Jointly produced by Tongzhengtong Research Institute × FENBUSHI DIGITAL
Special Advisors: Shen Bo; Rin
Special Advisors: Shen Bo; Rin
guide
Looking back at the history of stock valuation development, the evolution of valuation methods is full of ups and downs. When Internet companies appear, traditional valuation methods fail. Investors are inevitably at a loss in the face of new things. Tokens have encountered the same problem today.
Summary
Summary
Token investors urgently need a practical valuation method to assist investment judgment. Although BTC was born only ten years ago, the pursuit of token valuation methods is more urgent than ever. Token investors urgently need a practical valuation method to assist investment judgment and discover the growth potential and intrinsic value of tokens. .
The characteristics of token valuation: new things, existing methods are difficult to apply directly. In the face of new things like tokens, existing valuation methods are either difficult to apply directly, or their applicability is too limited. Complexity, tokens have multiple asset attributes. One of the main difficulties in token valuation is the judgment of asset attributes. Tokens have multiple attributes, and many valuation methods can only be applied to some tokens. In the initial stage of development, there are still a lot of problems to be solved. There are a lot of unresolved problems in the existing valuation methods, which need to be continuously improved in practice.
Classification of token valuation methods: Like stock valuation, existing token valuation methods can also be divided into two categories: absolute valuation method and relative valuation method; according to the source of the method used for reference, it can be divided into reference stock valuation method , Refer to option pricing and others; according to the type of pass, it can be divided into security pass valuation method, practical pass valuation method and payment pass pass valuation method.
There are a lot of problems to be solved in the existing token valuation methods, mainly including: interpretability problems, applicability problems, lack of empirical support and basic problems of valuation information. Problems in the understanding of token attributes and the valuation method itself lead to the fact that there is no valuation method widely recognized by investors. Existing token valuation methods are proposed from different perspectives, providing different ideas for token valuation. However, on the one hand, the asset attributes of tokens are still unclear, and on the other hand, various token valuation methods themselves still need to Continuous improvement, so there is no valuation method widely recognized by investors.
Risk warning: ETF progress is less than expected, quantum computer technology is advancing by leaps and bounds
Table of contents
Table of contents
1 The market urgently needs a reasonable token valuation method
1.1 Crowdsale blowout and "bubble" burst
1.2 The dispute over token value
1.3 The Urgent Need for Reasonable Valuation Methods
1.4 What is the difference in token valuation
2 Existing Token Valuation Methods
2.1 Cost pricing method
2.2 Option pricing method
2.3 Exchange equation method
2.3.1 Encrypted J-curve
2.3.2 Exchange equation method
2.4 Value reserve method
2.5 Relative Valuation Method
2.5.1 NVT Ratio
2.5.2 PMR ratio
2.5.3 NVM Ratio
2.5.4 NVTG Ratio
3 Summary and Outlook
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1 The market urgently needs a reasonable token valuation method
1.1 Crowdsale blowout and "bubble" burst
In 2017, Crowdsale experienced a blowout growth. In 2017, the global Crowdsale experienced a blowout growth, far exceeding the investment of VCs and enterprises. According to statistics, the number of global crowdsales and funds raised through crowdsales in 2017 were 875 and 7.4 billion US dollars respectively, an increase of 2917% and 3160% respectively compared to 2016.
Fraud and manipulation of the token market. Due to the lack of supervision and rampant fraud and manipulation during the brutal growth of the token market, the securities of "blue sky and hot air" a hundred years ago have been transformed into "air tokens". According to statistics from Statis Group, 78% of crowdsale projects in 2017 were suspected fraud, and only 15% were still trading.
The crowdsale "bubble" burst. The slow implementation of many projects and the rampant fraud and manipulation have led to the failure of market expectations. The diversion of funds from mainstream tokens, the impact of negative news, and market sentiment fluctuations have been superimposed. The market has fallen and the "bubble" has burst.
