Message: security varies from crypto to crypto

A few days ago, Messari published a report analyzing the demand for security when it comes to crypto assets.

The analysis is based on an earlier model, the Expected Demand for Security Model (EDSM), according to which the key driver for the price of a native blockchain asset is precisely the demand for security from all current and future infrastructure, applications, assets and users on its network.

According to this model, other metrics such as total value locked (TVL), maximum extractable value (MEV), revenue, productivity and narrative are useful, but to a lesser extent than security.

This model predicts that demand for security grows as potential new use cases are unlocked, thereby creating opportunities for new users to arrive.

The effect of security on the price of crypto according to Messari

This requirement for security will have an impact on the market value of the original assets of individual blockchains, but the report released a few days ago adds that it depends on the applications, the users who use them, the asset itself, the infrastructure and the network.

So not only does the demand for security vary from crypto to crypto, but it also affects the price differently depending on the original cryptocurrency being considered.

Analyzing some specific cryptocurrencies in detail, Messari’s report concludes that from this point of view, Ethereum would be underpriced compared to younger ecosystems such as Avalanche and Solana.

In contrast, cryptocurrencies from these relatively recent projects will be priced more aggressively due to the growth phase of their ecosystem.

Even TRON at this point would be undervalued in this regard as it has been around for quite some time now and has now been shown to work well.

What Messari seems to be implying is that during the early growth phase of a crypto project, the price of its native cryptocurrency may be overpriced, until the moment it has demonstrated that it can guarantee high levels of security.

It also seems to mean that this could be the main dynamic behind the price performance of the various native cryptocurrencies of blockchains. In fact, given that the cryptocurrencies that have now proven to be more secure over time also appear to be the most undervalued, it is possible that the emergence of new projects resulting in overvaluation of their native cryptocurrencies could somehow drain capital from those who have become who have been around the longest.

Speculation vs investment

The background for this phenomenon may be speculation.

In fact, many speculators are not interested in making long-term gains, but are instead more likely to look for the “big score” by investing in projects that have seemingly great potential but have yet to explode.

Therefore, they tend to prefer those cryptocurrencies that can provide significant returns, especially in the short or medium term, and forget about those that have already struck until now.

Given that the crypto markets are still very speculative, with more speculation than actual investment, this phenomenon is particularly significant and evident.

For example, in recent months, Solana has amply demonstrated that its security levels are still far from those of well-established projects like Ethereum, but SOL’s price remains about ten times higher than its pre-bubble price.

In contrast, the current price of ETH is just over four times higher, and that of Bitcoin even less than three times higher.

There will therefore be a widespread overestimation of the market value of native cryptocurrencies of projects that have not yet been shown to be secure, and an underestimation of those that have now been shown to be secure.

The reason may be the speculators’ preference for newer projects with greater potential for growth rather than those that are now established and apparently less likely to make new booms.

On the other hand, projects that have not yet been proven to be safe also inevitably have high risks.

What has been striking in recent years was the case of IOTA, for which there were huge expectations for the project, and which instead plunged into the abyss precisely because of serious security problems.

So speculators tend to prefer riskier projects because they hope to make more money from them, but it is not clear whether they are aware of the greater risk they are taking or not.

Messari’s indications

Nevertheless, Messari’s report suggests that developers of crypto projects should focus on applications, development and, of course, users, and not on speculation.

In fact, in the long run, any lack of security brings big problems for crypto projects, since according to Messari, security is a crucial factor for their success.

The goal should be to increase concrete use cases, and thus also increase the demand for security that will end up adding value to the base level, i.e. the original cryptocurrency. Therefore, he also suggests working to achieve a harmonious relationship between applications, layer 2 solutions and layer 1.

Messari: the underestimation of security in cryptanalysis

Looking at the sentiment in the markets, security does not seem to be one of the features that is given the most attention by investors, and especially speculators.

A lot depends on the time horizon that investors and speculators set as a target for making gains.

Long-term investors also value security among the characteristics that a crypto project must have in order to survive and thrive.

Speculators, on the other hand, do not care about long-term survival, but only about trivial market performance in the short or at most medium term.

As speculators are probably the majority in the crypto markets, the sentiment around security does not appear to be particularly relevant, although security itself is very relevant in the long run.

The exemplary case of IOTA should again be cited, since doubts about its security had been circulating long before it had the serious problems that set the project apart.

At the time, speculators tended to be unconcerned about these risks, simply hoping that the price would rise at some point so they could sell and collect capital gains.

This was not the case and both speculators and investors in MIOTA (IOTA’s original cryptocurrency) lost at some point.

On the other hand, Messari suggests that even with regard to well-established cryptocurrencies, such as Ethereum, Tron or Bitcoin itself, security is an underestimated feature, as their market value turns out to be lower compared to younger projects. like Avalanche or Solana, who still have everything to prove in this regard.