Delphi Digital Researcher: How to Determine if a Project is Truly Undervalued?

Author: Marcus (@that1618guy), Delphi Digital Researcher

Compiled by: Jiahua, ChainCatcher

When screening projects, there is a question I have been pondering repeatedly: If a project's revenue can cover its current market value in less than two years, why are you still reluctant to buy it?

The answer is almost never the revenue itself, but whether you believe that this revenue can be sustained.

This is the xRev multiple, which is the market value divided by annualized revenue, and it measures something real. It’s not about how cheap it is, but about sustainability.

Two ongoing cases illustrate this point well. PUMP and AERO are both calculated at low single-digit multiples based on past revenue, specifically 2.3 times and 3.5 times, respectively. However, in the past 30 days, PUMP has risen by 87%, while AERO has dropped by 14.5%.

The same screening results have led to completely opposite trends.

In June of this year, the market only gave PUMP a valuation of 1.3 times, meaning the market did not even believe that this protocol could maintain its current revenue for over 16 months. By July, this skepticism began to dissolve, and the subsequent rise was almost entirely due to a revaluation.

AERO, on the other hand, is the exact opposite. Since its price peaked in December 2024, its multiple has nearly doubled, not because the market has become more confident in it, but because the speed of revenue decline has outpaced the speed of market repricing.

If this framework holds, then the trading logic is not to "buy at the lowest multiple". Instead, it is to "buy the multiple that is about to no longer be doubted by the market". When a previously doubted revenue source proves it can sustain itself, even if the market value rises faster than revenue growth, the revaluation itself can account for most of the increase.

What xRev Really Measures

xRev is simple: market value divided by annualized revenue. When xRev is 1.0, it means the protocol's annual revenue is equivalent to its entire market value. Below 1.0 means it takes less than a year.

When seeing such numbers, the first reaction is often that the market has mispriced it. But a more accurate understanding is that the market is applying a significant sustainability discount to this revenue. The market is essentially telling you: it believes this revenue is just a temporary phenomenon, that it will decline, and that it will not recover.

Therefore, an extremely low xRev is not a buy signal; it is more like a way for the market to express skepticism. The real alpha lies in judging whether this skepticism is justified.

Before diving into the cases, it is necessary to make a distinction because the initial xRev level of a token determines what type of trading opportunity it may evolve into later. They can be divided into two categories.

Category A tokens are inherently cheap: a new protocol finds product-market fit in a high-fee lane, and revenue explodes rapidly, but the market still does not believe this revenue can be sustained, so xRev starts around 1 times or even below 1 times. High revenue, small market cap, and extreme market skepticism. The only reason their market cap is low is that the market has not yet believed in their revenue story. Thus, these tokens are the most likely candidates for a "belief revaluation".

Category B tokens are inherently expensive: from day one, the market prices them as future revenue giants, so xRev is high from the start, with all optimistic expectations already priced in. There is no "skepticism" here that can prompt you to buy; you can only wait for the project to fulfill the expectations that the market has already paid for.

AERO undoubtedly belonged to Category A when it launched. PUMP, on the other hand, undoubtedly belonged to Category B. Let’s see what happened to them respectively.

Pump: Category B Project Begins to Realize Past Premium

PUMP is a typical Category B case.

PUMP issued tokens after a $1 billion financing round, with a corresponding diluted valuation of $4 billion, equivalent to over 9 years of the protocol's revenue at that time; based on circulating market cap, the opening xRev reached 4.5 times.

The market paid a premium for belief in advance. Over the next year, the market has been recovering this premium.

At the time, this was not difficult to understand. Meme coin trading volumes are cyclical, competitors have been vying for order flow, and no one could be sure whether this platform could maintain its market share.

From the xRev chart, it is very clear to see how these pre-priced beliefs gradually disappeared. For a full 11 months, xRev was almost continuously compressed, while the protocol still generated over $200 million in total revenue each quarter.

Figure 1: PUMP's xRev since token issuance, using a 30-day revenue window.

There are two things in this chart that are particularly noteworthy.

