Dether DTH token review / Crypto-economic analysis
This analysis is written as an exercise for Advanced Cryptoeconomics Fellowship. It is not, and should not be regarded as “investment advice”. The coauthor Igor Line
Project description
Dether is the Dapp for Ethereum, a marketplace to buy/sell cryptocurrency with cash. You can use Dether to spot a seller or buyer near you, communicate through secure anonymous chat. Dether became partners with the FOAM — consensus-driven map, so we expect that the buyer/seller location will be verified. Plus it’s a decentralized solution for local businesses to manage payments with cryptocurrency.
Mechanism / Network effect
In order to sell cryptocurrency in the certain location (zone), a user should buy a license stake 42 DTH worth to trade up to 1000 USD of daily (the limitation will depend on local regulations).
A user sells cryptocurrency and gets loyalty points which are correlated with the number of trades the user makes and its volume. The loyalty points could be used to unlock “premium features” such as the ability to compete for owing a zone (being zone operator) or owning geographically locked keywords. Zone size is 30 m² for now. A competition process will go through the Spectrum auction and will be open for 24 hours. To prevent the power concentration staked loyalty points will reduce every 24 hours.
So the Incentives here are: owning geographically locked keywords or owing a zone (being a zone operator), ability to collect fees from other users of the zone you own. Incentives aren’t tied to DTH token.
To compete for a zone operator status seems to be a dominant strategy for a user, but only in conditions of high demand. If there is enough space on a map and other incentives aren’t defined, the dominant strategy for a user appears to search for a cheapest/fastest/easiest way to make a sale. So the competition for owning a zone is not really relevant here.
Since a mechanism wasn’t designed to incentivize a user to grow the network, the future network effect remains to be questionable. In addition, the equilibrium in this ecosystem isn’t evident.
Example
Barcelona area — 101.9 million m² — 399 666 zones
Number of total users applied for Dether beta version — 10 000
Each zone could place more than one user. It’s hard to initiate a competition in this case.
DTH token classification
Token purpose — Network token
DTH token provides the access to the peer to peer marketplace of cryptocurrency, it doesn’t represent a general cryptocurrency on Dether platform. In the given token model there is no ability to earn DTH token in the system.
Technical layer — ERC20 Ethereum token
Utility — Usage token
Grants holders access to the service.
Legal status — Utility token
DTH fungible token represents functionality on Dether meaning doesn’t held in expectation of future profits and free from SEC monitoring.
Underlaying value — Network value token
DTH token value is tied to a network size. More tokens are staked for a license more liquidity DTH token gets, so the network effect plays the crucial role here. How many users Dether should engage to increase the DTH token value? See some calculation below.
Token economy
The number of users Dether aims to achieve is one of the main metrics for DTH token evaluation. I didn’t succeed in getting data about the marketing campaign since the Dether’s team takes the attitude of some centralized entity keeping in secret the info that directly affects investor’s reliance.
To figure out the potential value of the project I will make some assumptions based on the best case scenario and the data I’ve found.
ÐTH token distribution model:
100.000.000 ÐTH max will be minted:
- 60% Token sale
- 3% Bounty program
- 18% Team (vested for 3 years with a 6-month release program)
- 3% Advisors (vested for 6 months)
- 5% Early contributors (vested for 6 months)
- 11% Strategic Partnerships
Current Dether wallet balance — 9 716 ETH — $3 954 373.39 (@ $406.97/ETH)
Withdrawn from Dether wallet— 4734 ETH — $3 019 637,891
Let’s say that 30% of the total Dether income from sales will go for marketing.
Marketing costs = (Current balance $3 954 373.39 +Withdrawn $3 019 637.891)*0.3 = $2 092 203
Assuming that the marketing campaign will be highly effective, the acquisition costs will be 1user/1$ and every 1$ spent will bring 1 user, Dether will have 2 092 203 users — beautiful result 🎉
Token evaluation
Relaying on Chris Burniske vision a crypto asset serves as a means of exchange, store of value, and unit of account, each crypto asset serves as a currency in the protocol economy it supports. To understand the flow of money needed to support economy the equation of exchange is used, rather than for crypto asset valuations the same method became a cornerstone — Chris Burniske thinks.
Defining components for calculation applying cryptoeconomy is still the disputable topic. The first problem is estimating of P*Q part because there is no any revenue from a crypto-network (speculations shouldn’t be counted here). Considering this we will continue to make assumptions in order to imagine possible ways the project could progress, and which aspects it’s good to focus on.
Q = 2 092 203 (Total amount of tellers/users
P = 42 DTH (Price for one license)=$1.7
V = 4 and 15 (Extremes for M1 money when token isn’t a storage of value, accordingly James Kilroe)
M $889 186.275 x V 4 = $1.7 x 2 092 203
M $237 116.34 x V15= $1.7 x 2 092 203
In both cases the amount of money circulation less then a million dollars upon condition of having 2 092 203 total activities. Also we can see that the higher velocity reduces amount of money in circulation.
Conclusion
Considering the statement that the token velocity increasing leads to a token price decreasing (Velocity of tokens James Kilroe), the first Dether version where the license price depends on the specific country DTH base rate increases a token circulation is not very promising because the token price will go down as a result of high velocity. Holding token and reducing velocity may increase token value.
In the next Dether release the price of the license will be pegged to fiat amount in each particular zone. Besides Dether is integrating Airswap exchange, using it people will be able to exchange their stable DAI tokens to DTH instantly, at the moment they want to trade. So they don’t have a reason to HODL.
There are several solutions that could provide necessary HODL effect to reduce the velocity the team is working on. The one it is the loyalty points system where users are stimulated to keep their token staked because it gives access to the premium services. The spectrum auction will be used to resolve visibility competition that based on loyalty points system. If a user removes his stake the loyalty points he earned will be lost.
In the given DTH token design there is a lack of incentives for a user to grow network (stimulating network effect) just as to HODL token. Viral effect from marketing will be impermanent and limited by mass adoption factor, so it better to add more incentives features to DTH token.
Currently, it’s difficult to evaluate the potential value of the network based on existing methods and without a clear vision of team on crypto economy of the project. As soon as initial mainnet version will be launched Dether team will present an updated version of the whitepaper explaining all the crypto-economic principles.
Credits
coauthor Igor Line
cover picture by Alina Loseva
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