1.2 The dispute over token value
The lessons learned in history, the complete logic of fundamental analysis methods in stock investment, and the successful practice of a group of value investors have already made the value investment concept and concepts such as "intrinsic value" and "margin of safety" deeply rooted in the hearts of the people. Therefore, since the birth of BTC, there has been such a question lingering in people's minds: Does the token have value? If so, what is its value? And how should it be valued?
The debate about the value of tokens has never stopped. Token investors are often labeled as speculators. When Buffett first talked about BTC in 2014, he called it a mirage ("Stay away from it. It's amirage, basically."), and the bursting of the bubble further aggravated the doubts in people's minds .
If the certificate has no value, the discussion on valuation will also lose its necessity. In view of the doubts about the value of the certificate, it is necessary to make the following explanations:
First of all, tokens are not equal to the fraudulent manipulation phenomenon that exists in Crowdsale. In the phenomenon of fraudulent manipulation in Crowdsale, tokens are just a tool, just as there were "blue sky and hot air" securities many years ago, "air tokens" have nothing more special.
Second, the existence of bubbles does not mean that there is no value. Bubbles exist widely in the economy, and bubbles may appear in any asset, such as the South Sea bubble, tulip bubble, Internet bubble, and real estate bubble. However, the value of stocks or real estate cannot be denied because of the existence of bubbles. Bubbles only appear when the price deviates from the value economic phenomenon.
Again, more and more token applications and innovations are gradually emerging. The first important application of the token is BTC—a safe, verifiable and non-tamperable efficient electronic payment method, which helps to reduce costs such as reconciliation and dispute resolution. Crowdsale and STO (Security Token Issuance) can be used as start-ups Blind doubts and denials of corporate financing channels stem from fear of the unknown.
Finally, tokens are included in regulation and gain more and more recognition. Tokens began to be more linked to legal applications. According to DEA (US Drug Enforcement Administration) data, only 10% of the current BTC transaction volume is related to illegal activities, and 90% is used for legal transactions. Governments of various countries (regions) have brought tokens into regulation and defined tokens as encrypted assets. Tokens embrace regulation and have feasible solutions like STO/ETF (trading open index funds). Mainstream institutions are increasingly recognizing tokens, such as CME (Chicago Mercantile Exchange, Chicago Mercantile Exchange) has launched BTC futures.
1.3 The Urgent Need for Reasonable Valuation Methods
Although BTC was born only ten years ago, the pursuit of token valuation methods is more urgent than ever. Token investors urgently need a practical valuation method to assist investment judgment and discover the growth potential and intrinsic value of tokens. .
1.4 What is the difference in token valuation
New things, existing methods are difficult to apply directly. In the face of the new thing of token, the existing valuation methods are ineffective without exception, and the valuation problems experienced by Internet companies in the past have been staged again in the token market. The development of valuation methods is a process of constantly looking for references from history. Just as when stocks were first born, people found bonds as a reference and used bond valuation methods to value stocks. Now, people are once again trying to combine various valuation methods However, it has been proved that the existing valuation methods are either difficult to apply directly, or their applicability is too limited.
Complexity, tokens have multiple asset attributes. One of the main difficulties in token valuation is the judgment of asset attributes. Tokens have multiple attributes such as currency attributes, equity attributes, and real right attributes, but they are significantly different from each asset, which leads to many existing valuation methods that can only be applied to some tokens.
Note: SEC and FINMA classify tokens. The SEC divides tokens into Security tokens, Utility tokens and Cryptocurrencies. FINMA (Swiss Financial Market Supervisory Authority, Swiss Financial Market Supervisory Authority) classification and SEC Similarly, tokens are divided into Asset tokens, Utility tokens and Payment tokens.
In the initial stage of development, there are still a lot of problems to be solved. Investors have not yet reached a consensus on the valuation of tokens. Although a variety of valuation methods have been proposed, there are a lot of problems to be solved in the existing valuation methods, which need to be continuously improved in practice.
2 Existing Token Valuation Methods
Like stock valuation, the existing token valuation methods can also be divided into two categories: absolute valuation method and relative valuation method. Absolute valuation method includes exchange equation method, cost pricing method, option pricing method, value Reserve method, etc., relative valuation method multiples include NVT ratio, PMR ratio, NVM ratio and NVTG ratio, etc.; according to the source of the method used for reference, it can be divided into stock valuation, option pricing and others; according to the type of token, it can be divided into Valuation methods for security tokens, utility tokens and payment tokens.