First, the restructuring in April 2026 brought a mechanical xRev adjustment, not just a change in market sentiment.

Pump burned all previously repurchased tokens, with a total value of about $370 million, accounting for 36% of the circulating supply at that time. Subsequently, the protocol locked 50% of its net revenue into an irrevocable buyback and burn contract, which will last for a year.

This destruction removed about one-third of the circulating market cap overnight, so from a calculation standpoint, xRev must have immediately decreased.

But what is truly noteworthy is that even so, the market continued to discount.

After the burn, xRev dropped from about 1.7 times all the way down to 1.29 times on June 6. At this price, PUMP's market cap was even less than its 16 months of revenue, and half of that revenue was already contractually determined to be used for purchasing and burning PUMP.

This is what it looks like when market skepticism peaks.

Figure 2: Pump's quarterly protocol revenue, with the portion used for buybacks indicated.

Second, the revaluation only truly starts when the revenue story begins to change.

The week of August 3 to 9 was the first time in Pump's history that weekly fees exceeded $10 million, with $5.02 million used to purchase and burn 2.15 billion PUMP.

In the past 30 days, revenue reached $37.9 million, corresponding to an annualized approximately $460 million, while the past 12 months' revenue was $457 million. The current run rate is almost completely consistent with the past year's level, and cumulative protocol revenue has already surpassed $1.2 billion.

The market spent a year determining that this revenue was just a coincidence, but it not only still exists but is also turning upward again.

What is the result?

xRev has expanded by about 80% from the low of 1.29 times on June 1, reaching 2.3 times, while pushing PUMP up 87% in the past 30 days, with a circulating market cap of $1.07 billion. This does not require explosive revenue growth.

Most of the gains in this rally essentially come from the market reassessing the sustainability of revenue. More and more people are beginning to believe that at the current revenue level, approximately 2.3 years of revenue is equivalent to the current market cap, so they are willing to pay a higher price. Even if revenue remains unchanged, this will also push xRev up.

So my point is that the truly changing variable is not revenue, but the market's belief in this revenue. Of course, it must be noted that I am using circulating market cap.

If calculated based on fully diluted valuation, PUMP's FDV is $2.3 billion, corresponding to an xRev of about 5 times, and the token unlock in August is continuously narrowing the gap between these two numbers. Furthermore, regardless of how the buyback contract is designed, the revenue of the meme coin issuance platform remains cyclical.

If weekly fees fall back below the approximately $5 million to $6 million range maintained throughout the summer oscillation period, then this revaluation could also quickly reverse just as it formed.

Aerodrome: When Low Multiples Are Actually Telling the Truth

AERO is the exact opposite case.

On paper, AERO seems like a more attractive trade.

With a market cap of $404 million, corresponding to $116 million in annualized revenue over the past 12 months, its xRev is only 3.5 times. Moreover, unlike most protocols, 100% of AERO's revenue flows to veAERO stakers. Real earnings, no value leakage, and 54% of the supply is locked.

It sounds like a good buying opportunity. But the xRev chart will tell you why it shouldn’t be bought now, at least for the time being.

Figure 3: AERO's xRev since January 2024, using a 30-day revenue window.

At the beginning of 2024, AERO was the most typical Category A project and the best bullish case for the entire framework. This was a new protocol that had just found product-market fit, and after riding the explosive growth wave of Base, its revenue grew rapidly, far outpacing market confidence.

At one point, the market only gave it a valuation of less than 1 times, which is less than a year’s revenue. This time, the market's skepticism was wrong.

Revenue continued to grow, and market confidence followed suit. By the time the price peaked in December 2024, xRev had expanded to 3.4 times, with a market cap of $1.5 billion.

The real trading opportunity is to buy AERO when it is below 1 times xRev and then hold until the market's belief changes.

But let’s see what happened next.

Since that peak, the token price has dropped by 73%, while xRev has nearly doubled to 8.8 times. This combination can only occur in one way: the speed of revenue decline has outpaced the speed of price decline.

