. In hindsight, his actions at that time proved to be very correct, demonstrating a clear understanding of the future and a lack of the extravagant spending habits seen in many Web3 teams regarding cost control.
According to Metaplex's current LinkedIn information, the team consists of over 10 members and remains quite lean. However, from the monthly project work reports they publish, this streamlined team shows strong delivery capabilities and ambition in product development, with high efficiency in product iteration and new product development.
Metaplex's monthly work report, source: official blog
Looking back at the work history of Metaplex's founders and the project's development history, Metaplex largely aligns with my conception of the comprehensive elements of an excellent Web3 team:
Core members possess educational, work skills, and experience backgrounds that match the entrepreneurial project, with no credit issues.
Close to the core circle of the public chain ecosystem, with smooth communication channels, and product concepts recognized by the public chain ecosystem community.
Good product intuition (less trial and error), diligent work, and strong delivery results.
Awareness of cost control, avoiding unnecessary spending.
Secured investment from top-tier VCs, possessing excellent comprehensive business resources.
Additionally, on September 9, 2024, The Block revealed that well-known institutions including Pantera Capital and ParaFi Capital purchased a large amount of Metaplex (MPLX) tokens from Wave Digital Assets this year, which were originally held by FTX. The comprehensive purchase cost was approximately $0.20 to $0.25 (with certain lock-up terms).
5. MPLX: Token Utility and Valuation Level
5.1 Basic Token Information
The protocol token for Metaplex is MPLX, with a total supply of 1 billion.
Image source: project white paper
The specific token distribution is as follows:
Creators and early supporters: 21.9%, with 50% distributed within a year via airdrop (the first airdrop began in September 2022), and the remaining 50% released monthly in the following year.
Metaplex DAO: 16%, no lock-up, distributed according to DAO proposals.
Metaplex Foundation: 20.31%, no lock-up.
Strategic round: 10.2%, with 50% released one year after the first airdrop (September 2022) and the remaining 50% released monthly in the following year.
Partner Everstake: 10%, locked for two years (lock-up until September 2024), with linear release over one year, currently unlocking.
Metaplex Studios: 9.75%, locked for one year (lock-up until September 2023), with linear release over two years, currently unlocking.
Community airdrop: 5.4%, released immediately.
Founding advisors: 3.34%, locked for one year, with linear release over one year, fully unlocked.
Founding partners: 3.1%, locked for one year, with linear release over one year, fully unlocked.
According to the current circulation data provided by the official source, the circulation rate of MPLX is 75.6%, with most already in circulation, especially the investors' shares, which have basically achieved circulation with minimal unlocking pressure.
The "unreleased" portion of the total supply mainly comes from the shares controlled by Metaplex DAO and the Metaplex Foundation, tokens held in the treasury, and the portions of Everstake and Metaplex Studios that have not yet unlocked.
5.2 Token Utility
Currently, the utility of MPLX mainly lies in governance voting. Additionally, Metaplex announced in March 2024 that it would use 50% of protocol revenue for token buybacks (including historically accumulated protocol revenue). The protocol officially began buybacks in June 2024, using 10,000 SOL each month to buy back MPLX tokens, which has continued for five months so far.
Due to the rapid increase in protocol revenue, next month Metaplex will raise the monthly buyback amount from 10,000 SOL to 12,000 SOL.
Besides governance and buybacks, the next scenario for MPLX will be activated by the aforementioned Aura functionality. Once the Aura functionality is officially launched, MPLX is expected to become the staking asset for Aura nodes, capturing the yields generated by Aura.
5.3 Protocol Valuation
When assessing Metaplex's valuation, we still use the comparative valuation method. However, considering that there are no comparable competing projects in the same track as Metaplex within Solana, I ultimately chose Raydium, which is also part of the Solana ecosystem and has similarly benefited from the Meme craze this year with a significant increase in protocol revenue and also has a buyback mechanism, as a reference for comparative valuation.
From the comparison of protocol revenue and market capitalization, Metaplex's valuation appears to be somewhat higher.
However, it is important to emphasize that while the two projects share some commonalities, they are still two different tracks within the same ecosystem, with significant differences in business positioning. The above valuation comparison only holds certain reference value.
5.4 Potential Driving Factors and Risks
Overall, the advantages of Metaplex are quite clear:
Positioned upstream in the asset service track, holding the power to set asset standards, directly benefiting from the prosperity of the Solana ecosystem.
Product PMF has been fully validated, achieving positive cash flow without relying on token subsidies, and possessing a relatively clear business moat.
Actively expanding a second growth curve based on existing business.
The team has good overall quality, is close to the core circle of the ecosystem, is diligent and enterprising, and has cost control awareness.
The token has a buyback mechanism, and the project's absolute market value is relatively low (circulating market value of over $260 million, FDV over $350 million), making it relatively light.
The potential upward driving forces for Metaplex's market value in the future include:
The emergence of other active tracks in the Solana ecosystem beyond Memes, further expanding the market for asset issuance, whether in DePIN, gaming, RWAs, or the long-cold NFT sector.
Metaplex being listed on larger trading platforms, such as Binance or Coinbase, to gain better liquidity premiums (given the project's quality and relatively low market value, I believe it is worth the listing team's consideration, as projects with real business needs and positive cash flow are scarce in the market).
Directly increasing service fees. Currently, the base for charges is relatively low, and the project has the ability to raise prices. Even a 100% price increase would still represent a negligible proportion of the asset creation fees paid to Metaplex for users.
Of course, Metaplex also faces some potential risks and challenges, such as:
The decline of the Solana Meme craze, leading to a rapid decrease in asset minting numbers and reduced business revenue.
Metaplex's current revenue is collected as a one-time fee based on the types of assets created, and projects with relatively fixed asset types may not provide sustained revenue to Metaplex in the long term.
Summary
Contrary to the perception of most investors that "Metaplex is an NFT asset protocol," in reality, Metaplex is a foundational protocol serving all types of assets in the Solana ecosystem and is a direct beneficiary of the ongoing Meme craze since the beginning of the year.
If the Solana ecosystem continues to be promising in the future, then Metaplex, occupying the "upstream ecological position" of "asset issuance and management," is worth our long-term attention.
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