Valuation, not price. Is it to keep others in the dark, so the cycle of shilling continues? It's confusing to me, because everyone keeps saying 'this coin is undervalued', or 'that coin is overvalued' and then, when asked to back up their claims, they go on listing items on the project's roadmap or talking about the team.I realize that many of you probably don't know what a valuation model is or why it works (to some extent, it's never perfect). Valuation models are especially useful in detecting whether a business (nearly all 2nd and 3rd gen cryptocurrencies are backed by business-like entities) is viable and using multiple different models will tend to yield some kind of 'reasonable range' for a project's market capitalization. If it's under, chances are that it's being underestimated (for cryptocurrencies, that chance is still very low, the entire industry is nascent and we are still in bubble territory). For example, let's take a SaaS (Software as a Service) company. Its most important metrics will likely be:Customer Acquisition Cost (CAC): the dollar amount the company needs to spend to gain a new customer. This is usually done via various marketing efforts, reputation/word of mouth or direct sales efforts.Customer Lifetime Value (CLTV): the total expected value our SaaS company can expect from an average customer over the course of their lifetime. By lifetime, we don't mean the client's actual lifespan, but rather the time they'll remain customers.Market size: the total size (in dollars) of the market the company is in. The bigger it is, the more potential the company has in terms of growth.Market penetration: the current share of the market the company currently captures.If our company has a high CAC/CLTV ratio and poor market penetration, even if its market is ENORMOUS and their offering is good, it's unlikely to make a good investment. Growing would simply be too expensive. This is the same for cryptocurrencies. In my opinion, we need to think about valuation in this order:Philosophy: What is 'x' coin's vision for the future? Is it achievable? Why or why not? We don't go into technical details here, but rather simply examine the leading group/company/foundation/community's plan moving forward. If there are none, you should instantly become extremely skeptical. Right away, this exposes a type of project I personally consider malicious: clones. Bitcoin, Ethereum and other original projects' clones essentially never have a standalone vision. They rely on the reputation and promises of the original.Value distribution: Let's assume a team's grand vision is exciting, that it makes sense from a business and even tech perspective. How does that team intend to share value created? Most projects simply rely on having their token act as a currency, which is both lazy and dangerous, because it relies on a) high adoption levels, so a self-sustaining economy is created and b) lack of worthy competitors. Do you honestly think that, in the future, there'll be hundreds of economic micro-pockets that require their own currency?Technology: In concrete scientific terms, how is your project attempting to achieve its grand vision? This is where comparisons like network structure, hashing algorithms, throughput and others are relevant and yes, it only comes third on my list. Technology is a means to an end, not an end itself.Connections: What are the actors that will allow our technology to flourish? Are strategic partnerships needed? Will end users even be aware that they're using our technology? Partners are a sign of legitimacy, but that's just the beginning. Each and every cryptocurrency that exists today needs an ecosystem to surround it, for the sake of its liquidity, the realization of its use cases, etc.Until we start creating and discussing valuation formulas, until we start extensively mapping our own vision of a post-DLT (distributed ledger technology) world as a community and calling out people who isolate facts to inflate the value of their own investment and shoot down competitors, we will not grow. We will certainly not help crypto become mainstream, either. The majority waits for safety and clarity before jumping on board, and we're here talking about sharding and audit trails in a vacuum, despite less than 10% of the space really understanding anything about it. We must work on the big picture, and it starts with trying to understand value.
Submitted August 14, 2018 at 09:43PM
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