Messari: Most Web3 protocols have seen significant revenue growth, with Arweave's Q1 revenue increasing by 49% quarter-over-quarter
Although the adoption of Web3 protocols is growing, it can be said that many protocols are overvalued based on revenue, while the potential target market remains a reason for investor optimism.Source: Messari
Compiled by: DeFi Dao
Key Insights
- Some Web3 infrastructure protocols are generating significant protocol revenue, including Filecoin, Helium, Arweave, and Livepeer.
- Most Web3 protocols have shown substantial revenue growth over the past year, with many protocols continuing to experience this growth in Q1 2022.
- While the adoption of Web3 protocols is increasing, it can be argued that many protocols are overvalued on a revenue basis, and the potential target market remains a reason for investor optimism.
Data from the Web3 Index shows that after years of building, some Web3 protocols are beginning to experience growth in network usage. Due to this usage, it often requires spending the protocol's native tokens in exchange for services, and these Web3 protocols are starting to generate revenue.
Filecoin and Helium generated significant protocol revenue in Q1 2022—$9.4 million and $14.5 million, respectively—while the remaining selected Web3 infrastructure protocols collectively generated over $1 million in protocol revenue.
Quick Note on Methodology and Revenue Calculations
It is worth noting that the revenue data from the Web3 Index, TokenTerminal, and other respective sources are calculated differently (for example, the Web3 Index calculates fees based on protocol demand, while Token Terminal tracks demand (protocol revenue) and supply-side revenue (income earned by participants/providers)). That said, we have attempted to verify the data where possible and use the most accurate sources of revenue information.
In-Depth: Web3 Infrastructure Q1 2022 Protocol Revenue
File Storage
In the file storage protocol space, Filecoin's revenue remains unparalleled, exceeding $9 million in Q1 2022. Interestingly, as the base fees (the primary cost of storing data on Filecoin) have decreased, Filecoin's revenue has significantly declined quarter over quarter.
While the specific reasons are unclear, the increase in network capacity may have lowered storage costs, as miners are willing to accept lower network storage fees. Additionally, Filecoin miners are subsidized through FIL rewards, meaning that as most miners' income shifts from fee revenue to token rewards, fees may also decrease. More analysis is needed to determine the exact reasons for the revenue decline.
Arweave's revenue was $740,000, representing a 47% increase compared to the previous quarter. The data storage capacity of the Arweave network grew by 977% year-over-year, largely thanks to Bundlr, which accounts for over 70% of Arweave's total transactions.
Storj's revenue grew by 15% this quarter, while Sia's revenue decreased by 2%. Recently, Sia integrated Skynet storage capabilities with Polkadot and launched Skynet Kernel—a browser extension that may enable decentralized front-end solutions while still using existing centralized APIs.
Computation
Various applications and services require computational resources. Today, most decentralized computing protocols, such as Livepeer, Render, and Akash, adopt an Airbnb model where providers can rent out excess CPU and GPU capacity in exchange for fees. Because these protocols can aggregate supply from various sources, they often offer better prices than centralized providers.
Computation-centric protocols made significant strides in 2021, with Livepeer generating $340,000 in protocol fee revenue. Akash's revenue also grew in 2021, reaching an all-time high in Q1 2022.
Data Retrieval and Indexing
So far, most investors are familiar with The Graph as an indexing protocol that can query blockchain data without connecting to the blockchain. While The Graph is widely used by various data aggregators, DAOs, and individuals, the fees it generates do not match its adoption. The Graph heavily subsidizes its query services, which boosts adoption but comes at the cost of low fee revenue and dilution (in the form of token rewards).
Recently, The Graph community proposed suggestions and roadmaps to improve The Graph's performance, user experience, token economics, and more. Among all these updates, the most exciting is Firehose, a new subgraph structure designed to enhance indexing performance by creating a more modular architecture.
Network Connectivity
Helium is an open wireless network built on the Helium blockchain, operated by a network of hardware devices (nodes) that maintain the network and transmit data. Helium has experienced rapid growth over the past year, with its most recent funding round occurring in February 2022.
It is noteworthy that the revenue calculations from the Web3 Index and Token Terminal are vastly different. Token Terminal shows Helium's revenue for Q1 2022 at $14.5 million, while the Web3 Index shows revenue of $26,000 for the same period. Given that Helium is burned for data credits, Token Terminal's data may be more accurate, especially considering that this figure explicitly ignores token incentives.
Among the analyzed protocols, Helium generated the most revenue in Q1 2022 ($14.5 million), a 4% increase from the previous quarter. As the network aims to expand to 5G, it could become a catalyst for more data credit consumption and broader adoption.
Final Thoughts on Fundamentals
These revenues primarily come from network usage—fees paid to Web3 networks—rather than token reward distributions. Depending on the growth multiples you believe are assigned, the current valuations of these protocols may be overstated. The fully diluted valuation (FDV) of the least valued protocol (Akash) is $450 million, while the FDV of the highest valued protocol (Filecoin) is $38 billion. Compared to any Web2 company, the overvaluation supported by thin fees indicates a mispricing in valuation methods among crypto investors.
The overvaluation of Web3 infrastructure protocols is offset by the total addressable market (TAM) of these industries. The most valuable Web2 companies today provide computing, indexing, storage, and networking services, achieving massive valuations and corresponding revenues. Given the slightly larger TAM of these Web3 infrastructure protocols—coupled with the growth potential of these industries—winners in each of these categories may be undervalued in the long run. Nonetheless, it is clear that many of these assets are overvalued based on fundamentals.