AERO's annualized instant revenue has dropped from a peak of about $443 million to about $46 million now. The total quarterly protocol revenue peaked at $106 million in Q4 2024, but by Q2 2026, it had fallen to just $29.3 million, a 72% decline.

Figure 4: Aerodrome quarterly protocol total revenue.

This is the opposite of the Pump case.

The price of AERO has plummeted, not because the market is irrationally undervaluing a high-profit protocol.

In my view, the market is actually pricing a continuously declining revenue curve correctly; the speed of price adjustment is even lagging behind the deterioration of revenue.

In the past 30 days, AERO has dropped 14.5%, while the market has pushed PUMP up by 87% during the same period. This is precisely the "revenue sustainability discount" mentioned earlier at work. Of course, to be fair to AERO, there are currently several potential catalysts that could change the situation, including the merger with Velodrome, the predictive allocation upgrade launched in July, and the listing on Binance.

Any one of these factors could reverse the revenue trend. If the revenue growth rate turns back to positive, then the same valuation re-evaluation mechanism that previously drove PUMP's rise, which occurred with AERO in 2024, could reappear.

But this is precisely the point.

If you buy AERO now, you are really betting on a change in the revenue trend, not just on the fact that it looks cheap based on the multiples of the past 12 months.

So, under what circumstances is xRev reasonable?

xRev is a ratio, so looking at it in isolation as it rises or falls doesn't tell us much.

Every change can be precisely broken down into two parts: from a logarithmic change perspective, the change in xRev = change in market cap - change in revenue.

Multiple compression may mean that the speed of price decline exceeds that of revenue, or it may mean that the speed of revenue growth exceeds that of price. Multiple expansion may mean that the speed of price growth exceeds that of revenue, or it may mean that revenue is declining, but the price is declining more slowly.

The same chart pattern may correspond to completely opposite trading opportunities.

Therefore, before interpreting any change in xRev, we should first ask: which leg is driving it? This breakdown also gives "reasonable valuation" a more experiential definition.

When both market cap and revenue are changing, but xRev remains stable over the long term, a protocol can be considered to be trading at its reasonable multiple. This means the market is repricing the token one-to-one according to changes in fundamentals.

The multiple that the market ultimately stabilizes at during this phase is its valuation of the protocol's revenue sustainability. By observing the degree to which the price deviates from this level, we can further judge where the signals lie.

Below is the xRev chart for AERO, divided into three consecutive historical phases.

Figure 5: AERO's xRev history and its three phases.

The first phase occurred in early 2024, which was a phase of belief re-evaluation.

The market cap grew by 58 times, and revenue grew by 26 times. Both legs were experiencing explosive growth, but the price was running faster as the market began to believe in the story.

The second phase is the reasonable valuation range, which is also the part of the chart that is most easily underestimated.

From May 2024 to March 2025, for 11 consecutive months, xRev maintained between 1.7 times and 3.0 times, with a median of 2.2 times. During the same period, the market cap fluctuated between $223 million and $1.57 billion, while annualized revenue changed from $141 million to $491 million.

In other words, the two data points experienced huge fluctuations of 4 to 7 times, but xRev remained basically unchanged. This means the market had formed its own pricing consensus: a dominant Base DEX has revenue worth about 2 to 3 years.

The third phase broke this range.

Since April 2025, AERO's market cap has hardly changed, from $350 million to $404 million, but annualized revenue has decreased by 67%. Thus, xRev approached a doubling, while the price side contributed almost nothing. If we conduct the same phase analysis on PUMP, we will see a completely different structure.

Figure 6: PUMP's xRev history and its different phases.

The chart for PUMP is almost a mirror image of AERO, but with one very key difference.

It started from a typical B-class project position, opening with an xRev of 4.5 times, as market confidence had already been priced in.

Thus, the first phase is actually the continuous retraction of this pre-paid confidence.

During this period, the market cap decreased by 42%, while revenue only decreased by 13%. However, PUMP's business itself did not experience any structural issues. The market was simply retracting the previously paid premium.

The shaded area in the chart represents the subsequent phase of about six months, during which xRev fluctuated between 2.6 times and 4.4 times. It seemed that the market had found a stable level, but in reality, it had not.

