Tribe with 2-5x growth potential is underrated

A few months ago, Fei Protocol and Rari Capital merged the multi-billion dollar protocol into the Tribe DAO. This merger sets a precedent for how DeFi protocols can accomplish mergers in the future. The protocol appears to be taking a vertically integrated approach, and the Tribe DAO wants to own the entire DeFi stack.

Tribe now has decentralized stablecoins, an innovative lending marketplace, and a plan to bring other gaming projects under its umbrella, while sitting on hundreds of millions of dollars in crypto assets, leaving the DEX space untouched.

But Tribe doesn’t get much traction in the crypto market, and I can’t help but wonder; “Is Tribe undervalued?”

combined power

Although the price of DeFi tokens has dropped significantly, many protocols have improved volatility through strong competitive positioning and influence due to control of a diversified asset reserve.

Projects that meet this requirement include Tribe DAO. Born out of the merger of Fei Protocol and Rari Capital, Tribe DAO represented a new “protocol mafia” and quickly became a DeFi giant.

Sitting on over $600 million in funding, Tribe will become a force within DeFi after combining Fei Protocol’s stablecoin with Rari’s standalone lending marketplace. In addition, each protocol has withstood important tests early on, such as the decoupling after FEI’s release and the development of Rari, proving their resilience and ability to withstand the rigors of DeFi.

How much is the project token worth to manage such a large amount of funds?

Tribe DAO overview

I will introduce the four sub-DAOs in Tribe DAO separately.

1. Fei Protocol

The first project of Tribe DAO is Fei Protocol. It is the issuer of the FEI stablecoin, the 11th largest stablecoin by market cap, with a supply of over $558 million.

FEI is a USD-pegged, over-collateralized stablecoin backed by a range of assets, known as protocol-controlled value (PCV). Fei has deployed its PCV into a variety of different DeFi protocols such as Lido, Convex, and Fuse, from which yield and bootstrap liquidity.

A key feature of PCV is that it consists entirely of decentralized assets, consisting of ETH, decentralized stablecoins, and DeFi governance tokens.

Tribe with 2-5x growth potential is underrated

Source: Dune Analytics

Although initially Fei Protocol used mechanisms such as direct incentives to achieve stability, Fei significantly broke the dollar peg mechanism after its launch. This prompted major changes in Fei’s design, such as the removal of direct incentives, and culminated in the introduction of Fei V2.

Fei V2 includes several key upgrades, such as 1:1 callability between Fei and its underlying collateral, as well as leveraging the completion of Balancer V2’s plan to algorithmically manage PCV.

Another service offered by Fei is Liquidity Services (LAAS). LAAS has partnered with Ondo Finance to help DAOs reduce their liquidity costs by providing them with the ability to lease their tokens, as DAOs that deposit native tokens into Ondo’s LP (Liquidity Provider) pool will see it match an equal amount of Fei . Fei receives a fixed fee based on the amount of liquidity provided, while the beneficiary DAO is entitled to all transaction fees and bears the temporary risk of loss.

2. Rare Capital

The second major sub-Dao in the Tribe is Rari Capital. Rari’s best-known business is Fuse, which lets anyone create their own independent lending marketplace. Fuse is Ethereum’s third largest money market protocol with over $789 million in TVL (Total Value Locked).

Tribe with 2-5x growth potential is underrated

Source: DeFi Llama TVL Dashboard

Fuse is highly malleable and has more features than existing protocols. For example, administrators can change a large number of mining pool parameters, such as choosing their own oracle provider, while Dao can initiate liquidity mining programs from Fuse mining pools by using a feature called flywheel, allowing users to earn rewards At the same time, make loans against their LP (liquidity provider) position as collateral.

As mentioned earlier, Rari drove the creation of the Tribe DAO through its merger with Fei. This is the largest such transaction in DeFi history. The transaction was executed in such a way that holders of Rari’s native governance token, RGT, were able to trade their assets to Tribes at an exchange rate of approximately 26.7 Tribes per RGT. While some community members were initially concerned, the merger received overwhelming on-chain support.

