The Safex Marketplace — A cryptocurrency ecosystem with value
Cryptocurrency as an asset class has seen a tremendous growth over the last few years, driven mainly by speculation, with little to no focus on fundamental value. As the cryptocurrency market starts to mature, the focus on fundamentals will become a lot more prominent as investors will begin to look for cryptocurrencies with both a use case and an underlying value.
Traditionally, stocks have been the main asset class for investors to achieve above normal returns. Since the establishment of London Stock Exchange in 1698, countless valuation methods have been developed with the attempt to fairly value a stock. Now here we are, over 300 years later, with the new and evolving market of cryptocurrencies.
Yet there is an underlying valuation problem within the cryptocurrency market.
Valuation techniques have been discussed widely, from the “Store of Value” thesis to the “Token Velocity” thesis, yet established investors are still not fully convinced by the true value of a cryptocurrency. One could argue that cryptocurrencies which offer ‘Masternodes’ have an intrinsic value, as they return you a yield of cryptocurrency. Yet we are back to questioning the intrinsic value of the cryptocurrency that you are yielding.
Here comes the Safex Marketplace, where the cryptocurrency valuation problem is resolved.
The Safex Marketplace will be a private and decentralised ecosystem where individuals and businesses can exchange goods and services over the blockchain using the currency of the marketplace: Safex Cash (SFX).
There is a second token within the Safex ecosystem: Safex Token (SFT). This two token system separates the currency from the asset, thereby reducing the speculation on the currency whilst retaining the value within the asset. An individual who plans to use the Safex Marketplace whilst gaining exposure to the Safex ecosystem would accumulate the Safex Token and use the Safex Cash. The Safex Marketplace is currently in development with the Testnet expected before Q3 2019.
Safex Cash (SFX) will be the liquid currency of the marketplace which is intended for trade only. Safex Cash is a mineable POW privacy coin that is used to for buying and selling goods and services on the marketplace. You can check the block explorer here for more details. You can purchase Safex Cash at CoinDeal, LiveCoin or InstantBitex . You can store your Safex Cash in the Safex Cash/Token Wallet.
Safex Token (SFT) will be the asset that receives dividends based on the marketplace fees. Goods and services transacted over the marketplace will be settled in Safex Cash and there will be a 5% fee for each transaction. This amount of Safex Cash is then proportionally distributed to all the ‘locked in’ Safex Tokens. The Safex Token will therefore have a yield, which provides an intrinsic value to this token. You can purchase Safex Tokens at CoinDeal or LiveCoin. You can store your Safex Tokens in the Safex Cash/Token Wallet.
Safex Marketplace GMV
The true value of this ecosystem comes is the 5% marketplace fee that will be distributed proportionally to all Safex Token holders. The total dollar amount of goods and services transacted over the Safex Marketplace will represent the Gross Merchandise Volume (GMV) of the marketplace.
GMV is a term used in online retailing to indicate the total dollar amount of merchandise sold over a marketplace, within a certain period of time.
Therefore, the higher the GMV of the marketplace, the more fees distributed to Safex Token holders. The more fees distributed, the greater the dividend per token and the greater the intrinsic value of each token. As we can see, the value of the Safex Token is directly proportional to the GMV of the marketplace, so we can use the GMV as a basis for our valuation.
The team projects that the Safex Marketplace will have a GMV of $500m in the first year of operation. Hence, $500,000,000 worth of goods and services are expected to be transacted over the marketplace in the first year. The Safex team are confident that they can reach this target. To give this figure some perspective, Amazon achieved a GMV of $600m in 1998 (See below). This GMV was achieved when only 3.6% of the global population had access to the internet. The situation is much different today, with 54.4% of the world’s population having internet access. All things considered, the Safex team’s enthusiasm towards achieving a $500m GMV in year 1 must be respected.
The teams also projects that the Safex Marketplace will have a GMV of $2b in the second year of operation. That’s $2,000,000,000 worth of goods and services transacted over the marketplace in year two. Again we can compare this to Amazon in 1999. They achieved a GMV of $1.64b, when only 4.1% of the global population had access to the internet.
Safex Token Supply
Before Safex Token and Safex Cash, there was an Omni token on the bitcoin blockchain called Safe Exchange Coin (SAFEX), with a total supply of 2,147,483,647. There is currently a migration process taking place, which has be ongoing since November 2018.
