Assessing ICO potential based on social media performance
An approach to pre-sale network valuation.
This article aims to give a brief overview on assessing ICOs using their social media profiles as an aspect of fundamental analysis. In simple terms value can be measured according to what people believe something is worth. This is related to subjective theories of value where value is not inherently intrinsic or based on the labour needed to produce something, but rather determined by the importance an individual places on an item or service. For example most people agree that pricing a Modernist painting is more qualitative than quantitative. Similarly tokens released during an ICO have limited utility as a store of value or medium of exchange, so adoption is mainly about acquiring an asset based on the company's perceived value proposition and future potential. One popular quantitative method for determining value in this class is Metcalfe’s law. The law was put forward in the 1980s by Robert Metcalfe, who proposed;
The value of a network is proportional to the square of the number of users on the network (n²).
Since then it has become an important formula for valuing social media networks like Facebook and Tencent and studying various connected technologies. Recent studies have also shown it is an accurate measure when deriving formulas for valuing large caps like Bitcoin, Ethereum and Dash, giving accurate predictions on price correlation against network usage. For ICOs, however, we have limited data about transaction activity or number of active participants, so we have to speculate based on comparable projects and other indicators. A good way to do this is by looking at social media presence. From looking at social media we can hope to get an idea on the amount of potential business partnerships and merchants, the engagement of the developer community and the breadth of the prospective user base. It can also provide insights into the health of a company by visualising exposure to market sentiment during volatility. Once tokens have been released, however, a more accurate method should be based on gathering data from sources like etherscan.io, blockchain.info or coinmetrics.io.
To begin with, the number of followers on social media does not correlate with ROI, although having a large presence makes adoption more likely. The above table shows top performing ICOs with their ROI and Twitter follower count (note Spectrecoin). Secondly, engagement on a network is not a guarantee of future growth or company value, with competition and fungibility making loyalty almost obsolete.
For a specific example we’ll look at Mainframe as an upcoming ICO with a successful social media campaign, but at risk of over-reaching. Mainframe describes itself as the web3 communications layer, using a decentralised network for censorship-resistant message routing. It currently has 5,800 followers on twitter and around 23,870 members on their community Telegram channel. The company is in the middle of a public marketing campaign aimed at building their core base by giving away $3M of tokens. While this type of promotion is important, it is possible that they’re over exposing the company to market sentiment. In a bear market this can mean attracting too many unsophisticated investors, making it more susceptible to cascading effects.
Above is a directed graph from a Twitter search network of ‘@Mainframe_HQ’. Immediately visible are a number of well known influencers such as Ian Balina, Michael Suppo, ICO Drops, ICO Alert, Vitalik Buterin, Elon Musk, etc. There are also a number of upcoming ICOs such as NEX, Open Platform, Hashgraph, Hycon, IoTeX. While these connections may not represent definitive partnerships or close associations, they position the project in a public space for them to sculpt a narrative about their company. CEO Mick Hagen also appears to have a strong social media presence, which indicates a company very aware of optics.
Followerwonk gives them a social authority score of 54% from 5,387 followers over 4.90 years. The top bio word cloud of Mainframe_HQ’s followers is: crypto, investor, enthusiast, blockchain, tech, entrepreneur, founder, cryptocurrency, #blockchain, #crypto, business, #bitcoin.
Here a picture starts to emerge about a company very focused on business development and acquiring funds. A concern is that efforts to engage the developer community have been sidelined for promotional gain. This is significant because fungibility makes it important to focus on tangible assets such as hardware, or building a codebase that continues to attract developers.
To put this in perspective we can analyse a similar project with a fairly different media strategy. NuCypher is a company building proxy re-encryption for distributed systems, and has roughly the same social following as Mainframe with 4,700 followers on Twitter and 23,860 members on their Telegram channel. Above is a Twitter follower graph of the top 50 upcoming ICOs with highlighted edges for both Mainframe and NuCypher. Again Mainframe has a high degree of centrality meaning their profile is connected to a very broad and general community. NuCypher however, is associated with a more fringe community which may align with their branding strategy.
Above is a directed graph from a Twitter search network on ‘@nucypher’. Visible are some prominent companies already listed with considerable ROI; Ontology Network, Bluzelle, Binance, Nucleus Vision, Huobi, Quantstamp. This tells us the company is already connected to some established players and may be fairly ahead on their road-map. Although NuCypher have finished their pre-sale, no details have been given about the crowd-sale which may indicate they’re satisfied with their current funding arrangements. Focus appears to be more concerned with technical and engineering areas which will help build the core dev base. They also provide a chart showing progress of their Telegram channel (below) which displays an initial exponential growth stage. Estimating a point of critical mass where the network reaches saturation is more related to the the widespread applicability of the service and adoption of the blockchain ecosystem in general. However the chart shows considerable growth in relation to current market sentiment.
To summarise we can value a blockchain or dapp company using Metcalfe’s law based on network usage. Social media can be a useful tool for estimating adoption rates by visualising network interactions while identifying potential partnerships and user engagement/retention. As new protocols are developed and gain significant network traffic, users will become more vested in their chosen blockchain ecosystems. However competition and fungibility make it important for a company to build robust connections with a core base of users and developers. In the end social media can be an important indicator of future network growth but ultimately network valuation will be based on active monthly users and unique transaction addresses on the specific blockchain or application.
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