The synergies from the merger are already starting to materialize, with many Fuse pools already implanting Fei’s liquidity, and the upcoming Tribe Turbo will take full advantage of both Fei and Fuse’s capabilities.

3&4. Volt Protocol and Midas Capital

In addition to Fei and Rari, the Tribe DAO has recently joined two new protocols, which are highly likely to be followed through Tribe Launch, a program designed to add new DAOs to the Tribe ecosystem.

The first is Volt Protocol, which is developing Volt, a stablecoin that tracks the growth of the CPI (Crypto Price Index, aka the Dow in the crypto world). The protocol utilizes Fei and Fuse in its design and release mechanism and will be governed by VCON tokens, 25% of its supply will be owned by Tribe DAO.

The second is Midas Capital, whose goal is to help scale and deploy Fuse onto EVM-compatible chains. While Fuse has already been deployed to Arbitrum by the Rari team, Midas should help Rari capture the emerging market opportunity of having over $40 billion in TVL on non-Ethereum L1, EVM chains.

Where is Tribe’s competitive advantage?

1. Protocol Controlled Value (PCV) storage assets

Tribe with 2-5x growth potential is underrated

Source: Fei Analytics

A major competitive advantage of Tribe DAO is that it stores assets through PCV.

The Tribe DAO can deploy its PCV to earn yields or use it to create Fei, known as Protocol Owned Fei (POF).

Like PCV, POF can be deployed in a way that is of strategic interest to the DAO, such as generating cash flow by earning additional revenue and strategically directing liquidity between different Fuse and AMM pools.

Tribe with 2-5x growth potential is underrated

Source: Fei Analytics

Although below its November 2021 high, PCV is currently valued at $662 million.

Digging into its composition, we can see that 93.8% of PCV is made up of ETH and stable assets. This means that PCV should be able to maintain a solid portion of its value in bearish market conditions, as seen in early 2022, allowing Tribe to remain well-funded well into the future.

In addition, a focus on these assets can also improve the utility of PCV and the opportunity to earn returns, as these two sets of assets are the most widely integrated in the entire DeFi protocol.

This large and growing storage asset will help Tribe DAO become the king of DeFi and allow them to exert significant influence on yields and liquidity flows.

2. Vertical integration

An important benefit of the Fei-Rari merger is that it helps them vertically integrate Tribe DAO by providing Tribe DAO with a stablecoin and lending marketplace. These are two of the three main protocol types, the third being AMMs (Automated Market Makers), which are required by DAOs to control all layers of the DeFi stack.

Essentially, the “control stack” means that DeFi protocols, or DAO mafia, can influence interest rates, liquidity flows, and create their own autonomous financial systems without relying on any third-party protocols. In an increasingly competitive and rapidly changing DeFi environment, this can greatly increase Dao’s chances of long-term survival and greatly improve their competitive positioning.

While Tribe DAO does not currently have its own AMM, it has established a strong connection with one through its strong connection with Balancer. In addition to plans to utilize DEXs to manage Protocol Control Value (PCV), Tribe DAO and Balancer executed $9 million in token transactions in November 2021. This is likely to keep the two protocols closely linked for the foreseeable future, helping to fill the Tribe DAO’s “AMM gap.”

3. Human capital

Tribe DAO is made up of very talented developers, contributors and community members.

Prior to the merger, both Fei and Rari had successfully built a product-market fit, with Fei’s market cap at $756 million, more than double the all-time low set in July 2021, and Rari’s TVL in the takeover proposal. $1.16 billion at the time. This demonstrates the strong development, business and community building capabilities of both teams.

Furthermore, given the innovation brought by Fei and Fuse, and the ability of these two teams to continuously release new features and products, it seems likely that the DAO and the community will be able to adapt to the fast and changing DeFi landscape.

4. Partnership and Collaboration

Both Fei and Rari’s teams have demonstrated outstanding business development skills.

