Executive Summary

• On a 4-week rolling average basis, Banana Gun (BG) is making ~$52M in annualised revenues, with ~$21M accruing to tokenholders (17% APY)
• $BANANA trades at a conservative P/S multiple of 4x despite the presence of compelling growth drivers and structural tailwinds
• FDV is a meme: $BANANA faces little supply shocks from the team and treasury allocation for the foreseeable future
• The optionality for vertical integration creates a massive opportunity where annualised revenues and earnings could triple
• Upcoming product launches will further strengthen the moats that BG already possesses and position them more favourably against competitors
• While market, competitive and regulatory risks exist, they are well mitigated

The Frontend Wars

Source: Flashbots

In the last 7 days, frontends on Ethereum generated ~$3.6B worth of trading volumes ($185B annualised). Longtail assets (i.e. non ETH/BTC/pegged assets) dominated the volume share at 69% ($2.45B). The top few frontends by volume share are familiar names: Uniswap (despite FE fees), Cowswap, 1inch. However, BG generated a cheeky $129M in volume, approximately 5% of longtail assets’ trading volumes.

I recently came across an article by Mason that talks about the privatisation of orderflow, and how the proliferation of shitcoins led to the growth of TG bots. As the byproduct of a growing asset class, traders are now more sophisticated and are constantly looking for ways to improve speed and avoid MEV. The users of these bots are typically price insensitive, valuing speed/convenience over execution. We’ve seen significant uptake in TG bots despite the hefty 0.5%-1% fees charged on swaps/snipes.

Source: whale_hunter

Diving into market dynamics for TG bots, we can see that 98% of volume is concentrated in Ethereum and Solana. Trojan leads the pack in 7D volumes ($325M), given their dominance on Solana, while BG and Maestro did $167M and $142M respectively.

Although BG on SOL was released around Trojan’s launch, I do think that Trojan’s dominance is largely due to better referral programme (tiered reward system) and airdrop farming. BG seems to have its roots and community in the ETH ecosystem - not surprising given its origin. Notably, the once-dominant Maestro on ETH is gradually losing market share, in part due to the existence of a $BANANA token and the high success rate of BG’s snipes (I’ll get to this later)

There are four important takeaways here:

1. Owning the relationship with the end users has become increasingly important;
2. Optimising speed and execution has become a systemic trend as users become increasingly sophisticated.
3. The use of TG bots for shitcoin trading is becoming a mainstay
4. TG bot users tend to be incentive-driven (i.e. tokenholder + user, referral programmes, rakebacks, airdrops, etc)

How Does BG Make Money and Acquire Users?

BG generates revenues by charging a 0.5% fee on manual buys/limit orders (ETH only), and a 1% fee for snipes or trades on all other supported chains. Using the 4-week average, BG is making ~$993K per week ($52M annualised). 40% of all revenue gets distributed to tokenholders, excluding treasury, CEX balances, and half of the team’s tokens. Only 2.9M out of the 3.4M circulating supply is eligible for revshare, amounting to ~17% APY at the time of writing.

To create user stickiness, the team has designed a rakeback programme that rewards users in $BANANA for doing volumes on the bot. The actual $BANANA rakeback is a function of the dollar value of fees paid and a discretionary multiplier. This programme is partially funded by treasury buybacks, reducing reliance on emissions.

Understanding $BANNANA Tokenomics

The team owns 10% of supply, with the first half unlocking on 14 Sep 2025 and the remainder unlocking on 14 Sep 2031. Both tranches will undergo a 3 year linear vest from the unlock date. The team is able to commit to this ridiculously long vesting schedule as half of their tokens are eligible for revshare - fair play as they needed a way to be incentivised. This displays a high level of conviction as they only make money when BG does, removing the need for them to sell their tokens for profit.

Bottom line: The team’s incentives are aligned with tokenholders.

