Calculating the Value of Parsec Credits
To understand the value in blockchain projects you need to study the economics in the underlying blockchain. With token sales this is usually a rather fleeting subject, and few projects present good answers as to what constitutes fair pricing of tokens. Parsec Frontiers establishes a complex in-game monetary system where Parsec Credits are the only accepted tender, so there is no doubt that it is a currency of exchange. We can then turn to monetary economics to gain insight into how the PRSC token can be priced.
Money can function as a store of value, a medium of exchange as well as a unit of account — and Parsec Credits will serve all these functions within the Parsec Frontiers online galaxy.
Prussian mathematician and astronomer Nicolaus Copernicus formulated the model of the universe and also placed the sun rather than earth at the center of the universe. Not surprisingly, Copernicus can also contribute to understanding the monetary aspects of Parsec Frontiers’ interstellar economy.
In the early 16th century, Copernicus derived the earliest version of the Quantity Theory Equation of Money, which postulates the relationship between money supply, the velocity of money, the price level and the value of all transactions. Thus, the general price level of goods and services is directly proportional to the money supply. In its simplest form expressed as M x V = P x T, but since we are solving for the Price of a Parsec Credit we express this as P = (M x V) / T. So, let’s examine each of these factors for the Parsec Frontiers monetary system.
Money Supply
As opposed to most MMOs where the game company can issue money at will, often leading to either hyperinflation or frequent balancing of the in-game economy through manipulating money faucets and money sinks, Parsec Frontiers has a fixed supply of Parsec Credits.
30,856,775,800 PRSC has been created, and unsold tokens from our crowdsale will be burned, to reduce the supply. Depending upon the portion of offered tokens sold, the total supply minus burned tokens should be used.
Velocity of Money
How quickly will money move from one transaction to another? The Federal Reserve of St. Louis and the European Central Bank regularly provides money velocity information for the US economy and the eurozone. In 2009, the virtual world Second Life from Linden Labs reportedly saw money velocity of 2x on a monthly basis. Unfortunately, not many online economies are this forthcoming with information, and comparable data is hard to find.
A noteworthy exception is Eve Online, developed by CCP, which regularly publishes detailed reports on the online economy. Although sometimes with periods of higher volatility, in the last 1.5 years it has kept steady at just under 0.8x on a monthly basis, equal to just under 10x per year.
Since the economy of Parsec Frontiers in many ways can be said to resemble the economy of Eve Online, a fair estimate for our purpose would be to use the same number for velocity of money. One can consider that Eve Online has a subscription model which extracts money from players regularly, thus without a monthly subscription Parsec Frontiers should likely be able to have a higher velocity of money than Eve Online.
Turnover / Transacted Value — monthly transaction value
For an online economy, this would be the equivalent of GDP — the value of transactions as measured in another value (which we would like to express price P in). For our purpose we are interested in numbers in USD.
Whilst the economy of Eve Online is similar to Parsec Frontiers’, it has a subscription business model. The transaction value of the EO economy is therefore not relevant in this case and is not suitable as a comparison.
The online world Entropia Universe very rarely reveal information about their player base, but implied MAU to be 35.650 in Dec 2009. With monthly turnover of about $30-$35 million, each player made transaction value for an equivalent of close to $1000 per month. Again: This is transacted value between players. If you had $33 worth of in-game currency and made one daily transaction with your whole account balance, you would transact for $1000 per month.
Turnover / Transacted Value — monthly transaction value
The be able to calculate the turnover in Parsec Frontiers’ economy, we would also need to know the number of players that are active — measured as Monthly Active Users (MAU). This is a best-effort guestimate where we try to answer how successful the game introduction and player acquisition will be. Although our goal is to make crypto mainstream by creating an online world with mass-market appeal, we do not know for certain how large the active base of users is going to be.
The genre’s popularity is proven many times over:
- Artplant’s own Battlestar Galactica Online has over time seen more than 20 million players.
- Space-based MMO Eve Online does not publish subscription numbers, but reportedly has about 500k monthly subscribers.
- Star Citizen is on track to raise close to $200 million from over 2 million prospective players.
We have chosen three scenarios which will help us calculate the turnover of Parsec Credits in the online economy: Monthly Active Users of 50k, 500k and 1 million.
Calculating exchange rate and prospective ROI
The quantity theory equation of money reads M x V = P x T. The real money supply multiplied by its velocity equals the price level multiplied by the transaction volume.
- T equals the US dollar value of transactions that can be carried out in Parsec Credits. We take the number of Monthly Active Users of the three scenarios and multiply it with likely monthly transaction volume per player (USD 1000).
- P is the value of a US dollar measured in Parsec Credits (1/the dollar value of 1 Parsec Credit). This is what we will solve for.
- M is the Parsec Credits money supply, which will be 30,856,775,800 PRSC minus unsold tokens to be burned. Here, we will assume no tokens are burned, to err on the conservative side.
- V is the velocity of base money, where we will use 0,8x on a monthly basis.
Anyone considering acquiring PRSC tokens should examine the probability that the actual long term value of T is zero. However — these calculations also show that the Parsec Frontiers ICO pricing does not seem unreasonable, and leaves room for great upside in an appreciation of value if the virtual world is to become as successful as some of the other titles in the same genre.
If you would like to explore these calculations in greater detail, visit this Google Spreadsheet which is write-protected but can be copied by selecting File -> Copy. Play around by changing Velocity of Money, Avg monthly transaction size, number of Monthly Active Users, the ETH/USD exchange rate and number of unsold tokens that are burned. You will immediately see the impact, and gain/loss vs ICO price.
Summary
By utilising the monetary postulate Quantity Theory Equation of Money we are able to calculate that the ICO pricing of PRSC tokens can offer very attractive return on investment when using probable virtual economy metrics from similar non-blockchain products, depending upon the number of participants in the virtual economy.
Disclaimer: This article shall not be interpreted as investment advice or an encouragement to purchase Parsec Credits. It is intended for educational purposes only.