More than 20 Dao have launched or plan to launch Fuse mining pools, and Fei has cooperated with projects such as Index Coop, Angle Protocol, and the Balancer mentioned above.

This shows that Tribe DAO is highly collaborative and able to form strategically mutually beneficial partnerships within DeFi. Given the growing value seen in DAO-to-DAO partnerships, and one of the core DeFi value propositions being composability, it is less likely that Tribe will be disadvantaged.

token economy

As the traditional stock market says “stocks are not businesses”, in the crypto market “tokens are not protocols”.

As seen over the past year, many DeFi projects with strong infrastructure have lagged far behind market indices and benchmarks, largely due to poor token economic design.

Let’s take a look at Tribe’s token economy and see if it can avoid a similar fate.

  • Token Distribution Mechanism

Tribe with 2-5x growth potential is underrated

Source: Medium’s Tribe distribution mechanism article

As we can see, Tribe’s initial distribution is highly decentralized, with only 18% going to the team and early investors. The distribution between these two groups is significantly lower than many other DeFi protocols, with Genesis participants alone receiving twice as much distribution as private round investors.

Tribe with 2-5x growth potential is underrated

Source: Medium’s Tribe distribution mechanism article

In addition, Tribe benefits from the precondition of an excessively long redemption period of over 4 and 5 years for investors and team tokens, respectively. Additionally, team allocations are inversely weighted, which means token holders will have to suffer initial inflation early in the protocol.

This combination of fairer token distribution and longer cashout times suggests that the Tribe DAO is a highly long-term oriented and may make decisions that emphasize long-term stability and sustainability.

  • Token usage

Tribe plays two key roles in both the Tribe DAO and the Fei protocol:

  1. the right to govern
  2. Protocol support

Like most DeFi tokens, Tribe as a whole is used for governance within the DAO, with holders able to vote on various items such as PCV distribution. However, Tribe also holds micro-governance rights over assets held in the DAO treasury or PCV, and AAVE, ANGLE, BAL, COMP, CRV, CVX, INDEX, and TOKE constitute tokens that can exercise these rights.

Tribe DAO is one of the pioneers of DeFi micro-governance as they are known for leveraging INDEX micro-governance to help reach the threshold for Fei to go live on Aave. Although these tokens represent only a small fraction of the protocol control value (PCV) relative to ETH and stable assets, Tribe’s broad micro-governance power may be valuable to Dao in the future, increasing the token’s popularity among such buyers attractive.

The second major use of Tribe is to provide protocol support for FEI. Similar to MKR’s role in MakerDAO, if Fei is under-collateralized, the Tribe is minted, redeemed from PCV, and the protocol is re-collateralized.

  • Supply and demand dynamics

Tribe’s main demand driver and value appreciation mechanism is buyback, as 20% of the “protocol equity”, i.e. the value of PCV, will be allocated to weekly purchases if all Fei is redeemed as its underlying collateral Tribes, which are redistributed back to the protocol library.

In addition to helping incentivize PCV’s growth and management accountability, these buybacks should contribute to a source of pressure on Tribe’s acquisition. To date, over $13.28 million worth of buybacks have been executed.

While there is a risk of a permanent major inflation shock if Fei is under-guaranteed, Tribe is currently only released through liquidity mining of “Fei-Rari”, a Fuse mining pool operated by Tribe DAO. Although this may put selling pressure on the coin as it is mined by the producing miners. But in the long run, due to the size of the protocol control value (PCV), the protocol is well positioned to avoid dependencies and potentially eliminate emissions entirely.

For now, Tribe’s token economy seems to be very beneficial for investors, especially compared to the wildly inflationary token economy in DeFi.

Finally, Fei Protocol co-founder Joey Santoro proposed a token economic improvement proposal that has the potential to further improve supply and demand dynamics.

  • Discounted Cash Flow Valuation (DCF Valuation)

Now that we understand Tribe DAO’s product, competitive advantage, and token economics, let’s take a look at Tribe DAO’s financials and try to value it using a discounted cash flow (DCF) model.

