Discounted Cash Flow (DCF) Valuation of Ethereum by Ryan Allis

Model last updated: September 7, 2022, make a copy to edit inputs

Ethereum should be worth around 2x-3x more than it is currently worth, and may increase in value as people realize this post-Merge, especially as we close in on 2024 BTC halving

Accumulate heavily up until $5k price point

*Using the last month of revenues *12

*In the above chart, it's fair to compare Ethereum to a fast or extremely fast growing tech company, thus using a 100 PE ratio to approximate fair value based on current earnings. Compare to Tesla at PE of 100.

ETHEREUM DISCOUNTED CASH FLOW VALUATION - STAKED ETH

Author's Notes:

A DCF gives what the valuation of an asset should be based strictly on the cash flow paid back to holders of an asset (stock, bond, or token). This is separate from any other utility the asset may have such as for using blockchain applications or as a monetary instrument.

This Ethereum valuation model that assumes PoS goes live in July 2022. Currently Ethereum uses its revenues to reduce supply (like a stock buyback). By Summer 2022 it will also use revenues to pay staking rewards to holders (like a dividend)

You could assume a "Utility Premium" or "Monetary Premium" of 2x to get to the long-term fair value per ETH

I assume lower Ethereum growth rates than I actually expect in order to make this DCF model conservative

Ethereum is a decentralized blockchain network with no costs. All costs are paid for by a decentralized network of validators. Thus all revenues are profits for the sake of a DCF model.

100% of Ethereum revenues will soon flow to long term holders (directly through staking rewards or indirectly through token burns), thus all revenues can be considered earnings.

Starting August 2021 with EIP-1559 70% of all ETH transaction are burned, reducing the token supply (like a stock buyback).

Starting in July 2022 with the launch of Ethereum PoS all miner fees will be paid out to the stakers of the token (essentially the long term holders), like a stock dividend.

Since profits will be used for stock buybacks (token burning) and dividends (staking rewards) going forward, one can use a DCF to approximate today's fair value of Ethereum from a traditional financial perspective

Bitcoin doesn't provide any cash flows to holders, nor does it use transaction fees to burn supply, thus you can't do a DCF on holding Bitcoin.

Note this DCF does NOT use a terminal value to be conservative. A more traditional way to do this would be to take a terminal value at year 21 onward and take the present value of that to add to today's price. I didn't add that on to be more conservative.

Send any questions to me on Twitter @ryanallis

See Justin Drake's model for valuing Ethereum here

See Justin Drake's staking reward model here

Learn more about Ethereum and Bitcoin here

The annual cash flow to stakers is a conservative estimate as it is based on today's price not the future price AND does NOT include MEV which will also flow to stakers and has recently been around $10-$20M per day in additonal rewards

What could make this model overly bullish?

Transaction revenue may go down as scaling allows for lower cost per transactions, via L2 networks or sidechains like Polygon, Arbitrum, Optimism, ZkRollups, ZkPorter

If lower cost per transaction isn't made up for in demand, total revenue could peak at current levels

If total revenue stays at current levels for next 20 years and never grows further, ETH would be worth ~$1000 per ETH based on the DCF model

You can validate this by making a copy of this model and then changing all growth rates in column F to 0%