Layer-1 (L1) blockchains are often evaluated by metrics such as price-to-earnings or price-to-sales ratios. However, these metrics ignore the programmable aspect of a blockchain’s token supply. The years-to-profitability (YTP) ratio is a useful new metric for analyzing an L1’s profitability as it incorporates the blockchain’s forward supply curve. It applies traditional finance concepts of breakeven analysis and payback periods to crypto. YTP calculates a blockchain’s profitability timeline by factoring in the protocol’s current revenue and cost structure, a projected growth rate (CAGR) and future supply dynamics. Token Terminal defines L1 profitability as the point at which an L1’s circulating supply stabilizes at 0% inflation.
YTP provides a comprehensive framework for evaluating an individual blockchain or comparing multiple blockchains. It is important to note that all revenues and costs are denominated in the L1’s native token. YTP measures the point at which an L1’s circulating supply stabilizes at 0% inflation. By carefully designing tokenomics (inflationary or max supply), balancing supply dynamics and incorporating burn mechanics, L1 blockchains can aim to reduce YTP and build a more sustainable blockchain economy. In conclusion, YTP serves as a crucial metric in evaluating the profitability and sustainability of L1 blockchains, Token Terminal states.