By February, this range was broken again, entirely due to sell-offs on the price side, while at the same time, the protocol's revenue achieved its best quarterly performance in history. Subsequently, the restructuring in April mechanically reset the numerator. Pump destroyed all previously repurchased tokens, with a total value of about $370 million, accounting for 36% of the circulating supply.

Since market cap is "price × circulating supply," directly deleting one-third of the circulating supply without anyone selling a single token would reduce the circulating market cap by one-third overnight. Thus, xRev immediately dropped from about 3 times to about 1.7 times.

This change does not contain any information about market belief. The next two months then entered a surrender phase. Both market cap and revenue legs changed slowly, ultimately causing xRev to hit a low of 1.29 times.

This low point marks the moment when a B-class token completely transforms into an A-class structure. High-level and already validated revenue, compressed market cap, and the market's strongest skepticism.

The third phase then shows what happens after this skepticism is broken. The market cap increased by 87%, and revenue increased by 43%.

This is precisely the same quadrant that AERO was in at the beginning of 2024.

Is revenue maintaining or declining?

To better judge whether the revenue behind a multiple is maintaining or declining, we can calculate xRev using two different revenue data sets. The past 12 months xRev uses market cap divided by the cumulative revenue of the past 12 months.

Thus, it actually integrates all months of the protocol's income over the past year, whether high-income months or low-income months will be counted. The instantaneous xRev uses the same market cap, divided by the annualized result of the most recent 30 days of revenue.

It answers another question: how many years would it take to generate revenue equivalent to the current market cap at the protocol's real earning speed today?

Both use exactly the same numerator. Therefore, any difference between the two numbers can only come from one place: the revenue trend.

If revenue has remained stable, then the earning speed over the last 30 days should be similar to the average speed over the past year, so the two multiples would also be basically the same. If revenue is declining, then the cumulative data from the past 12 months still includes those high-income months that no longer exist, and the past 12 months xRev will appear abnormally cheap.

Figure 7: Past 12 months xRev vs. current running speed xRev.

AERO is a typical case of this trap. According to the past 12 months, its xRev is only 3.5 times, meaning that about 3.5 years of revenue is equivalent to the current market cap.

But this conclusion holds only if it can maintain the average earning speed of the past year in the future. The problem is that the past year includes some revenue that is now two to three times the quarterly amount. According to today's real revenue speed, the time required is actually 8.8 years.

You can think of it as a restaurant. This restaurant made $1.2 million in sales last year, but now it can only make $30,000 a month. Someone tells you with last year's numbers: "This restaurant only sells at 1 times sales." But according to its current real operating level, you are actually paying 3.3 times its current annual sales.

The gap of about 2.5 times between AERO's two xRev is essentially the same issue.

PUMP, on the other hand, is completely different.

Whether calculated based on the past 12 months or the current running speed, its xRev is about 2.3 times. Today's revenue speed is basically consistent with the average level of the past year. This means its revenue base has not been damaged. Therefore, regardless of how xRev changes next, the main changes will occur on the price side, which is market belief.

Conclusion

PUMP initially belonged to B-class. It took a year to digest the high premium at the time of token issuance, and it has just transitioned from the phase where the market was most skeptical of it into a phase where it can gain returns through valuation re-evaluation, while its revenue base has remained largely unchanged.

AERO initially belonged to A-class. It underwent a valuation re-evaluation in 2024, but since then its multiple has been rising in the wrong way, as the speed of revenue decline has outpaced that of price.

What is truly worth seeking are those tokens that are currently in A-class structure. Verified high revenue, compressed market cap, and more importantly: the market has not yet believed in this story. This is the starting point that can allow valuation re-evaluation to complete most of the upward movement for you.

By the way, many newer revenue-generating projects are actually in A-class now. They can generate six-figure revenue daily, but xRev is still suppressed below 1 time.

The market currently believes that this revenue is all just a temporary phenomenon. Just like when the market thought AERO was only 0.7 times xRev, and like when the market thought PUMP was only 1.29 times.

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