There are three main sources of cash flow for Tribe DAO:

  1. Protocol-owned Fei (POF) yields obtained by distributing Fei across DeFi protocols.
  2. Gain Protocol Control Value (PCV) yields by similarly deploying these assets into various DeFi protocols.
  3. The platform fee received from Fuse is generated by taking a cut of the spread paid to depositors and lenders.

The model attempts to predict the growth of the Fei stablecoin and Fuse as a means of estimating the cash flow generated by these three sources.

Tribe with 2-5x growth potential is underrated

The model uses a 35% discount rate, a figure that is in line with the average range for VCs to value startups. In addition, the model uses a final growth rate of 2% to track the expected growth rate globally.

Tribe with 2-5x growth potential is underrated

The model assumes that the stablecoin market will grow by 227% at an increasingly slower pace over the next five years. Taking into account the competitive advantages mentioned earlier, Fei is the beneficiary and is expected to grow its market share in the next four years as PCV scales proportionally.

The model also predicts that by deploying to AMMs, lending markets, and liquidity staking services, DAOs will be able to earn an initial yield of 5% on protocol-owned Fei and 3% on PCV, which is expected to will decrease as the size of the protocol increases.

Tribe with 2-5x growth potential is underrated

The model predicts that the lending sector of Ethereum L1 and L2 will grow at an annual slowing rate of 556% over the next five years. Considering the addressable market for all assets in DeFi, Fuse is expected to capture an increasing market share in the industry (the model does not take into account the capital deployment of Midas Capital).

Although the utilization rate and thus the interest earned by different mining pools varies widely, the model predicts that Rari will receive an overall utilization rate of 0.25% based on AUM (Assets Under Management).

Tribe with 2-5x growth potential is underrated

By adding the total cash flow generated by the two protocols and discounting it to the present, we calculate the fair value of Tribe to be between $1.63-$3.52.

At the current price of $0.58, this represents an upside of 207%-564%.

risk assessment

1. Competitiveness

Competition in the stablecoin space is fierce, with 24 companies with market caps over $100 million and 9 companies with market caps over $1 billion. Competitiveness is unlikely to diminish in the foreseeable future, given the large addressable market in the field.

Competition is equally fierce in isolated lending markets, with emerging protocols such as Euler Finance and Silo Finance seeing investor interest. In addition, the recently launched Aave v3 also includes some standalone lending features, further muddying the waters of the competition.

2. Protocol Control Value Risk (PCV Risk)

As mentioned earlier, Fei’s PCV (Protocol Controlled Value) is stored through a variety of different protocols. While the risks are distributed among these protocols, if one or more protocols are exploited, or if DeFi suffers a major systemic event, a significant portion of the PCV could be lost, leaving Fei and the multiple Fuse pools it deposits at risk of under-collateralization.

3. Emissions

Despite continued buybacks, there is still active Tribe emission, making the token a target for miners, potentially putting downward pressure on the price of Tribe. Furthermore, given the possibility of reverse-weighted equity and substantial price appreciation, reverse-weighted equity may present the risk of significant future sales for the team and core contributors.

4. Regulatory concerns

Stablecoin issuers, and DeFi in general, could face a crackdown from regulators. Although Tribe DAO adopts fully decentralized on-chain governance, it still faces the risk of being censored by government agencies looking to control DeFi.

Summarize

With two innovative protocol products, Volt Protocol and Midas Capital, huge protocol-controlled value (PCV) storage assets, and led by a strong group of contributors to continuously build, issue and trade, Tribe DAO seems poised to become a DeFi black hand Party, emerge from this bear market.

While the protocol faces several significant sources of risk, with a strong token economy and valuation implying strong upside potential at current prices, we shouldn’t be swayed by a single tree when investors see Tribe Abandon the entire forest.

Disclaimer: This model is a framework for evaluating Tribe’s potential value, not a final judgment on its value.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/tribe-with-2-5x-growth-potential-is-underrated/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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