ICM Education

Why This Matters

Now more than ever, the time has come to back founders with a track record of delivering results. In the fast-paced age of AI, anything can be built much easier - agency is the enabler. Ethics and the willingness to grow collectively is now more important than ever.

At ICM Analytics, we bet on teams, their ability to deliver, and we track the fundamentals that make price appreciation of the underlying asset a bet with high odds. This education section equips you with the tools to do the same.

P/E Ratio (Price-to-Earnings)

The P/E ratio measures how expensive a protocol is relative to its earnings. It's calculated by dividing the market capitalization (or FDV) by annualized earnings.

What does it mean?

• Lower P/E = Better Value - You're paying less for each dollar of earnings
• Higher P/E - Either overvalued or market expects high growth
• P/E of 10 means you're paying 10× the annual earnings for the asset

P/E Benchmarks

Understanding what different P/E ratios mean:

• P/E under 5 - Extremely cheap, possibly undervalued or concerns about sustainability
• P/E 5-15 - Good value, reasonable pricing relative to earnings
• P/E 15-25 - Fair value, typical for established companies/protocols
• P/E 25-50 - Expensive, market expects strong growth
• P/E over 50 - Very expensive, either speculative or high-growth story

Context Matters

Traditional stock market averages:

• S&P 500 average - Around P/E 20-25
• Growth tech stocks - Often P/E 30-100+
• Value stocks - Often P/E 10-20

Crypto protocols with P/E under 10 are often considered attractive opportunities, especially if revenue is stable or growing.

Example

If a protocol has a market cap of $100M and generates $1M in daily revenue:

• Annual revenue = $1M × 365 = $365M
• P/E ratio = $100M ÷ $365M = 0.27
• This means investors are paying $0.27 for every $1 of annual earnings

Market Cap vs FDV

Market Capitalization (Market Cap)

Market Cap represents the total value of all tokens currently in circulation.

Fully Diluted Valuation (FDV)

FDV represents what the market cap would be if all tokens were in circulation (including locked, vested, and future emissions).

Why both matter?

• Market Cap shows current valuation
• FDV shows potential dilution when more tokens unlock
• Large gap between Market Cap and FDV means significant inflation ahead

Revenue (24h)

Revenue is the total income generated by a protocol in the last 24 hours. This typically includes:

• Trading fees collected
• Protocol fees from transactions
• Service charges

We annualize this number (multiply by 365) to compare against market valuations.

GMV (Gross Merchandise Value)

GMV represents the total dollar value of goods or services transacted through a platform over a specific period.

Real Example: $DUPE (Dupe.photos) has processed $75M+ in GMV with 18M+ users. See live token metrics on the DUPE Dashboard.

What does it measure?

GMV shows the total volume of commerce flowing through a platform, regardless of whether the platform profits from each transaction.

GMV vs Revenue

• GMV - Total value of all transactions (e.g., $75M in products sold)
• Revenue - What the platform actually earns (e.g., 2% commission = $1.5M)
• High GMV shows market activity and user engagement
• Revenue shows actual monetization and profitability

Example

If an e-commerce platform facilitates $100M in sales but only takes a 3% commission:

• GMV = $100M (total goods sold)
• Revenue = $3M (what the platform earns)
• GMV shows scale, Revenue shows business model efficiency

Why it matters

GMV helps you understand:

• Platform adoption and growth trajectory
• Market size and total addressable opportunity
• User engagement and transaction frequency
• Whether revenue growth can scale with GMV growth

Token Economics

Token Burns

When tokens are permanently removed from circulation, reducing total supply and potentially increasing scarcity.

Token Buybacks

When a protocol uses revenue to purchase its own tokens from the market, often to reward users or reduce circulating supply.

Circulating Supply

The number of tokens currently available and trading in the market.

Total Supply

The maximum number of tokens that will ever exist (including locked, vested, and yet-to-be-minted tokens).

Prediction Markets

Prediction markets are exchange-traded markets where participants can bet on the outcome of future events. These markets harness the "wisdom of the crowd" to generate probability estimates for real-world outcomes.

How do they work?

In prediction markets, you buy shares in an outcome. If your predicted outcome occurs, your shares pay out (typically $1). If not, they're worthless.

