The mechanics behind the DTX price
In this article we’ll discuss the rationale underpinning the DTX price. We will run through the business case and commercial targets for DataBroker DAO for the years to come to demonstrate how the DTX price was set.
The initial price of DTX
To determine the market potential of DataBroker DAO,we researched the potential market for reselling Internet of Things (IoT) sensor data. As a starting point, we analysed the primary market for IoT sensor data, that is, the amount that is spent annually on a global basis by companies, governments, academics and individuals to benefit directly from the data generated by the sensors. We define the primary market as the market of beneficial owners of sensors, namely the companies, governments, academics and individuals who purchase, deploy and maintain IoT sensors for their own benefit.
According to Gartner, this industry grew from a 600 billion USD in 2015, to a staggering 900 billion USD in 2017. According to the same study, the primary market for sensors is expected to continue growing at this pace of growth for several years to come and is reaching 1.3 trillion USD in 2020 and 1.6 trillion USD per year by 2024.
This expenditure is to purchase, deploy and maintain the 9 billion sensors that existed in 2015, the 19 billion sensors in 2017, the expected 34 billion sensors in 2020 and the 45 billion sensors deployed globally by 2024. Suffice to say, the primary market for IoT sensor derived data is staggeringly large.
With a clear understanding of the current and expected size of the primary market for IoT sensors for the years to come, we applied some practical business assumptions to arrive at the expected value of the data generated by these sensors for these primary market participants. To understand the underpinnings of these assumptions, one has to have insights into the way that organisations and enterprises manage investment budgets.
Investment decisions within enterprise typically must pass a threshold, an investment payback period. That is, they apply a maximum “break-even” point for investments that they make, such as investing in deploying a network of sensors to improve operational efficiency. If it cannot be demonstrated that an investment will pay for itself within this period, the investment will not be made. Based on our experience, this payback period is typically 18–24 months.
Thus, to determine the value of the data to the enterprise that the sensor deployment will generate, we divide the total market for sensor investment by the payback period of 24 months.
For instance, 2015 saw 600 billion USD investment by primary sensor owners. The value of the data per year for these primary sensor owners is estimated to be 300 billion USD, 600 billion USD / 24 months = 300 billion USD per year. Following the same set of assumptions, we anticipate that the value of data produced in 2024 will be 800 billion USD per year.
With the primary market value estimated, we analysed the secondary market value of this data. By secondary market we refer to parties who purchase the data provided and priced by primary owners of the IoT sensors. Based on our commissioned research on this, it is expected that 1 out of 10 sensors will be of interest to potential secondary market participants and that on average there will be 1–3 buyers of each interesting data stream.
On this basis, we estimate that the potential value of the secondary market for sensor data to secondary market participants reached between 45 and 135 billion USD per year globally in 2017. With the same set of assumptions about the value of sensor data to secondary market participants and the anticipated acceleration of sensor proliferation globally, we estimate that the secondary market for sensor data will grow to between 80 and 240 billion USD per year globally by 2024.
Interesting to note is that, according to McKinsey, in 2015, there were about 5000 companies active globally in the business of procuring data from diverse sources, enriching, aggregating and selling on data and value added insights to their clients. This industry had, at that point, grown to a 150 billion USD per year industry without access to any of the sensor data that we make available via DataBroker DAO. We anticipate that this group of companies will be early buyers on DataBroker DAO as we provide them with access to data that was previously out of reach, further enhancing and growing this existing industry.
With the top down calculations of the size of the primary and secondary markets for IoT sensor data in hand, we spent a great deal of time throughout 2017 discussing with marketplace stakeholders about the willingness of sensor owners to sell access to their streaming data to determine bottom up how many sensors will eventually be on DataBroker DAO and how much sensor owners would charge. For the first part, we set our 2024 target at 225 million sensors on the platform, which will represent less than 1% market share at that point in time.
The key insights gained were equal parts logic and pricing psychology. There is a logical price based very much on the above calculations and there is an equally important psychological dimension to purchasing behaviour. Prices such as 0,245 per week seem abstract to buyers while 1,00 per week seems more understandable from a psychological perspective.
Based on this bottom up exercise and taking into account the non-rational elements in pricing, we determine that the optimal pricing for DTX is at the point where one DTX token represents the average value of the data from a sensor for one week. This allows us enough granularity (at 18 decimals) to work with micropayments and fits the mental frame for pricing. This combined with our 2024 target of 225 million sensors, leads to the pricing of the DTX token:
2 500 000 000 USD/YEAR
— — — — — — — — — — — — = 11.11 USD/SENSOR/YEAR
225 000 000 SENSORS/YEAR
We determine the corresponding price per token by looking at the market predictions in the previous section for 2024. At that time we project to have 2.5 billion USD flowing through the platform for 225 million sensors. The average sensor has a value of ~12 USD per year, ~1 USD per month, or 0,25 USD per week and as such the value of 1 DTX token should equate initially to this number. At an ETH price of 1000 USD / ETH, 1ETH will get you 4000 DTX tokens. We determine the maximum number of tokens issued to be 225 million, the amount of sensors on the platform in 2024.
Stay tuned for more exciting news and insights on databrokerdao.com & medium.com/databrokerdao in the coming weeks.
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