This migration process converts the old Safe Exchange Coins from the Bitcoin blockchain to the Safex blockchain. Upon each Safe Exchange Coin migrated, a holder would receive 1 Safex Token (SFT) and 0.0023 Safex Cash (SFX).
You can download the migration wallet here.
Safe Exchange Coin is listed on TradeSatoshi only. On June 1st 2019, they will delist the coin. On July 1st 2019 they will disable all Safe Exchange Coin withdrawals. The time is ticking for holders to move and migrate their Safe Exchange Coins to the new Safex blockchain.
Currently 825,380,549 Safex Exchange Coins have been migrated and converted into Safex Tokens. This is 38.4% of the 2,147,483,647 potential total supply. Hence, 61.8% are yet to migrate. The cut-off date for migration is the end November 2019, with the Safex Token supply being unknown until then. Given there has been 5 months since the start of the migration process, we can assume that a large portion of active wallets have migrated.
Although, there are still many large Safex Exchange Coin wallets yet to migrate. This is why it is a difficult process to estimate the final Safex Token supply. There is still plenty of time for wallets to migrate over to the Safex blockchain. Due to this uncertainty, let’s estimate that between 55% and 75% of Safex Exchange Coins make it over to the Safex blockchain. That provides us with a estimated Safex Token supply to be between 1,180,000,000 and 1,610,000,000. These are the tokens that are eligible for dividends.
One important note that must be considered is that there is a ‘Lock in’ procedure. This procedure means that a Safex Token holder would have to intentionally ‘Lock in’ their tokens to be eligible for dividends. Hence, the total Safex Token supply will not represent the total tokens that are receiving dividends at any given time. It is fair to assume that approximately 10% of Safex Tokens will either be traded on exchanges, lost or within inactive wallets. Hence, we revise our Safex Token supply for our calculation to be between 1,062,000,000 and 1,449,000,000.
We now have the amount of tokens receiving dividends and the 1 and 2 year projections for the Safex Marketplace GMV. Let’s now find the dividend per token, for both projections.
Safex Token Valuation
There are multiple ways you can use this Dividend/Token data to value an asset, but for this case, we will keep things simple. We will use a very common ratio called the Price to Earnings Ratio (P/E Ratio). This ratio represents the amount of times a stock trades above its earnings, which is represented by Earnings Per Share (EPS) (eg. An EPS of $0.10 and a P/E ratio of 30, will mean the asset is trading at $3.00). In this case, we will use the Dividend/Token figure to represent the EPS.
The most subjective part of our calculation, is to estimate a fair P/E ratio for the Safex Token. We can never really know how many times the token will trade above its earnings as it is a case of investor sentiment. Generally, the higher the P/E Ratio of an asset, the higher the investor expectation for future profits. Let’s gain some reference by looking at the P/E Ratios of some e-commerce stocks.
As you can see, all e-commerce stocks generally trade well beyond their EPS. Stocks that have a ‘Negative EPS’ means that the company is not currently profitable and earnings are negative for each share. In fact, out of the sixteen e-commerce names listed above, four are losing money and only two pay a dividend, Rakuten (0.4%) and Expedia (1.2%).
The average EPS for these e-commerce stocks is 91.4, but let’s take out the outliers of JD and Amazon. This leaves us with an average P/E Ratio of 55. I am going to remain conservative and use the P/E Ratio for the S&P 500 (Index of 500 US stocks) of 25, as a benchmark. I will take the midpoint between the average P/E Ratio of the S&P500 and the P/E Ratio for this sample of e-commerce stocks (55+25)/2. This leaves us with an estimated P/E Ratio of 40, for the Safex Token.
So based on the two GMV projections and our estimated P/E Ratio, the estimates for the price of the Safex Token are as follows;
A basis for valuation is rare within the cryptocurrency market, yet the Safex Marketplace allows us to make rational calculations based upon fair assumptions. A common term used in finance is ‘priced in’. This is when information is already incorporated within the price of an asset. Hence, it’s impossible to add a time component to any projection, as we cannot judge when or how much information will be ‘priced in’ to an asset. It is fair to take the projections with a grain of salt as we all know cryptocurrencies mainly move on sentiment.
The Safex Ecosystem is unique in many ways and its important to note that if the Safex Marketplace is successfully launched and has a successful first year in operation, investors may not hold back on how much information they price into the Safex Token. Hence, bringing forward the Safex Token valuation in expectation of dividends X years down the line.
As always, we let the market decide.
This story is published in Decentralized Commerce, Medium’s publication about the future of e-commerce and cryptocurrency.
