(Updated 21. September 2022)
Theta Fuel had an identifiable role in the Theta Network: it rewarded participants who contributed bandwidth and paid for network activity. My question was whether that utility supported the investment case.
Here's the short answer:
At the time, its use case, token distribution, partnerships and historical performance supported my positive conclusion, while its uncapped supply remained a risk.
I've written about Theta Token and Theta Fuel in the past, and a separate comparison examines TFUEL and THETA.
This article documents the evidence behind that historical conclusion.
Fundamental Analysis Of Theta Fuel (TFUEL):
Let's get a better understanding of what Theta Fuel is and what its function is. After all, you don't want to invest in something that isn't needed in the long run.
Theta Fuel is the native token of the Theta protocol. It is used to pay transaction fees and node operators for running and securing the blockchain.
TFUEL is basically like ETH for the Ethereum blockchain.
To be more specific, this is how the system works:
source: thetatoken.org/
Nodes staking Theta Token receive Theta Fuel and sell it to exchanges. Then, video platforms (The YouTube types) purchase Theta Fuel and use it for running their platform and reward viewers who share their spare bandwidth - Kind of like seeds from the days of piratebay, except you're paid for it and it's legal.
This "circle of life" we see in the image above gives you a clear view of what Theta Fuel is and why it exists.
Put simply:
Theta Fuel is used to reward viewers who share spare bandwidth and to pay for activity on video platforms built on the network. The intended benefit was lower broadcasting costs for platforms and token compensation for participating viewers.
That incentive model was one reason I found the project interesting.
The Tokenomics Of Theta Fuel:
The Initial supply of Theta Fuel was 5 billion coins. That's 5x the supply of Theta Token.
Contrary to Theta Token, the supply of Theta Fuel is not capped - it has no maximum supply.
The planned inflation rate is at 5%. However, people lose access to their tokens from time to time, effectively taking them out of circulation. For this reason, the inflation rate of Theta Fuel is probably closer to 3-4 percent per year, depending on how stupid people are.
I'm also interested in the distribution of this token. For instance, do the ten riches TFUEL holders control the majority of the supply?
A high concentration of tokens might lead to price manipulation, which is bad. Luckily, TFUEL is not concentrated in the hands of the few.
After some digging, I found the largest stakers of TFUEL:
Source: https://explorer.thetatoken.org/stakes/tfuel in September 2022.
Combined, the ten largest wallets hold less than 10% of all staked TFUEL. The total amount of TFUEL they stake is 206,058,542 coins.
The total supply is roughly 5.85 billion tokens, which means that the ten richest wallets hold about 3.52% of all TFUELs in circulation.
TFUELs concentration of 3.52% is small compared to coins like Dogecoin and Chainlink, where the top 10 wallets hold over 60% of the supply.
This is great news because it means that the tokens are well distributed, not giving any wallets control over the supply/demand balance of this token.
Another thing I love about the tokenomics of TFUEL is that over 40% of the supply is staked.
This effectively takes it out of circulation and makes the price more sensitive to increased demand. In other words, the price increases more when lots of people buy the token!
The tokenomics of Theta Fuel seems good. I wouldn't say I like the inflation rate, but I understand its necessity to stimulate growth and adoption.
The Adoption Of Theta Fuel:
Adoption is probably the number one factor when analyzing a cryptocurrency project. Without adoption, I'm not even touching it (unless it's a short-term trade based on hype).
Luckily, the adoption of TFUEL is connected with the adoption of the entire Theta network, which has a large degree of adoption:
Partnerships, Investors, and Stats:
Theta listed partnerships with organizations including NASA and LIONSGATE:
source: https://www.thetatoken.org/
I interpreted those listed partnerships as evidence that Theta was gaining traction.
A Google Cloud representative described the relationship this way:
“We’re impressed by Theta’s achievements in blockchain video & data delivery. We look forward to participating as an enterprise validator, and to providing Google Cloud infrastructure in support of Theta’s long-term mission & future growth.”
— Allen Day, Google Cloud Developer advocate
Also, big names like Samsung is involved in the project:
source: https://www.thetatoken.org/
I also viewed the involvement of large strategic investors as potentially useful to the project, without treating it as a guarantee of success.
Let me also show you some stats about the activity on the Theta blockchain:
source: https://explorer.thetatoken.org/
The important stats here are that 40.35% of the supply is staked, there are 3.2 million wallets in total, and 16.8 thousand are active every day.
On the right, we see that the Theta blockchain handles roughly 30 thousand transactions every day for the past 14 days. This fluctuates over time, however.