2.1 Cost pricing method
The cost pricing method was proposed by Adam Hayes for BTC. The theoretical basis is that the marginal cost of BTC mining should be equal to the marginal revenue. Rational miners will only mine when they are profitable. If the marginal cost of mining exceeds the marginal revenue, miners Resources will be redeployed, removing computing power from the network.
P*=Eday/（BTC/day*）
Eday=(ρ/1000)($/kWh×WperGH/s×hrday)
The basic idea of the cost pricing method is to divide the daily mining cost (Eday) of miners by the number of BTC mined every day (BTC/day*), and obtain the mining cost P* per unit BTC:
Among them, ρ is the computing power owned by the miners, $/kWh is the unit price of electricity, WperGH/s is the energy efficiency of the hardware, and hrsday is the number of hours in a day.
Where β is the block reward (currently 12.5), δ is the block difficulty, and sechr is the number of seconds in an hour.
The cost price calculated based on the mining cost and the number of mined BTC can set the floor price for BTC. Hayes used this method to conduct an empirical test on BTC, and found that 92% of BTC's price changes can be explained by the cost pricing model, and passed the Granger test.
Despite the empirical support, the model still has a series of problems to be solved. First of all, the model does not take into account the centralization of computing power. Hayes' model is based on the assumption of a perfectly competitive market, but the current BTC mining market is more similar to an oligopoly market. According to BTC.com data, the top five mining pools account for The ratio is about 60% (December 12, 2018). Secondly, the model ignores some factors that may have an important impact on the price of BTC. In terms of income, the model only considers block rewards and does not consider transaction fees. Compared with block rewards, transaction fees are not negligible In terms of cost, the model also only considers the cost of mining electricity. Finally, it remains to be verified whether this method can work for tokens that use PoW consensus mechanisms other than BTC and tokens that use other consensus mechanisms other than PoW consensus.
2.2 Option pricing method
The option pricing method regards the pass as a call option on the actual utility value that encrypted assets may provide, and then uses the option pricing formula to calculate the intrinsic value of the pass.
The traditional Black-Scholes equation is as follows:
where V is the option price, V is a function of the stock price S and time t, r is the risk-free rate, and σ is the volatility of the stock price. In token valuation, V is correspondingly defined as the price of encrypted assets, S is the actual utility value of encrypted assets in the token economy, r is the risk-free interest rate, and σ is the volatility of S.
The option pricing method provides a new idea for the valuation of tokens. Its problem is that S, σ, K and T are unknown, and there is no clear description of the factors affecting S and how S affects V.
2.3 Exchange equation method
2.3.1 Encrypted J-curve
The J-curve originated from private equity investment, and the encrypted J-curve was proposed by Chris Burniske. According to this model, the token price consists of two parts:
(1) CUV (Current Utility Value, current utility value);
(2) DEUV (Discounted Expected Utility Value, discounted expected utility value).
Their contribution to the token price changes over time.
According to the J-curve model, CUV has not yet formed in the initial stage of the project, and the token price is mainly dominated by DEUV. Early investors are optimistic about the project prospects, which will lead to the growth of DEUV, and the first peak will appear; however, as investors' enthusiasm fades or the project encounters difficulties , DEUV will be compressed, and the price will drop accordingly; as the project gradually matures, CUV and DEUV will grow in parallel, and the evolution process will form a J-curve.
The above process will appear cyclically, and the J-curve will be composed of multiple micro-J-curves.
2.3.2 Exchange equation method
(1) INET model
Chris Burniske was the first to use the exchange equation for token valuation. This method is based on the J-curve, which evaluates tokens by calculating the current utility and expected future utility of the token economy.
M*V=P*Q
The exchange equation comes from monetary economics and was proposed by Irving Fisher:
Among them, M is the money supply, V is the velocity of money circulation, P is the price level, Q is the actual output of goods and services, and P*Q is GDP (Gross Domestic Product, gross domestic product).
