A Quantitative Analysis of Ethorse Token: Part 2 — Token Value
Please click here to read Part 1
The value of a dividend paying asset is dependent on the payment sizes of said dividend. Not only stocks, but the value of other investments such as rental property, bonds, funds, all have dependence on how much they pay back on investment.
In general, each investment has its own market decided rate of return. Investments of similar asset type will have similar rates of return.
Where investors will generally expect a higher rate of return for risky investments, and lower rate of returns for for safer investments.
For cryptocurrency, it is hard to observe the current market preferred percentage return on investment for several reasons; most evidently:
- There are few functioning cryptoassets which pay dividends. Most cryptocurrencies which aim to pay dividends/rewards to their token holders are still under development.
- Even if dividends for a certain token are constant, the volitility of cryptocurrencies makes it impractical to choose a recent price to calculate this ROI from.
Staking on some platforms is currently priced at around 3% (NEO) and 8% (ARK) annually. It must be noted that these ROIs are likely this low due to high speculation on the protocol.
For Ethorse, using some simple mathematics, we can create a function for HORSE price that depends on volume and market decided ROI.
We use the following information:
- There are 125 000 000 HORSE tokens
- At current, 5% of each betting pool is distributed to token holders.
We can calculate the yearly reward per token:
Yearly Reward Per Token = dailyVolume * 0.05 * 365 * (1/125000000)From this we can find the return on HORSE:
ROI = (Yearly Reward Per Token) / tokenPrice
= dailyVolume * 0.05 * 365 * (1/125000000) * (1/tokenPrice)Rearranging for token price:
tokenPrice = dailyVolume * 0.05 * 365 * (1/125000000) * (1/ROI)
Note how the value of HORSE gets a little crazy for low ROIs and high volumes.
Some users in the Ethorse telegram decided they would be happy with a 15% ROI, with a daily volume of 1000ETH this would correspond to a HORSE price of 0.00097 ETH, about 9 times its current value.
We must however remind ourselves that Ethorse is an innovative product, and as a first mover it is challenging to predict volume. We could see zero, we could see 10k ETH, only time will tell.
Using the current HORSE price of 0.000125ETH, we can present the same plot in terms of X fold increase (i.e 2x = price doubles).
If prices of ARK and NEO are any example to lead by then if we investigate HORSE price around current staking ROIs of ~5% and a lowball daily volume of 250ETH we find a token price:
tokenPrice = 250 * 0.05 * 365 * (1/125000000) * (1/0.05)
= 0.00073This is around a 6x increase from current HORSE price.
However if Ethorse is to follow the current trend of highly speculative pricing for cryptocurrencies then it could be possible that speculation may drive the price of HORSE to reach values far greater than the platform volume and market rate of return predict.
Speculation on DICE peaked at $8.90, with a market cap of $69m, almost 14 times that of HORSE. The Etheroll platform is now in decline however after a lack of new users and a period of house loss , something that will not be an issue with the parimutuel betting system of Ethorse.
Disclaimer: This is not financial advice. I have recently moved a significant portion of my precious ETH into HORSE. At currenct cheap prices (~6c US!) I will likely keep buying until any new surge in price.
Conclusion: We have shown that even at low volumes of 250ETH and low market preferable ROIs (5%) we still would expect a 6x increase of price. At current prices, if Ethorse achieves a daily volume of ~1000 ETH we will see approximately a 100% return on investment after a year in ETH dividends alone as per Part 1. I am very excited to see the platform transition from its current testnet state to a thriving community of punters (who will give hodlers like me a nice chunk of their gambles). I look forward to seeing what percentage return on investment the HORSE token will be valued at after main net release expected mid April.