I would like to point out that the original treasury had 60% of supply (lock txn here) but was later revised to 45% on their docs after burning approximately 15% of supply. In the original schedule, 250K tokens is vested per month for two years. Although vested tokens from the treasury should amount to 3.25M in Oct 2024, net withdrawals from the vesting contract is only 2M tokens to date.

One thing is clear - given the immense amount of revenues that BG is making, emissions are not needed for continued growth in product adoption.

Thesis

There is an Insane Revenue Opportunity in BG’s Orderflow

Source: whale_hunter

As mentioned previously, BG benefits from the growing preference for privatised execution and time-to-market. Felipe’s research noted that BG wins ~88% of snipes, leading to natural monopolies in this sub-segment. This is in part due to the “high bribe culture” for extremely hyped launches (check out the query above).

Source: Arkham (Banana gun top counterparties by outflows)

From BG’s profile on Arkham, we can see that users have paid close to $100M in priority fees (bribes) for their snipes, with majority accruing to titan. This is slightly strange, given that titan was a relatively new player (Apr 2023) in the building scene and lacked the track record of the incumbent beaverbuild.

Diving deeper into this, it’s observed that titan generated more profits than beaverbuild despite building half the blocks. There’s a reasonably strong argument that BG has some sort of “exclusive orderflow arrangement” with titan (not necessarily bad).

Source: libMEV (data since merge)

Here’s the kicker… What if BG kept the orderflow to themselves instead? Should they decide to become a block builder, BG could easily triple their annualised revenues overnight (assuming $ETH = $2.6K).

Imagine a world where $BANANA holders get ~51% APY, funded from both frontend and block building revenues.

We Will Likely See Little-To-No Supply Shocks

We’re all too familiar with the games played by teams around major cliff unlocks and the implications of a supply glut. In $BANANA’s case, no locked supply will hit the market until Sep 2025 (start of linear vesting treasury and team allocation).

I have strong reasons to believe that selling pressure from the treasury/team will be minimal due to the following:

1. BG is making lots of money, with the optionality to grow their revenues by a significant margin should they decide to become a block builder
   1. Their strong revenues enable them to fund growth and operations without selling unlocked treasury tokens
   2. Their under-utilised treasury tokens supports this argument
2. The culture of BG’s community and source of conviction is rooted in the vision for BG to be a self-sustaining cash cow (i.e. long team cliffs, revshare for team)
   1. The team understands that the large sale of these unlocks will erode the community’s culture/conviction in that long-term vision, creating severe implications for continued growth and adoption.

I would not be surprised if the team relocks their team and treasury tokens when unlocks come next year. If this happens, I am expecting the relocked team tokens to be included in the revshare pool (this is after all within their rights).

Strong Narrative and Fundamentals

Source: Brent

BG is a unique platform with both short-term tailwinds and strong fundamentals. Recently, there’s been some debate on whether funds will make memecoins a core portfolio allocation. Here’s how I’m thinking about this:

1. If funds were to bid memes, they would most likely stick to bluechips given size/liquidity constraints
   1. While they are highly unlikely to use a tool like BG, it is still a net-positive for the memecoin sector (driving prices and sentiment up)
   2. This leads to the proliferation of micro/small cap memecoins and resultantly, more activity on tools like BG for users to capitalise on these opportunities
2. If funds refuse to bid memes but would still like to have exposure to this segment, buying into a project like $BANANA as a memecoin proxy makes perfect sense. It will be a “sell shovels during a gold rush” type of play for funds who are more thesis and fundamentally-driven.

On the topic of fundamentals, $BANANA appeals to investors who have a preference for quality assets with reasonable valuations. Using a 4-week rolling average for data smoothing, BG is making annualised revenues (earnings) of $52M ($21M) and trades at a conservative P/S and P/E of 4x and 8x respectively. This is lower than the average multiples of comparable projects (DEXes being the next closest category).