In the token valuation, these variables are assigned meanings accordingly. M is the value of the legal currency of the token, V is the circulation velocity of the token, P is not the price of the token, but the price of encrypted assets in the token economy, and Q is The number of encrypted assets. Different models of the exchange equation method have slightly different definitions of the above variables, but they are basically the same.
According to the exchange equation, M=PQ/V can be obtained naturally. If P, Q and V can be obtained, M can be obtained naturally.
Burniske invented a token called INET that enables bandwidth sharing via a decentralized virtual private network (VPN). P is determined by the market. In order to obtain Q, it is necessary to estimate the available market size and the penetration rate of INET. Finally, it is necessary to estimate the circulation velocity V of the pass.
Burniske estimates that V's approach is to split the comprehensive circulation velocity of BTC in 2016 into "strict investment" circulation velocity V1 and "trading medium" circulation velocity V2, where "strict investment" refers to buying or holding BTC and There is no sale in , so the corresponding V1 is 0, and "transaction medium" refers to sending BTC to other addresses within a year.
BTC comprehensive circulation velocity = "strict investment" BTC% × V1 + "trading medium" BTC% x V2 = "trading medium" BTC quantity% x V2
According to Coinbase data, 46% of Coinbase users used BTC as a "transaction medium" in 2016. Based on this, V2 can be calculated as 14. Since there are commodities in the INET economy, its circulation velocity should be faster than BTC as a currency, so it is assumed to be 20. At this point, the current utility value can be calculated.
According to the J-curve model, the current price is composed of the current utility value and the discounted expected utility value. The next step is to calculate the expected utility value and discount it, which involves the estimation of the expected utility value and the selection of the discount rate.
There are a series of problems that need to be solved in this method, such as the determination of the circulation velocity. On the one hand, the circulation velocity will change with time, and on the other hand, it is worth discussing that the circulation velocity is completely irrelevant to PQ. In addition, the model does not consider transaction costs and payment methods, and does not distinguish between money demand and commodity demand.
(2) VOLT model
The model was proposed by Alex Evans and improved on the basis of the INET model, which uses the Baumol-Tolbin model to consider the demand for funds and the demand for goods separately.
Evans created a fictional token called VOLT, which would allow the purchase of electricity at below retail prices.
The relevant variables are defined as follows: Assuming that the user spends evenly throughout the year, Y is the user's planned annual VOLT spending, R is the expected return on the store of value asset, C is the transaction cost of transferring assets from the store of value asset to VOLT, and N is the VOLT user The number of transfers completed per year.
Therefore, the user pays the transaction cost of C*N every year, and the average VOLT balance held each year is Y/2N, because the return given up by the user holding VOLT every year is R*Y/2N, therefore, the user chooses N, depending on Y, R and C in order to minimize their total cost function: R*Y/2N +C*N. Accordingly, when the total cost is minimized
Re-substituting the N value of cost minimization into the average currency balance formula (Y/2N) to obtain the VOLT demand function:
In addition, in this model, the correlation coefficient between speed and PQ is no longer zero. On the basis of the above improvements, the value of the VOLT token can be estimated in a manner similar to the INET model.
2.4 Value reserve method
The value reserve method starts from the fact that the token can be used as a value reserve. The idea is to estimate the market share of various reserve assets that the token can occupy, and then estimate the price of the token, which is very similar to the exchange equation method. For example, according to Howmuch.net data, the total value of global gold in 2018 is about 7.8 trillion US dollars, and the upper limit of the number of BTC is 21 million. Assuming that BTC can occupy 10% of the gold market, the valuation of BTC is about 37,000 US dollars.
Of course, the above example is oversimplified, because only the gold market is considered, and it can be further expanded to other markets. Given that the number of BTC is ultimately constant, considering more other markets will further increase the reserve value of BTC.
This method is too simple, has many problems, and has only limited reference value. First, the available market size is difficult to obtain, and is easily affected by subjective judgments, and can be arbitrarily large. Secondly, due to the lack of value drivers, it is difficult to judge value changes.
