Intrinsic Value of Digital Notes

Synthchain WP (5)

Digital Notes have an additional dimension of utility to most cryptocurrencies in their potential for re-exchange as units of proxy digital coinage with the original purchase asset stored in the smart contract. As a result of this additional dimension of Utility, digital notes also have an additional dimension of value that very significantly makes them far more conventional monetary instruments than standard cryptocurrencies except in a synthetic form:

Whereas valuing most cryptocurrencies involves using a variety of experimental formula and “best-guess” approaches, valuing digital notes is no different at all to valuing any investment is. When undertaking an investment valuation, aby far the most common approach is to use a discounted cashflow analysis to arrive at a net present value of the asset being valued. The formula for calculating DCF for an asset value in present terms that is three years into the future from now is expressed as follows:

PV = CF1 / (1+k) + CF2 / (1+k)2 + CF3 / (1+k)3 + [TCF / (k — g)]/(1+k)n-1

where PV= present value, CFi = cash flow in year I, k= discount rate, TCF= the terminal year cash flow, g= growth rate assumption in perpetuity beyond terminal year and n= the number of periods in the valuation model including the terminal year.

Presently, no digital asset can be valued this way as there is not an expected income receipt from a cryptocurrency, since its utility is purely that of a payment utility. Indeed, prior to the advent of cryptocurrencies, which due to limited supply quotas, tended towards big increases in value as a result of a more exponential demand function than availability permitted at equilibrium value, it was never imagined that currencies themselves would resemble income assets.

Currencies prior to cryptocurrency innovation were merely mechanisms with which to pay with things for, and were only materially worth speculating on the direction of against one another by applying substantial (1,000% in many cases) portions of leverage.

With digital notes, however, there isan income receipt that is expected at some point in the future. This income receipt while not specifically a classifiable dividend or such is nevertheless manifest in the form of a re-exchange of the digital notes with the original units the notes were purchased with.

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