The purpose of this article is to consolidate the attempts at valuing Maker (MKR) token in order to help fundamentals-driven investors to cross-reference and refine their own models and assumptions.
This piece is aimed at readers familiar with how the Maker ecosystem operates. Those readers who are new to Maker may choose to refer to the below resources first
Introduction
MakerDAO was founded in 2014. In December 2017, the DAO raised $12mn from Andreessen Horowitz and Polychain Capital and launched shortly thereafter. In September 2018, a follow-on purchase of 6% of MKR supply for $15mn by a16z was announced at a $250 per MKR price.
Despite the small $183k benefit MKR holders received in 2018, and only 1.6k out of 1mn MKR have been burned to date, MKR market capitalisation stands at $718mn with MKR price at $718.
Is this valuation justified?
DCF-based valuation attempts
In order to ask this question, several analysts have applied the Discounted Cash Flow (“DCF”) valuation method.
Interest fees (or “stability fees”) in the Maker smart contracts are paid in MKR and consequently burned, reducing the number of MKR outstanding. Given its resemblance to the share buy-back mechanics used to return value to shareholders of traditional companies, a Discounted Cash Flow (“DCF”) valuation method can be applied to arrive at an intrinsic value of the MKR token.
In December 2018, Picolo Research has applied the DCF valuation to arrive at a $260 valuation for MKR. Key assumptions include a 100mn Dai supply, a 2.5% stability fee and 13% liquidation fee and a 5% discount factor.
In February 2019, Qiao of Messari reached to a similar valuation of $308 by applying DCF with the following key parameters: 5x year-on-year growth in Dai supply, stabilising at 62.5bn, a 2.5% stability fee, no liquidation fee and a 50% discount rate.
Also in February 2019, Jack Purdy has updated his MKR DCF valuation to $333, assuming 5.6bn Dai supply cap, stability fee of up to 2%, 7% liquidation fee to MKR holders and a 20% discount rate.
In March 2019, Andrew Kang offered an alternative perspective, valuing MKR as a commodity, albeit arriving at the same outcome as a DCF. His valuation could be pointed to $300, assuming 1bn Dai supply, 4–7% stability fee, no liquidation fee and a 10% discount rate.
Alternative analytical frameworks
In May 2018, Aviv Milner & Victor Hogrefe of BlockSpace Solutions released their analytical framework for MKR valuation, identifying Dai in circulation, MKR burn rate, and discount rate as the key valuation parameters.
In February 2019, Vision Hill provided independent input estimates and tested their impact on the MKR valuation.
Conclusion
Valuations should never be taken into consideration in isolation, as they are, simply, financial model outputs. These outputs are highly subjective to both the quality of the inputs and the modelling methodology employed.
The information presented in this article is designed to help an analyst refine his/her MKR valuation methodology and assumptions in an attempt to encourage a more efficient capital allocation in the cryptoasset space.