2.5 Relative Valuation Method
2.5.1 NVT Ratio
NVT=28MA（DailyNV/Daily TV）
Willy Woo proposed MTV Ratio (Market Cap to Transaction Value, market value transaction ratio) in February 2017, and in May 2017, Chris Burniske proposed a similar NVT Ratio (Network Value to Transactions Ratio, network value and transaction ratio):
Among them, 28MA refers to the 28-day moving average (14 days forward and 14 days backward) to smooth the noise, and TV (Transaction Volume, transaction volume) refers to the transaction volume on the chain, excluding the exchange transaction volume.
The basic idea of this method is that the transaction value on the BTC chain is highly correlated with the network value (as shown in the figure below), so the ratio of the two should be in a relatively stable range most of the time, and a higher NVT ratio means that the network value is higher than the flow value. The actual transaction value via the network shows that the market is optimistic about the future potential of the token.
The NVT ratio helps to judge whether there is a bubble. When the NVT ratio exceeds the normal area, it indicates that the transaction activity cannot continue to maintain the network value, and there may be a price correction in the future.
Compared with the network value, the trend of NVT ratio shows obvious hysteresis, as shown in the green area in the above figure, so this indicator is not predictive, and its descriptiveness is not good, as shown in the orange area in the above figure, The NVT ratio moves inversely to the network value. In addition, whether this method can be applied to tokens other than BTC remains to be verified, and most tokens that have appeared for a short time do not have enough data for NVT Ratio analysis.
On the basis of the original NVT ratio, Dmitry Kalichki improved and proposed a new NVT calculation method NVTnew (also known as NVT Signal, NVT signal).
The original NVT ratio uses a 28-day moving average (14 days forward and 14 days backward), but there may be some problems with this smoothing method, such as 28 days may not be long enough, relying on future data to develop predictive indicators There may be issues, and whether you want to smooth the overall ratio or just the denominator, etc.
NVT Signal=NV/90MA（Daily TV）
After different attempts, the empirical conclusion given by Dmitry Kalichki is that dividing the daily network value by the 90-day moving average of the transaction volume is the optimal solution, and the NVT signal is defined as follows:
The NVT signal can also be used to judge the overbought and oversold areas. Above 150 is the overbought area, and below 45 is the oversold area.
Further by adding a trendline, the NVT signal can be used to judge the bottom position. For example, when the market is in the top area, by adding a trend line, once the price effectively falls below the trend line, there is a high probability that it will continue to decline in the future, and a similar method can be used to judge the bottom position.
The NVT ratio provides a good idea for token valuation, but its flaws are also obvious. First of all, NVT only considers on-chain transactions, but for many tokens, exchange transactions actually account for a larger proportion of transaction volume; secondly, the accuracy of daily transaction volume data is difficult to guarantee, and different transaction volumes The calculation method will obviously lead to different results; in the end, more transaction volume may not be enough to justify the higher value of the token. In the case of fiat currency, the transaction volume of USD is much higher than that of Swiss franc, but the value of Swiss franc is still higher than that of Dollar.
2.5.2 PMR ratio
NV（Network Value）=C*n2
PMR Ratio (Price to Metcalfe Ratio, price to Metcalfe ratio) was proposed by Clearblocks, which is based on Metcalfe's Law. Metcalfe's law was proposed by George Gilder in 1993. Its content is: the value of a network is proportional to the square of the number of users connected to the network (the only connection between nodes in a network of n nodes is n(n-1)/ 2):
There are many variants of the original Metcalfe's law, such as:
Generalized Metcalfe's Law: NV (generalized) = C*1.5
Zipf's Law (Zipf's Law): NV (Zipf) = C*n*logn, also known as Odlyzko's Law
Sarnoff's Law: NV (Sarnoff) = C*n
PMRClearblocks=ln（NV/30MAn1.5）
Different PMR ratios can be obtained by dividing the token network value or token price by different Metcalfe forecast values, such as the PMR given by Clearblocks according to the generalized Metcalfe law:
Among them, n is DAA (Daily active address, daily active address), and the PMR ratio obtained by using other Metcalfe forecast values is similar in form. PMR accurately predicted three corrections of the BTC price. Judging from the results, when the PMR exceeds 1, the BTC price has corrected. When the PMR is less than -1.25, the BTC price has rebounded. The test of ETH has obtained similar results.
