Leveraging the Cryptoeconomic Machine: A fundamental Valuation Framework for Investing

As Aenigma’s inaugural post to introduce our whitepaper to the community, we would first and foremost like to recognize the community of thought leaders and writers who have gathered around this “medium” to share their perspective on the technology of crypto, the exciting projects that have sprung up around it, and exposed fallacies that have surely prevented immeasurable pain in the consumers wallet. In no particular order, we would like to thank:

ICO DNA for killer research on BCAP;

TwoBitIdiot for terrific articles on crypto finance;

Yannick Roux for literally covering the token economy

Avtar Sehra for writing some of the best comprehensive articles on economics of ICOs written to date;

Danny Ryan for terrific coverage of Ethereum costs in the real world;

Aleksandr Bulkin for consistently delivering elegantly presented articles on token economics and blockchain tech;

All of the writers at CoinFund, especially Jake Brukhman who absolutely kills it

All your contributions have most certainly made waves in the community and inspired us to take on the endeavor of providing something useful to the community of our own:

Leveraging the Cryptoeconomic Machine

A Fundamental Valuation Framework for Investing


It has become de rigueur — even clichéd — for financial analysts to warn of bubbles in the crypto-asset space.

By nature crypto-assets generate no traditional cash flows or operational financial metrics such as earnings and EBITDA that may be used in conjunction with traditional fundamental valuation techniques. For lack of a functioning valuation model for crypto currencies, some analysts have defaulted to the assumption that inherent value must not exist. The incline of the price increase alone is considered sufficient evidence of a market bubble.

This assumption is inaccurate.

As in all markets, overvalued assets exist in the crypto space. Key fundamental drivers of token price may be defined, quantified, forecasted, and benchmarked to determine a crypto-asset’s intrinsic value and attractiveness as an investment.

However intuitive, our position has not been a popular one. The cryptocurrency community has struggled to reach consensus on the metrics that should be captured and translated into a token’s market price. Some argue that tokens have no inherent value and should be considered worthless. Others rely on analogies to gold’s utility as a store of value or, eschewing fundamental principles of economics, believe that the market opportunity presented by crypto-assets should cause prices to move parabolically in perpetuity. As of late, investors have begun to use a rudimentary model of technical analysis, qualitative assessments of technology features, and the intensity of news coverage to guide their valuations. These attempt are largely descriptive and incorporate little insight into the fundamental impact of underlying drivers on token assets valuation.

Our investing philosophy is that tokens are no different than any other financial asset. By understanding and measuring the way in which these value drivers translate into token price, we may assess the intrinsic value of crypto-assets to make stronger, more informed investment decisions.

Continue reading the full whitepaper: http://aenigma.capital/Leveraging-the-Cryptoeconomic-Machine.pdf

Written on behalf of the team at Aenigma Capital.