Author: Alana Levin, Variant

Compiled by: Hu Tao, ChainCatcher

At Variant, the core of our investment philosophy is the belief that people should be able to own their money, identity, and data.

We seek to support and expand large markets that enable individuals and organizations to acquire and own the resources necessary for their daily lives. Our investments in crypto networks have turned many of these ideas into reality. These networks are coordinated protocols centered around sovereignty and autonomy.

However, there are still many questions about how to assess the value of these networks. Different protocols and projects vary significantly in their goals, and therefore, the key fundamental metrics to track success and predict growth differ as well.

We believe that all tokens can be classified into one of two categories: store of value (SOV) assets or equity-like instruments. Notably, we think that the store of value framework is particularly useful for evaluating layer one blockchains (L1) — L1s are among the most significant monetary coordination protocols in the modern financial system.

After in-depth discussion, we identified a series of fundamental metrics to understand, assess, and track the future development of these networks. This article aims to outline some of the thought processes, hoping to provide valuable references for others considering these assets.

L1 assets can serve as a store of value

One of our core frameworks is that L1 can be analyzed and modeled as a store of value.

So, what kind of asset qualifies as a good store of value? Our key fundamentals are as follows (roughly ordered by importance):

Technological durability: Will the asset still exist in 5-10 years? To what extent will its appearance/function remain unchanged?

Scarcity: Is the asset widely available and easy to acquire? How easily can inflation be introduced to this asset? What is the predictability of the inflation curve?

Censorship resistance: How easily can a single entity seize this asset? To what extent can economic activities related to this asset be blocked or shut down?

Economic productivity: Can this asset be used to facilitate economic activities? How useful is it in financial contexts, for example, does it have collateral value?

Memetics: Do others consider this asset to have store of value characteristics? An important characteristic of any currency is the societal consensus on its value and uses.

Liquidity: Is this asset widely applicable to all who wish to include it in their portfolio (regardless of size)? We place this last in consideration because it is often a downstream effect of mimetic behavior; liquidity tends to attract more liquidity, and the greater the interest in a particular asset, the more likely its scale (relative to inflationary money) will increase. Bitcoin did not have high liquidity in its initial years, but it has now become one of the most liquid assets in the world.

Few market sizes can surpass the total addressable market (TAM) of store of value solutions. Gold—the largest and most widely recognized store of value—has a market capitalization of $31 trillion. Silver's market capitalization has also reached $4 trillion. We believe that some L1s are poised to become superior stores of value.

Sovereign Wealth Fund Assets

Currently, three L1 assets stand out as highly likely to become major stores of value: Bitcoin (BTC), Ethereum (ETH), and ZEC. In our framework, they each excel in different dimensions.

Bitcoin holds a dominant position in meme recognition, nicknamed "digital gold." The reflexivity of strong memes is a powerful force and an important fundamental consideration that any competitor for store of value must face: the more people who believe in Bitcoin as a store of value, the more likely marginal groups will also come to believe it has that function. Over the past fifteen years, individuals, funds, corporations, institutions, and even nations have invested in this belief.

Ethereum may be technically more durable than Bitcoin. It is easier to upgrade, and its roadmap offers transparent, traceable, and verifiable insights that reflect the future plans of the developer community. Looking ahead — and considering new risks posed by innovations like quantum computing — we see this adaptability as an advantage rather than a flaw. The core of any quality sovereign asset is the belief that it will still exist in ten years. Ethereum has demonstrated considerable resilience, having withstood major technical and social challenges—such as the DAO hacking incident, the merge, and more—and we believe it will continue to thrive in this regard.

ZCash excels in censorship resistance and privacy protection. The choice provided by the shielded pool (ZCash's privacy transaction feature) allows individuals to avoid the risk of future wealth seizures or being subjected to extensive state surveillance. This is a lasting advantage of ZCash, providing individuals with a long-term way to protect their assets.

Overall, the value scale of stores of value reaches trillions of dollars. This is evident from the current situation. We believe this sector will continue to grow rapidly, and multiple stores of value can coexist.

However, looking at today's market landscape, despite digital sovereign wealth funds (SOV) outperforming gold or silver on many of these fundamental metrics, their share of the total SOV market remains small. For us, this presents an ambitious and exciting opportunity.

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