Although PMR has certain advantages over NVT, it is not without limitations. It also does not consider off-chain transactions. In addition, it is difficult to objectively choose among various ratios obtained from different Metcalf predictions. The NVM ratio is positive was raised for this question.
2.5.3 NVM Ratio
Upper Bound=a1+b1*30MAln（n2）
Lower Bound=a2+b2*30MAln（n*lnn）
The NVM ratio (Network Value to Metcalfe Ratio, network value and Metcalfe ratio) was proposed by Dmitry Kalichki. Since the ratio obtained according to different Metcalfe prediction values may overestimate or underestimate the network value, different ratios are used as the network value. The upper and lower limits of the value can be used to obtain the operating range of the actual network value, and the average value of the upper and lower limits is used as the valuation.
NVM=ln（NVactual）-ln（NVmetcalfe）=ln（NVactual/NVmetcalfe）
The definition formula of NVM is as follows:
NVMnorm=NVM/（Upper Boun-Lower Bound）/2
Further normalize NVM to get NVMnorm:
When NVMnorm is close to -1, it means that the network value is close to the lower limit, and when it is 1, it means that the upper limit has been reached.
2.5.4 NVTG Ratio
NVTG=NV/90EMA（TV）/90EMA（2N）
The above ratios often lead to contradictory results in the judgment of overvaluation or undervaluation of the token. NVT does not consider the value-added brought by new users to the network, while NVM only considers active addresses and does not consider the actual number of users on the network. cost impact. The NVTG ratio (Network Value /Transaction Value to Growth Ratio, network value transaction growth ratio) draws on the PEG ratio (Price/Earnings to Growth Ratio, price-to-earnings growth ratio) on the basis of the NVT ratio, using the original Metcalf forecast value The NVTG ratios are as follows:
2.6 Other Valuation Methods
In addition to the above methods, there are other attempts to apply traditional valuation methods to tokens. For example, the DCF model (Discounted Cash Flow Model) will still be applicable to security tokens.
3 Summary and Outlook
Existing token valuation methods have a large number of unresolved issues. At this stage, the exploration of token valuation methods is still in its early stages, and there is no mature and systematic token valuation method. The problems of existing valuation methods mainly include the following aspects:
explanatory questions. Some valuation methods simply apply the valuation methods of other assets, and their ability to explain the valuation of tokens is limited. For example, the value reserve method is too simplified, and the valuation process involves a large number of assumptions and is easily affected by subjective judgments. Therefore, the conclusions drawn from this method have only limited reference value.
Applicability issues. Existing valuation methods are often proposed for a certain type or type of tokens, and whether they can be applied to other tokens remains to be tested. For example, the cost pricing method is proposed for BTC that adopts the PoW consensus, but it remains to be verified whether it can be applied to other tokens that also adopt the PoW consensus and tokens that use other consensus mechanisms.
Lack of empirical support. Some existing valuation methods are still at the theoretical level and lack empirical support. Whether they can be truly applied to the valuation of tokens needs further testing. The basic problem of valuation information is one of the main reasons for this phenomenon.
Basis of Valuation Information. Various valuation methods have their own information basis. The current token industry lacks supervision and there is no unified information disclosure specification. Therefore, it is difficult to guarantee the reliability of many data or even obtain the data required for valuation, such as the transaction volume in the NVT ratio. The accuracy of the data, the determination of the circulation velocity of the token in the exchange equation method, etc. all have a significant impact on the valuation method.
Due to some reasons, some nouns in this article are not very accurate, mainly such as: general certificate, digital certificate, digital currency, currency, token, crowdsale, etc. If readers have any questions, they can call or write to discuss together.
Note:
Due to some reasons, some nouns in this article are not very accurate, mainly such as: general certificate, digital certificate, digital currency, currency, token, crowdsale, etc. If readers have any questions, they can call or write to discuss together.
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