The One About the Ubercoin
This is a follow-up note to Part 1 of my series on Consensus Capital — in that article I presented the example of a shop, financing its business using plastic tokens.
I discussed that article with Nic Niedermowwe and Michael Wong at Prime Factor Capital — they are fellow members of the EF9 Cohort. During our time at EF, we have had several debates over my claim that a coin should either be a security, or provide consensus, or not exist.
Nic suggested an alternative real-world example, using a well-known taxi company, which I present here.
Suppose Uber issues an ICO Utility Token — the Ubercoin.
From 1 March 2018, Uber outlaws US Dollars and Pounds and Euros, and decrees that you have to pay the driver using Ubercoin. Unless you’re a speculator, you’ll buy the coin as you get into the car, pay the fair, and then convert back the balance — after all, you can’t spend the blessed thing at Tesco, nor anywhere else for that matter.
Except allowing for speculation, what is the sustainable value of all Ubercoins? Well, a good proxy is the fee each customer has accrued in each car at any given point in time, multiplied the number of *current* passengers. But most customers are not in an Uber car for most of the year. So the sustainable value of the coin is some very small fraction of Uber’s annual revenues.
Let’s suppose the average Uber customer Uberises once a week, for half an hour (generous). That is 0.3% of the week. Uber Inc’s last reported revenue was $6.9bn. That means there needs to be (at most) $20.9m of Ubercoin in its cars at any one point. Let’s generously assume the need for a liquidity pool of c. $30m.
$50m is therefore the sustainable value of the Ubercoin.
This should make us double-take. Even for an enormous organisation like Uber, its token cannot justify a value of more than $50m. Now, what happens if customers could buy their token 5 minutes before the end of their journey? Well, we can slash our figure by 83% — $8.3m.
What happens if, additionally, city car speeds increase by 20% due to AI efficient-braking innovations? We’re under $7m.
How much liquidity do we think there will really be in a $7m token?
Note further that the price will be subject to significant fluctuations at peak times in highly-populated countries.
And just remember the painful computations you have to do at the FX desk at Heathrow before you fly abroad. Imagine having to do that every time you use a private service — an Ubercoin, a Deliveroocoin, a Broadbandcoin.
I suspect you’d be sizing up their competitors pretty swiftly.
Thanks again to Nic Niedermowwe for suggesting this example.
Thomas Pocock is co-founder of CreditMint, a blockchain startup currently on the EF9 Cohort at accelerator Entrepreneur First. Demo Day 22nd March 2018.
