What is the significance of the P/F ratio?

Key Takeaways

• P/F Ratio as a Valuation Tool: The Price-to-Fees (P/F) ratio is a vital metric for assessing whether a cryptocurrency is overvalued or undervalued based on its fee generation.
• Fee Calculation Matters: Annualised fees, derived from transaction or commission revenues, are crucial for calculating the P/F ratio and gauging adoption.
• Comparison to P/E Ratio: Similar to the P/E ratio in stock markets, the P/F ratio evaluates price relative to revenue, offering insights into growth potential and value.
• Use with Other Metrics: Complement the P/F ratio with metrics like Active Addresses, TVL, and NVT Ratio for a holistic analysis of crypto fundamentals.

Overview to P/F ratio

Recently, the Price to Fees ratio (P/F ratio) has become one of the key valuation metrics for evaluating a crypto’s fundamentals. With over 10 million different cryptos, most promising similar use cases, on-chain metrics have become the key valuation criteria for fundamental analysis to filter the spam and scam from strongly adopted cryptos. 

P/F ratio is calculated as the market capitalisation (circulating or fully diluted) divided by the annualised fee of the blockchain or DApp. Annualised fee is the total fee collected in the last year by the validators of the network or the DApp by the users of the blockchain or DApp. In case the DApp or blockchain is newer (<1 year), annualised fee is often calculated as [ last 30 day fee x 12 ].

For example, Ethereum has a market capitalisation of $220bn at the time of writing this article (31 March, 2025) and its annualised fee is $1.5bn. Hence its P/F ratio is 220/1.5 ~ 147. 

💡We recommend tracking P/F ratios, Active Addresses, TVL, Total Lent, Total Borrowed,  NVT ratios and other on-chain metrics of the cryptos you are invested in or want to invest into.

Fee Calculation for a DApp

A DApp could be a DEX such as Uniswap, a DeFi Lending and Borrowing Platform such as AAVE or a Liquid Staking platform such as Lido, each having their own tokens. Such platforms usually have Governance (Holders can vote for roadmaps and decision making of the DApp) as the main use case of their tokens. This means their token simply serves as a DAO token and does not contribute much to the revenue or fees of the platform.

Hence, we calculate the fees or revenue generated by the DApp by calculating the commissions they made during every transaction by the users in their smart contracts.

A DEX will charge a percentage commission for every swap made, a DeFi platform will charge an interest for lending funds and a liquid staking platform will charge a percentage of the total staking rewards when redeemed. The beauty of blockchain makes all this data public in real time through which we can gauge its adoption in depth.

💡The total annualised fee of the DApp is used for the calculation of its P/F ratio against the total market cap of its DAO token.

Fee Calculation for a Blockchain Protocol

Every Blockchain protocol (L1,L2,L3) charges a transaction fee for every transaction made by its users. This transaction fee is distributed to the miners or validators who in turn contribute in keeping the network secure and run nodes to keep the blockchain up 24x7. 

💡Higher the fees a blockchain makes, the more it will attract validators and miners, the more decentralised it is.

Similarity in P/F ratio and P/E ratio for stock valuation

The Price-to-Fees (P/F) ratio in cryptocurrency valuation shares conceptual similarities with the Price-to-Earnings (P/E) ratio used in stock valuation. Both metrics aim to provide insights into whether an asset is overvalued or undervalued relative to its ability to generate revenue or earnings. Below are some similarities

• Purpose of the Metric

  Both ratios help investors evaluate the relative value of an asset:

  • The P/E ratio measures the price of a stock relative to its earnings per share, offering a snapshot of how much investors are willing to pay for $1 of earnings
  • Similarly, the P/F ratio measures the market capitalisation of a cryptocurrency or blockchain protocol against its annualised fees, reflecting the willingness of investors to pay for $1 of fee revenue generated by the network or DApp.

• Revenue and Earnings as Core Inputs

  The P/E ratio uses earnings (profits after expenses) as its denominator, while the P/F ratio uses annualised fees (transaction fees collected by validators or commissions earned by DApps). In both cases, these metrics serve as proxies for the financial health and adoption of the asset.

• Valuation Insights

  Both ratios are tools for determining whether an asset is undervalued or overvalued:

  • A high P/E ratio may indicate growth potential but also possible overvaluation.
  • Similarly, a high P/F ratio could suggest strong adoption but might also signal that the crypto asset is overpriced relative to its fee generation capabilities.

Conclusion

Along with active addresses, TVL and total token holders (including HHI distribution), P/F ratio has become one of the most important metrics tracked during fundamental analysis of crypto currencies. While not every token has the same purpose the overall business model around the token must be extremely solid for the token to survive amongst the immense competition. Investing without proper fundamental analysis will lead you into getting stuck among regular pumps and dumps and rug pulls that happen in the crypto space. Check out in-depth analysis of various tokens on our site.

FAQs

• What does the P/F ratio represent in cryptocurrency valuation?

  The Price-to-Fees (P/F) ratio measures the market capitalisation of a cryptocurrency or blockchain protocol relative to its annualised fees. It helps investors assess whether the asset is overvalued or undervalued based on its fee generation capabilities.

• How is the annualised fee calculated for blockchains and DApps?

  For established projects, the annualised fee is the total fees collected over the past year. For newer projects (<1 year old), it is calculated by multiplying the fees collected in the last 30 days by 12 to estimate yearly revenue.

• Why is tracking the P/F ratio important for crypto investors?

  The P/F ratio provides insights into a crypto asset's adoption and financial health, helping investors identify promising projects while avoiding scams or low-value assets. It serves as a key metric in fundamental analysis.

• How does the P/F ratio compare to the P/E ratio used in stock valuation? Both ratios evaluate an asset's price relative to its revenue generation:

  • The P/E ratio measures stock price against earnings per share.
  • The P/F ratio measures market capitalisation against annualised fees, offering similar insights into value and growth potential within their respective markets.

• What other metrics should be tracked alongside the P/F ratio?

  Investors should also monitor Active Addresses, Total Value Locked (TVL), Total Lent and Borrowed, and Network Value to Transactions (NVT) Ratio. These metrics complement the P/F ratio for a comprehensive view of a crypto asset's performance and adoption.