• Price of $0.60 = Market believes 60% probability of outcome
• Price of $0.30 = Market believes 30% probability
• Profit = Payout - Price Paid (if you're correct)

Key Prediction Market Platforms

• Kalshi - First CFTC-regulated exchange for event contracts (valued at $11B)
• Polymarket - Decentralized prediction market on Polygon (valued at $10B+)
• These platforms enable trading on elections, sports, economics, and more

Why Prediction Markets Matter

Traditional betting houses ban winning bettors. Prediction markets operate differently:

• No banning for winning - Markets want liquidity, not losers
• Scalable capital deployment - Deploy $500K today, $50M tomorrow
• Price discovery - Markets aggregate information efficiently
• Decentralization - No single point of failure or censorship

APY vs ROI

Understanding the difference between APY and ROI is crucial for evaluating investment performance, especially in DeFi and vault strategies.

ROI (Return on Investment)

ROI measures the simple percentage gain or loss on an investment, regardless of time.

Example: Invest $10,000, now worth $10,571 = ROI of 5.71%

APY (Annual Percentage Yield)

APY projects your returns to a full year, accounting for compounding. It normalizes returns across different time periods.

Why APY matters more for comparison

• Time normalization - Compare a 30-day vault to a 90-day vault fairly
• Compounding effect - APY assumes reinvestment of returns
• Industry standard - DeFi protocols report APY for consistency

Example Calculation

A vault generates 5.71% ROI in 33 days:

• Days running: 33
• ROI: 5.71%
• APY = (1 + 0.0571) ^ (365/33) - 1 = 63.2% APY

The same ROI over 365 days would only be 5.71% APY. Time matters!

DeFAI (Decentralized Finance + AI)

DeFAI represents the convergence of decentralized finance protocols with artificial intelligence. These systems use AI agents and machine learning models to make automated financial decisions on-chain.

How DeFAI Works

• AI Models - Trained on historical data to identify patterns and opportunities
• On-Chain Execution - Decisions executed transparently via smart contracts
• Decentralized Governance - Token holders can participate in protocol decisions
• Automated Strategies - No human intervention required for trade execution

Types of DeFAI Applications

• AI Hedge Funds - Automated trading and betting strategies
• Yield Optimization - AI-driven allocation across DeFi protocols
• Risk Management - Automated position sizing and hedging
• Market Making - AI-powered liquidity provision

Advantages Over Traditional Finance

• Transparency - All trades visible on-chain
• Accessibility - Anyone can deposit, no minimum investments
• 24/7 Operation - AI doesn't sleep, markets never close
• No Counterparty Risk - Smart contracts hold funds, not custodians

Win Rate & Expected Value

In prediction markets and sports betting, win rate alone doesn't tell the full story. Understanding expected value (EV) is essential for evaluating strategy performance.

Win Rate

A 58% win rate means winning 58 out of every 100 bets placed.

Why Win Rate Isn't Everything

• Odds matter - Winning 70% of -200 bets is worse than winning 40% of +300 bets
• Stake sizing - A big loss can wipe out many small wins
• Edge vs variance - Short-term results vary; long-term edge is what matters

Expected Value (EV)

Positive EV means the bet is profitable over time, regardless of individual outcomes.

Combining Metrics

The best strategies optimize for:

• Consistent win rate - Above 55% indicates edge
• Positive EV - Profitable over large sample sizes
• Risk management - Proper stake sizing to survive variance

User Metrics & Retention

Beyond financial metrics, understanding user behavior is critical for evaluating the long-term viability of any protocol or app. Teams that deliver results show it in their user numbers.

Monthly Active Users (MAU)

The number of unique users who interact with a platform at least once per month. This is the standard measure of platform engagement and growth.

Retention Rate

High retention indicates product-market fit. Users keep coming back because the product delivers value.

Daily Active Users (DAU)

Users who interact daily. The DAU/MAU ratio (often called "stickiness") shows how habit-forming the product is:

• DAU/MAU > 50% - Extremely sticky, daily habit
• DAU/MAU 20-50% - Good engagement, regular use
• DAU/MAU < 20% - Occasional use, may need improvement

Why User Metrics Matter for Token Valuation

User growth drives revenue growth. More users = more transactions = more fees = higher token value. But quality matters more than quantity:

• Retention over acquisition - 1,000 retained users > 10,000 churned users
• Revenue per user - Higher spending users indicate stronger product-market fit
• Organic growth - Users referring others shows genuine product love

Why These Metrics Matter

Understanding these metrics helps you:

• Compare protocols fairly across different sizes
• Identify potentially undervalued opportunities
• Assess whether a token price is justified by fundamentals
• Understand dilution risk from token unlocks
• Make informed investment decisions

Ready to Apply This Knowledge?

Now that you understand the metrics, explore our analyses to see them in action: