An (Institutional) Investor’s Take on Cryptoassets
John Pfeffer

John, thank you so much for the in-depth paper. I might be too late to the party, but I appreciate if you can take a look at the arguments below.


  1. Proof-of-stake (aka “worker”) tokens are a value-capture mechanism superior to equities due to an embedded divided election option, among other things I don’t go into here, and therefore should be valued at a multiple of network “earnings”.
  2. The equation of exchange MV=PQ is irrelevant, because the P doesn’t have to be expressed in our tokens (i.e. the service can be paid in ETH for example, although using our token will increase its value).
  3. The forking can be mitigated, because the value-creation part of the protocol (i.e. the useful technology) can be centrally-owned/patented. Only the value-capture part needs to be decentralized.

The taxi medallion example:

The buyer of the license does not enjoy any economic rent because he paid the discounted present value of it to the previous license holder, and so on as the license changes hands. Passengers pay higher fares because the taxi driver’s capital cost of buying the license must be compensated for, all for the benefit of the first owner of the license.

In this case, a medallion represents the right to perform work for the network. If there are total of 100 medallions in existence and all of them are staked then each gives its owner the right to perform 1% of total work (e.g. taxi rides) that users request. Therefore, for any rational buyer the price they’d be willing to pay equals to the sum of discounted future earnings (revenue minus costs, including the cost of capital to acquire the tokens). The discount rate includes the risk premium.

In reality not all tokens will be staked. Some of the buyers will be investors. They don’t perform work (don’t stake the tokens), however they reduce the total tokens staked, effectively increasing the claim that each staked token has on the amount of work to be performed. For example, if out of 100 tokens, 20 are owned by investors and only 80 are staked, then each token gives the right to perform 1.25% of the total work, and therefore captures 1.25% of the network “revenue”, which by itself increases the value of the token, all else being equal.

In a high-growth network such an investment is not much different than say investing in Facebook equity. After all, Facebook currently doesn’t generate any cashflows to investors. The value of the equity comes only from the expected future cashflows.

Now, where it gets better. Unlike with equities, investors in tokens have the option to convert the future cashflows into dividends. They do so be “leasing” the tokens back to “workers” on-chain with no credit risk. This increases the ratio of staked/total tokens, therefore reducing the token price. In exchange, investors get a stream of cashflows (revenue-share), while workers access the work without the need for capital or token price exposure — effectively passing the risk premium from workers onto investors. Such an option must be worth something. Imagine having a unilateral ability to elect receiving dividends from Facebook instead of reinvesting your share of profits into the future growth?

In addition, this brings the value capture much closer to value creation: no quarterly earnings, audits, wall street analysts and other proxies. The token price literally gets updated in real-time based on the transparent on-chain activity.

Now the question is: does it make sense? I appreciate your thoughts.