- Jeff Dorman is the chief investment officer of $ 200 million crypto asset manager Arca.
- Dorman told Insider why he sees SushiSwap as the most undervalued token that could triple in value.
- He also shares two under the radar tokens that he believes could increase in value as they grow.
- See more stories on the Insider business page.
There are easy ways to make money in the cryptocurrency world, but Jeff Dorman has taken the less traveled path for good reason.
A long and conservative investor can sit back and watch their crypto holdings rise in value, but they should also put up with the kind of madness that has seen Bitcoin fall of 31% Wednesday morning and jump of 33% in the afternoon without panic of sales.
Dorman, chief investment officer at crypto asset manager Arca, guides his team to take advantage of the catalysts and inefficiencies of the emerging and ever-changing market by focusing on small and mid-cap digital assets, tokens where there are little competition.
A veteran of mainstream finance, he does all of this by sticking to many of the same principles preached by patron saint of value investing Ben Graham and the Oracle of Omaha Warren Buffett.
“We’re not traders. We’re not just trading momentum or trying to buy the next hot thing we see,” he said in an interview. “We do traditional fundamental analysis. We do discounted cash flow models and
models, trying to determine the value of these tokens. ”
In his bargain hunt, Dorman has now identified SushiSwap as “the most undervalued token in digital assets”.
What is SushiSwap?
SushiSwap (SUSHI) was launched in September 2020 as a fork of Uniswap, the largest decentralized exchange built atop the Ethereum network.
In crypto-speak, a fork means that the pseudonymous creators of SushiSwap – Chef Nomi, sushiswap and 0xMaki – simply copied the open source code used by Uniswap to create a spin-off, namely SushiSwap.
The Fork has seen nearly $ 1 billion in assets move from Uniswap to SushiSwap. Crypto billionaire Sam Bankman-Fried ensured the smooth migration of funds and then returned control to the community, according to Decrypt.
Like Uniswap, SushiSwap is also built as an automated market maker on the Ethereum network. An automated market maker is a special type of decentralized exchange that uses smart contracts to create markets for a given pair of tokens.
While SushiSwap started out with the same code and business model as Uniswap, the two exchanges evolved into different entities, according to Dorman.
“Uniswap is really targeting retail users, they are opting for a very small volume of transactions from a lot of people,” he said. “SushiSwap is targeting a different audience, it’s a lot closer to what FTX does, where they have big ‘whales’ trading there. Much less users, but much larger size per user. . “
Likewise, he adds that while Uniswap focuses on spot trading or physical token trading, SushiSwap is expanding into other verticals including lending, borrowing and IDO (DEX initial offering, which refers to the subscription of new tokens).
3 overhangs on the SushiSwap token
SushiSwap’s token (SUSHI) has underperformed both Uniswap’s token (UNI) and the broader decentralized forex market since the start of the year.
Dorman attributes the underperformance to three overhangs that “do not impact SushiSwap’s core business but rather create opportunities to buy growing projects from depressed multiples.”
The first overhang is the selling pressure resulting from the acquisition of the SushiSwap tokens which were donated to entice users to switch to the platform.
Dorman explains that in addition to creating the SushiSwap tokens which are freely tradable, the original founders also created an excessive number of tokens that they held in their corporate treasury so that they could give them to people who came and went. have used the platform.
“So that was the incentive mechanism, but all of these tokens that they were offering had terms attached to them with regards to when they unlock,” he said. “Because all of these inflationary rewards were handed out very early on, it created a big overhang where six months later they were going to unlock and when they unlock these early adopters can sell them on the open market.”
This additional supply of tokens creates selling pressure and drives the price down in the short term, but it doesn’t change SushiSwap’s business itself, according to Dorman.
Another overhang is the explosive growth of PancakeSwap (CAKE).
Like SushiSwap, PancakeSwap is a fork of Uniswap designed for the Binance Smart Channel instead of the Ethereum network. PancakeSwap is said to have taken some
away from Uniswap and SushiSwap, just like how SushiSwap converted Uniswap users to its own platform.
“People thought it would make SushiSwap less desirable,” he said, “but what we’ve found is we’re in a rising tide environment, all the boats where just like Burger King and McDonald’s can be successful and just as Uber and Lyft can be successful, it is clear that the market can absorb multiple decentralized exchanges. “
The launch of the latest version of Uniswap – Uniswap V3 – also created an overhang for the SushiSwap token. The new protocol could boost Uniswap’s already rapid growth, but Dorman thinks investors may have misinterpreted the story here.
“I think the market thought Uniswap’s success would weigh negatively on SushiSwap and quite the opposite,” he said. “The more successful PancakeSwap and Uniswap, the more confidence it gives people in the idea of automated market makers and decentralized exchanges, it just leads to higher volumes for everyone.”
Dorman’s Arca Digital Assets Fund is invested in both Uniswap and SushiSwap.
SushiSwap’s token could triple, 2 more tokens dumped
Having established these overhangs as short-term impacts, Dorman estimates that SushiSwap’s token should trade at a minimum of 10 times sales, which would place its valuation at a market cap of $ 6 billion or 3 times greater than its market capitalization of $ 2 billion today.
Ultimately, what matters most to Dorman in his investment decision making is how SuishiSwap’s token is designed to increase economic value.
He explains that while Uniswap is a larger and faster growing company, its token is not yet generating value because all of Uniswap’s revenue goes to the liquidity providers who market on the platform.
However, SushiSwap distributes one sixth of its income to token holders in the form of a dividend.
According to Dorman, SushiSwap now annualizes around $ 600 million in revenue, which means $ 100 million a year goes directly to token holders. Meanwhile, due to its market cap of $ 2 billion, $ 100 million per year on a market cap of $ 2 billion equates to a 5% dividend yield.
“Besides the fact that this is one of the fastest growing projects of all decentralized finance, you actually get a cash return by holding tokens,” he said. “So it’s very similar to the type of analysis you would do for a stock or a bond, you may be excited about the growth prospects, but at the end of the day you also get some sort of real return component.”
Dorman performed similar valuation analyzes of other tokens. He shares two favorite under the radar tokens that he says are well-designed to capture that economic value as businesses grow.