Their annualised revenues/earnings have grown ~4.5% per week using YTD data. What’s interesting here is the multiple compression since Jan 2024, where P/S and P/E were 12.5x and 26.5x respectively. While factors such as waning growth prospects on ETH/SOL played a part, I believe $BANANA is poised to rerate higher as:

1. Investors will want to look for apps that have the scale to “own the stack” (fat apps: Aave, Uniswap, Ethena, etc)
2. There are impending growth catalysts (to be discussed in the next section), where the market isn’t pricing a revenue/earnings catch-up

New Growth Drivers

There are several exciting catalysts to look forward to. These include:

1. Webapp (ETA Q3’24): Browser-optimised trading terminal for prosumers, creating a CEX-like UX for onchain trading/sniping
2. White label product: BG will be integrating with dextools (and potentially more) for greater orderflow (more frontends = better distribution)
3. Others: App store (look at moonshot), more chains, more utility for Banana credits, etc

I believe that the future of TG trading bots is multi-platform, and that having a sophisticated webapp with superior UIUX will lower the barriers to adoption for such tools. Additionally, the white label products will serve as useful funnel to acquire more orderflow, potentially leading to user conversion into the native BG platform.

These initiatives are strong differentiators in a relatively commoditised category, and I am confident that BG is on the right path for continued growth in market share.

Risks

Dwindling Onchain Activity on ETH and EVM Chains

Since the start of 2024, onchain activity on SOL has been outpacing ETH. As this trend will likely continue for the foreseeable future, it does not bode well for BG. Although BG has a presence on SOL, it faces steep competition from alternatives like photon, bonkbot and trojan. However, I do believe that the upcoming webapp/appstore is differentiated and will serve as risk mitigators.

Competition from Upmarket Incumbents

While projects like Uniswap Labs are focused on growing volumes in the upmarket (i.e. intent-based execution for large orders), we can’t ignore the threat of competition if BG grows too much. However, the likelihood of this happening should be moderately low given that volumes in micro-cap assets represent a very small share of total onchain trading volumes.

Memecoins Going Out of Trend

Source: DefiSquared

Every bull cycle can be generalised into themes, and we’ve seen the speculative rise (and fall) of sub-categories within DeFi, L1s, NFTs, and etc. So far, the play this cycle has been memecoins, which hugely benefitted BG. Nothing lasts forever - and memecoins may go out of trend if the market finds another speculative narrative to pile onto. However, I do think that this will not occur in the near term.

Regulatory Risk: Potential SEC Enforcement Actions

The SEC has filed lawsuits against > 40 crypto firms for securities law violation since 2023. However, the SEC’s focus often fell on high-profile platforms and exchanges that facilitated large volumes in tokens with characteristics resembling securities. Examples include Crypto.com, Robinhood, Consensys, Uniswap, Kraken, and Binance. While this risk can’t be ignored, it is unlikely to happen given BG’s small scale of operations relative to the firms in SEC’s crosshairs.

Simple Valuation Exercise

I will outline my bear, base and bull case assumptions based on the following

Bear: New entrants from upmarket incumbents (i.e. Uniswap), dwindling onchain activity on ETH, Trojan continues to dominate SOL marketshare. Big dip in growth.

Base: Growth sees a slight dip from YTD rates (4.5%), maintains current marketshare on ETH and SOL, no shitcoin frenzy in supported chains (excl. ETH/SOL)

Bull: BG becomes a block builder, growth initiatives pay off and BG becomes market leader on all chains, some shitcoin frenzy in supported chains (excl. ETH/SOL)

Note: To avoid being overly speculative, I did not account for multiple expansion (i.e. increase in comparable P/S multiples).

Conclusion

Banana Gun ($BANANA) presents a compelling opportunity in the evolving trading bot landscape. With its strong position in privatised orderflow, speed, solid fundamentals, lack of supply overhang, and attractive valuation, BG demonstrates growth at a reasonable price. Additionally, BG’s upcoming catalysts will serve as a strong differentiator within the trading bot landscape. While regulatory and competitive risks exist, they appear manageable at BG’s current scale and are well mitigated. Despite market challenges, BG’s innovative approach and strong fundamentals suggest potential for outperformance in the foreseeable future.

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