Checking The Crops: Why FARM Token Is Still Undervalued
Harvest.Finance’s FARM token is on a moon mission, but it’s only just launched.
FARM token has been on a tear recently, rising through the CMC rankings and breaking through the very significant $100M market cap level. So, is it time to sell? Despite FARM’s moon mission, FARM token is still early on in its journey. In this article we’re going to take another look at FARM’s profit sharing model, and discuss why the majority of its market potential remains untapped.
Market Cap vs. Total Value Locked
If you look at DeFi Pulse, Harvest Finance comes in at #14 in the Total Value Locked rankings, behind protocols like CREAM and Yearn — however, this does not tell the full story. According to Harvest’s own data, there is closer to $640M in assets locked on the platform, which would rank Harvest 2 spots higher at #12. The discrepancy is caused because some assets listed by Harvest are not yet tracked by DeFi pulse.
A key metric that we often use when evaluating a DeFi token’s market potential is its Market Cap to Total Value Locked ratio. We can calculate this ratio with the following equation:
P = Market Cap / Total Value Locked
Comparing the “P” value of FARM to other popular DeFi applications, it very quickly becomes clear that FARM is still dramatically undervalued.
Remember, a lower “P” value is a good thing! A number less than 1 means that the TVL is still greater than the overall market cap of all coins in circulation! Not that this value is capped at 1, but such a low number (0.205) indicates that FARM has a long way to go still before it reaches its market potential.
Keep in mind as well that FARM is a platform designed specifically to maximize yield opportunities, and frequently lists some of the most profitable farms on the market. This means that FARM token has the potential to capture a much greater percentage of its TVL as profits (30% of all Harvest profits are used to buy back FARM directly from the exchange).
Snapshot Taken from the Harvest Finance Dashboard
The above screenshot shows TVL (blue), FARM price (gold), and Number of Harvest Accounts (grey). As you can see, the price of FARM is directly correlated with TVL. A rising TVL benefits FARM holders greatly.
Harvest manages to incentivize its token holders through using its platform profits to buy back FARM off the open market and pay it to FARM stakers. This has a three-fold benefit to its market. It:
- Rewards FARM stakers without inflating the FARM token supply
- Supports the FARM Token Price
- Creates a “lock-up” rate, magnifying the effects of the buyback (less coins for sale on the market)
At time of writing, about 70% of all FARM tokens in existence are staked on the Harvest platform. This means that — at most — 30% of tokens are available on the open market for sale. The actual number is likely much lower. This has the dual effect of buying back coins — removing them from circulation and driving up FARM value — while also increasing the lock-up rate. You could think of this combination as having the same effect as buying back with leverage on the total market cap — reinvesting profits back into the project itself.
This goes to show that despite the recent price surge to nearly $300 — FARM continues to have upward potential in the market. Why settle for the Moon when Mars is in sight?
Note: This is not investment advice, and is intended for educational purposes only. Always do your own research, and consult your financial advisor before making an investment decision.