Evaluating Blockchain Projects And Their Cryptocurrencies

Blockchain technology and the subsequent crypto markets are still extremely young. This makes analyzing and evaluating the financial viability of projects and tokens very difficult However, we can apply traditional financial evaluation methods to model crypto assets as best we can. This series breaks down the types of financial models we have seen in blockchain technology, what to look out for, what to avoid, and how to determine the true value in a network.

Introduction

At Status we have kicked off a research initiative investigating the crypto economic models behind our own token use cases. The goal of the initiative is to determine what impact token utility has on the value of the network as a whole. We will explore the parameters of various models and their impact and what information is needed to truly validate these hypotheses in such a nascent market.

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Q2 hedge fund letters, conference, scoops etc

This article will introduce the various types of models and their parameters uncovered in our research as well as some of the issues uncovered as we dove in; which will go into greater detail later on in the series

  • Staking Model
  • Equation of Exchange Model
  • Token Curated Registries and Incentivization Models

Staking Model and its impact on supply and demand

How does temporarily removing tokens from total circulating supply apply impact the net present value of a network? In this article we explore the variables associated in this model such as growth rate, churn rate, conversion rate, discount rate (to be explored further later on) and their impact on NPV. We will use the example of ENS Registration as a means of illustration.

Equation of Exchange

Does increased value flow within a network increase the net present value of a network? What variables are at play here and what factors have the largest impact? We will look at the Status Sticker Market and other crypto marketplaces as a means of illustrating this financial model.

Token Curated Registries and Incentivization Model

This article deep dives into the concept of token curated registries as a means of token utility and what impact bonding curves have on net present value. What happens to supply in demand in this model and does it increase token usage?

Discount Rate

This article deep dives into determining an appropriate discount rate for crypto markets. What is the problem with using traditional discount rates when evaluating such a nascent and potentially risky market.

Hurdle Funding

Should a project burn tokens as a means if increasing token value? Is there a better use for tokens opposed to simply reducing total circulating supply?

Conclusion

This market is very new and there is still not enough data to prove one theory right or wrong over another. We will look back at all the information provided above and compile a recap on the various way to evaluate a crypto project and token in such a young market.



About the Author

Barry Gitarts
Barry Gitarts is a web3 engineer at Status - building secure communication tools with blockchain technology. He began building tools to track, test and help implement portfolio allocation decisions on behalf of a trading and research desk inside an investment bank supporting a group of hedge funds and institutional money managers. Specifically, they were tracking about 3500 external equity analysts and the changes in their earnings and revenues estimates in real time. This is where he learned about the market moving impact of these estimates and the fundamental reasons for why they work.