Token X experiment

Utility tokens / Token Curated Registry / Something something buzzword

Here is the value proposition: people love to write about their favorite token utility and applications, they think that adding more features, listing on exchanges or doing partnerships would increase the network value.

#1 Assertion Utility tokens are traded on the exchanges

#2 Assertion — the valuation measured by MCAP / MAU is off

Civic tokens are valued at $16k per MAU.

Assuming that actually monthly user is worth $100 then the project is overvalued by 160 times. So price should go from $0.13 to something 
like $ 0.0008439 ~ 0

Keep in mind that Civic total supply is 1,000,000,000 CVC so financial utility of owning 1 CVC may be low.

#3 Assertion — there is real, non-speculative fundamental value of an utility token that’s greater than 0

I would love to see more quantified analyst working on token valuation. If you want to try your skills as token researcher you can start with trivial: DM me on twitter!

Soros reflexivity theory

There are only two times when asset is valued correctly and value = price

  • Firstly when initially undervalued asset is increasing it’s valuation
  • Secondly when market correction drives asset with increased utility below it’s “proper value”

Stages of boom-bust cycle:

  • unrecognized trend
  • begining of self-reinforcing process
  • successful test
  • growing conviction resulting in widening divergence between reality and expectations
  • flows in perceptions
  • climax
  • self-reinforcing process in opposite direction
Theories are means to change the system!

How it worked for the bitcoin?

After each “successful” boom and bust cycle followed by growth of price to level higher than previous bubble the conviction of investors that bitcoin is great store of value is increasing.

And it leads to self- fulfilling prophecy like this: (not an actual investment advice! )

How it’s working for another altcoins?

Monero is a coin with the focus on anonymity and reasonable inflationary policy. For sure that’s creating some “fundamental utility for the coin” = but the question remain how exactly?

Anonymous money?

# Inflation and quantity measures


When analyzing such charts (inflation rate vs network value) one shouldn’t overlook high correlation of assets: if crypto-assets are strongly correlated then analyzing fundamentals wouldn’t help and only way to profit would be to invest in beta or leveraged beta.

#1 Question How to measure real utility / real value / anything ?

SaaS (Software as a Service ) valuation rule of thumb: 2–4x times yearly revenue. That’s very crude and it will depend on future growth prospect and possible discount or premium due to quality of the company / product but it’s basic baseline.

What would be such baseline for crypto tokens?

  1. There is no M&A in tokens
  2. Hostile takeovers or evil forks are rare (Bitcoin vs Bitcoin Cash)
  • bitcoin vs bitcoin cash: 11x (weaker brand + stronger network effects? )
  • ethereum vs ethereum classic 22x (strong brand + network effects)

Relative rates on forks are only source for A/B testing on cryptocurrency:

It’s hard to separate brand value, network value, token value without such experiments.

#2 Brand seems to be major driving force for nonproductive crypto-assets

# 3 Rise of intangibles

“It took time for the investment world to embrace companies built on intangible assets. In the early days of Microsoft, I felt like I was explaining something completely foreign to people. Our business plan involved a different way of looking at assets than investors were used to. They couldn’t imagine what returns we would generate over the long term”

FAANG companies aren’t capital heavy — more and more value is created from intangible assets: IP, unique know-how, trademarks, etc…

It’s reflecting in declining accounting relevance. (by looking at Facebook accounting you don’t get to see the ‘network economy’ — accounting standards for network effects aren’t sophisticated)

In other words GAAP principles are less and less relevant for evaluating valuation of the companies.

# 4 MAU / DAU / hours of life spent on Netflix

The Internet’s primary function is delivering information. An incredibly large network, the Internet has an abundance of information from fainting goats to live streaming in war zones. This great wealth of information has given way to an attention economy. Goldhaber describes the attention economy by looking at the Web as an incredibly large part of our reality that has developed its own economy (1997). Like a traditional economy, the scarcest commodity is most sought after. In this way, the Internet is no different to a traditional economy. The Web has a great quantity of information, so attention for this information is the scarcest commodity (Goldhaber, 1997). Every company wants revenue, and the businesses who best accommodate this new reality will be the most successful (Goldhaber, 1997).
Web 2.0 famous metric -> DAU / MAU + engagement & monetization

# 5 Influence economy

Therefore, a true influence seems to be a result of combining the following:

  1. How many people pay attention
  2. How many of these people and to what degree are going to change their behavior (C .- commitment factor)
  3. How many resources those people command on average

I suggest the following definition of “influence” that encompasses all three points:

“Ability to cause reallocation of capitals.”
  • financial
  • human
  • social and political capitals.

Example of influence table: based on influence in cryptoverse

Challenge: compute total influence of people “associated” with the projects, compare with valuations.

Art of Valuation

# 6 Twitter

Reflexive theory = is market-cap increase caused by twitter followers or followers depend on the market cap?

# 7 Vintage

Market for lemons — one cannot see qualities of the ICO other than the price (valuation), seller have full information while buyer doesn’t — such asymmetry leads to situation where if you are retail investor to ICO you will more then probably lose money — remember that VC are taking part of ICO raise + some tokens.

#8 Spillover effects

Value capture

Fat protocols

dAlchemy & Ameer Rosic of Blockgeeks

And here is the catch: there are N tokens at protocol layer and only one token at base layer (Ethereum, Bitcoin, Monero) or even one token at ( minus one layer) — for example Polkadot.

How this may reflect in relative % dominance of cryptoassets?

80 / 20 Pareto principle

80% bitcoin

20% ETH + altcoins

Polkadot Maximalism

50% bitcoin

30% others

20% Polkadot

Security Tokens Maximalism

95% + security tokens

5% native cryptocurrencies

Those are all wild guesses: I would love to see % dominance of your crypto hypothesis