Marketcap is used as a metric for evaluation. Our research shows the formula has different implementations;
- Trading Price x Circulating Supply
- Trading Price x Total Supply
- Trading Price x Minted Supply
- Trading Price x Minted Supply - Owner supply
We collected data based on the above metrics on the top Cryptocurrencies and found the following fallacies;
Most accurate and often a subset or combination of the other 3. The problem comes in with the definition of circulating. To illustrate;
Consider 5 $20 notes valued at $100. If I burn 3 notes. Is the value still $100? Clearly, no. Circulating supply assumes the 5 notes, and cannot assume the 3 burned notes. An undefined amount of tokens have been lost in dead wallets and these can not be recovered. Do these contribute to circulating supply? An undefined amount of tokens have been locked in inactive exchanges or from accounts on exchanges that have lost their username and password. Do these contribute to circulating supply?
The current calculation assumes that if completely liquidated the value would be Trading Price x Circulating Supply. This can only be true if circulating supply is 100% available on exchanges. We can clearly see that is not the case.
Chainalysis provided that 17% - 23% of all existing bitcoins have been lost in dead wallets. 2% have been lost due to exchanges. 2% have been lost due to strategic investments no longer active. 27% inactive possibility.
Next we need to consider micro balances, balances small enough that they do not warrant transfer as the fees are more expensive than the actual value transferred.
We assume all addresses with a balance less than current trading fees in Bitcoin are excluded. This gives us 15 million addresses with an ownership of 23,018 BTC. Another 0.13%
Circulating supply we can see needs to be adjusted by 21% - 27%.
Trading Price is the next vector. This assumes that it is possible to liquidate each token at the current trading price. Our research into order book depths shows this is not the case. The general standard is a sliding scale down to 0, so you would see something similar to;
This hypothetical would give us a trading price of $0.495
Given a circulating supply of 100 @ $1 would provide a marketcap of $100, however given the above order book and adjusted circulating supply it should instead be 100 - 27% x $0.495 or $36.135
A 63.865% decrease in value.
Circulating supply is predominantly calculated from minted supply. Most current coins have pre-minted their supply. This leads to an inflated marketcap. Consider the following distribution
If the trading price was $1 and total supply was 100, which of the following is true
$100 (100% x 100 x $1)
$10 (10%[Sale] x 100 x $1)
$50 (50%[-Mined] x 100 x $1)
$90 (90%[-Team] x 100 x $1)
$10 would be the accurate representation assuming Team, Community, Marketing, Opex, and Mined have not been minted.
Very quickly we can see the relationship between the varying degrees of tokenomics and marketcap and how each interpretation can lead to a different net result.
The Token Raise
The assumption currently exists that the funds raised in the ICO are the only funds available to the institution. This excludes traditional raise via Equity, and liquidating further tokens for Fiat value.
This raises the question of the value of the ICO.
Purposes of an ICO
- To raise funds
- To create token distribution
- Social awareness
We believe that the last 3 should be disconnected from the first. To maximize distribution, liquidity, and awareness community rewarded organic release should be prioritized.