Fee Ratio Multiple (FRM)
Fee Ratio Multiple (FRM) Indicator
The Fee Ratio Multiple (FRM) is an on-chain metric that compares the total transaction fees generated on a blockchain to the rewards distributed to miners or validators. It provides insights into the sustainability of network security, the economic activity on the blockchain, and the reliance on block rewards versus transaction fees.
Steps to Use the Fee Ratio Multiple (FRM) Metric
1. Understand the Concept
FRM: Defined as the ratio of total miner rewards to transaction fees.
Relevance: Highlights the proportion of network security or validation costs covered by transaction fees versus block rewards, offering insights into network sustainability.
2. Interpret the Fee Ratio Multiple (FRM) Metric
High FRM (> 1): Indicates that block rewards dominate miner income, suggesting a reliance on inflationary rewards rather than user-driven fees.
Low FRM (< 1): Suggests that transaction fees significantly contribute to miner income, indicating high network usage and economic activity.
Stable FRM (~ 1): Reflects a balanced contribution from both transaction fees and block rewards, signaling sustainable network security.
3. Analyze Historical Patterns
Bull Markets: High economic activity often leads to increased transaction fees, lowering FRM as fees constitute a larger portion of total rewards.
Bear Markets: Reduced transaction activity may increase FRM, as block rewards dominate miner/validator income.
Network Maturity: As networks grow, FRM trends lower if transaction fees increase, reducing reliance on inflationary block rewards.
4. Make Decisions
During Bull Markets: Monitor decreasing FRM values as a sign of increased network usage and economic activity, which may support bullish sentiment.
During Bear Markets: Use increasing FRM values to identify periods of reduced network usage, which may signal bearish sentiment or consolidation phases.
For Long-Term Analysis: Evaluate FRM trends to assess the network's transition toward fee-based sustainability and reduced reliance on block rewards.
Tips:
Combine with Other Metrics:
Use FRM alongside metrics like Transaction Fees, Hash Rate to gain a comprehensive understanding of network sustainability.
Track Network Maturity:
Monitor long-term FRM trends to identify shifts from block reward reliance to fee-based income, a key indicator of a network’s economic maturity.
Assess Network Usage:
Decreasing FRM during periods of high transaction fees indicates heightened network activity, reflecting user demand and economic growth.
Compare Historical Trends:
Analyze FRM values across market cycles to identify recurring patterns and align strategies with long-term network trends.
Evaluate Security Sustainability:
For the blockchain nearing block reward halvings, FRM trends provide critical insights into the network's ability to maintain security through fees alone.
How to Use the Indicator Effectively
During Bull Markets: Low FRM values signal increased fee contributions to miner often aligning with heightened network usage and bullish sentiment. Use these signals to assess network demand and user activity.
During Bear Markets: High FRM values reflect reliance on block rewards, often coinciding with reduced transaction activity and bearish sentiment. Use these signals to evaluate network resilience during downturns.
For Network Analysis: Stable or decreasing FRM values over time indicate a transition toward fee-based security, signaling a sustainable and user-driven network.
Created By: David Puell
Last updated