To get a more concrete view of TFUELs numbers, let's compare them to Ethereums stats:
| Theta Blockchain | Ethereum Blockchain | |
|---|---|---|
| % of supply staked: | 40.35% | 11% |
| The total number of wallets: | 3.2 Million | 205 Million |
| Daily active wallets: | 16,800 | 700,000 |
| Transactions per day (for the last 14 days) | 21,000 | 1,000,000 |
Source: bitinfocharts.com, ycharts.com, explorer.thetatoken.org
Ethereum was far ahead of Theta on these adoption measures. That difference also informed my historical Ethereum investment analysis.
Nevertheless, Theta performs well and seems to have gained a fair bit of adoption. The partnerships and investors are really impressive. The fact that Samsung, NASA, and Lionsgate all thought, "Hey, this looks promising, let us join/invest with them!" is remarkable, to say the least.
The Team Behind Theta Fuel
I won't spend a lot of time reviewing the team, but its credentials were relevant to my analysis.
The key players are all skilled and experienced. We're talking PhDs, MBAs, and multiple prior successful startups.
For instance, the CTO and co-founder, Jieyi Long, have a Ph.D. in Computer Engineering, have developed multiple patented technologies, and got a Bachelor of Science (BS) in Microelectronics.
The CEO and co-founder, Mitch Liu, has co-founded Gameview Studios and Tapjoy and has a BS in Computer Science & Engineering from MIT. In addition, he has an MBA from Stanford Graduate School of Business.
I considered those backgrounds relevant to their roles on the project.
Also, I have to mention this:
One of their advisors on the Theta team is Steve Chen, the co-founder and previous CTO of YouTube.
Having a YouTube co-founder as an adviser gave Theta directly relevant industry experience.
In total, there are 23 people on the team behind the Theta network, including advisors.
Does Theta Fuel Have A Future?
At the time, TFUEL's role in the Theta blockchain and the network's adoption led me to see a viable future for the token, conditional on continued use.
However, let's try to look at the future growth prospects for Theta Fuel and the Theta ecosystem in general:
How Much Can Theta Fuel Increase In The Future?
Let us assume that the price of Theta Fuel will increase in parallel with the adoption of the Theta Network of decentralized broadcasters.
In 2020, YouTube had 2.3 Billion monthly active viewers. Let's use this as a benchmark and try to do some good ol' math.
At the time of writing, Theta has "millions of monthly active users" (source). Let's assume that's a solid five million.
Alright, so Theta has five million users, while YouTube has 2.3 Billion. That's 460x the number of users.
If Theta does 1/4 of the users YouTube has, that will result in 575 million monthly users, 115 times what they have right now.
However, Theta has the potential to go way beyond what YouTube is doing...
Theta is not only a YouTube-like platform - It's also a Twitch-like, Netflix-like, and Zoom-like platform.
In other words, the Theta platform has the potential to hijack users of YouTube, Twitch, Teams, Zoom, Netflix, HBO, Viaplay, Global News channels, etc.
They don't even have to compete with them to get more users: If they convince, for example, Netflix to start using their platform for broadcasting (which is good for business), Theta gains millions of new users overnight, without Netflix losing anything - it's a win-win situation!
What I'm trying to say is this:
In my upside scenario, Theta could grow by creating new streaming platforms or onboarding existing ones. That would imply substantial potential growth for Theta Fuel.
Conclusion Of Fundamental Analysis Of TFUEL
I considered TFUEL's fundamentals strong: a clear use case, reasonable tokenomics apart from inflation, an experienced team and significant growth potential.
I expected TFUEL's value to benefit if usage of the Theta network continued to grow.
That assumption supported my positive conclusion from a fundamental perspective at the time.
Historical Performance Of Theta Fuel (TFUEL):
Let's take a break from the fundamentals and look at some price charts. I'll show you how TFUEL did in the previous bull market, and how its doing in the current bear market.
The chart below shows how TFUEL has performed since March of 2020:
Between the selected March 2020 low and November 2021 high, Theta Fuel surged almost 100,000%. A hypothetical $1,000 position at those endpoints would have reached $967,500.
In the following bear market, it crashed 92%. Your $967,500 would decrease to $77,400.
Across the selected bottom-to-peak-to-decline period, the calculated return was 77.4x, or 7,640%.
Conclusion: Why I Considered Theta Fuel a Good Investment
There were four reasons I considered Theta Fuel a good investment at the time:
Theta Fuel had a clear use case.
It had meaningful adoption.
The tokenomics looked reasonable apart from inflation.
Its historical performance was strong over the period examined.