Tomasz Tunguz - How Will We Value a Crypto Token?
Tomasz TunguzVenture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. How Will We Value a Crypto Token?
Imagine you have a dollar to invest and you can choose between two options: a public cloud service or a layer 1 blockchain. How do you decide which is more attractive? How does a token differ from equity? The answer is that tokens can act remarkably like equity if they are structured in the right way. In addition, tokens offer one benefit beyond equity: utility.
Here’s a table that summmarizes the similarities and differences of equity and tokens. They are in fact, very similar. Voting & Dividends A token provides voting rights when it is a governance token that governs a DAO (Decentralized Autonomous Organization). A DAO is the governance organization of a crypto company. It functions like a board and shareholder base. A DAO manages the roadmap and the treasury of the business and evaluates ideas for the business that are submitted by the community. Should the DAO elect to distribute profits from the treasury, a token holder would receive a share of those earnings. Yield The same is true of tokens. Traders can borrow them to sell them short and pay a fee. Different tokens command different rates, like stocks. Minting Tokens work similarly, though it’s called minting. If I work on behalf of a crypto company, I receive tokens as part of my compensation. But being an employee isn’t necessary to mint. I can also mint tokens if I participate in the network to help it along. If I operate a Solana validator to verify transactions or buy a Helium router to distribute internet in my city or stake Ethereum to verify transactions, each network would reward me with tokens. The network pays members with tokens much the same way a corporations pays employees in stock. Public companies can choose to increase or decrease the number of shares outstanding through pool expansion or share buybacks. Tokens have their own mechanisms for controlling the total quantity of tokens. Some tokens are inflationary (over time each token is worth less) and others are deflationary (over times each token is worth more). The same could be said of company stock. For example, Apple is a deflationary stock. There are approximately 1/3 fewer shares of Apple in circulation today than in 2012 because the company has used their cash to buy them back and retire them. Utility To use my Microsoft stock and walk out of the store with the XBox, I’m required to swap my stock for US dollars and pay in cash or a credit card. Valuation Driver As for tokens, it’s an open question. The valuation methodologies haven’t coalesced yet. Cryptoassets written by Burniske and Tatar in 2017 contemplates a few different models including velocity of money (mv=pq), discounted future cash flows (DCF), and speculative value (if this asset is worth X, this other one must be worth y). There’s a great example for Axie here. But with significant differences in corporate structure (not all tokens provide DAO voting) differences in capital structure (does the value reside in the token or the equity of the cap table?), and the novelty that a token can be used as a utility in a way a stock cannot, the question is a perplexing one. Assuming a crypto company and its DAO decide to structure tokens as similar to equity as possible, then tokens confer one marginal benefit beyond equity: utility. That utility is worth something. It’s an option to act. It’s also a way to transact that may have less transaction costs than converting to cash or paying through a credit card network. Consequently, a token with the same rights as a share of a company should trade at a premium. The premium should be some combination of option value of the utility plus the discounted value of the tax and transaction cost savings. In addition, the different layers of the crypto stack will be valued differently. An automated market marker and an NFT market place have very different revenue, net income, and cash flow characteristics. The same is true for a crypto bank and an L1. How much for that Bizarden Tulip? As the market matures, valuation methodology will cohere into a well-understood framework, much as it has in SaaS over the last decade. But today, the ecosystem is most certainly using the speculative value method: if the floor price of a CryptoPunk is 20 ETH, then a Degenerative Ape must be at least 150 SOL. How much is a Bizarden Tulip NFT? [1] [1] this was the rarest tulip in Holland, yellow streaks on purple petals. |
Older messages
Benchmarking Amplitude's S-1: How 7 Key Metrics Stack Up
Thursday, September 2, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Benchmarking Amplitude's S-1: How 7 Key Metrics
Per Seat or Per Use Pricing: A Framework for Evaluating the Right Strategy for Your Startup
Wednesday, September 1, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Per Seat or Per Use Pricing: A Framework for
You'll Never Login the Same Way Again
Monday, August 23, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. You'll Never Login the Same Way Again Visit
Preset Cloud - The Visualization Layer for the Modern Data Stack
Wednesday, August 18, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Preset Cloud - The Visualization Layer for the
The Secret to Recruiting Quickly and Retaining Your People
Monday, August 16, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. The Secret to Recruiting Quickly and Retaining Your
You Might Also Like
🗞 What's New: ~40% of young adults get their news from influencers
Saturday, November 23, 2024
Also: "File over App" for digital longevity ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
Initiator Creator - Issue 145
Saturday, November 23, 2024
Initiator Creator - Issue #145 - ( Read in browser ) By Saurabh Y. // 23 Nov 2024 Presented by NorthPoll This Week's Notes: Content-rich designs looks more convincing I just love how Basecamp
🛑 STOP EVERYTHING 🛑 BLACK FRIDAY IS NOW!
Saturday, November 23, 2024
This is your sign to take action—2025 could be your breakthrough year, but only if you start now. Black Friday_Header_2 Hey Friend , This is getting serious. We're handing over $1700 in value as
What’s 🔥 in Enterprise IT/VC #421
Saturday, November 23, 2024
Thoughts from Goldman's PICC + optimism for 2025? ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
I'm blue
Saturday, November 23, 2024
Hey, tl;dr – I've decided to delete all my Twitter posts, lock down my account, and leave the platform. And I'm going all-in on Bluesky, which (in the last month) has become 1000x more fun
🚀 Globalstar to the Nasdaq
Saturday, November 23, 2024
Plus $RKLB CEO becomes a billionaire, DIRECTV $SATS debt deal called off, TEC's $160M Series B, and more! The latest space investing news and updates. View this email in your browser The Space
Theory Two
Friday, November 22, 2024
Tomasz Tunguz Venture Capitalist If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Theory Two Today, we're announcing our second fund of $450
🗞 What's New: AI creators may be coming to TikTok
Friday, November 22, 2024
Also: Microsoft's AI updates are helpful for founders ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
behind the scenes of the 2024 digital health 50
Friday, November 22, 2024
the expert behind the list is unpacking this year's winners. don't miss it. Hi there, Get an inside look at the world's most promising private digital health companies. Join the analyst
How to get set up on Bluesky
Friday, November 22, 2024
Plus, Instagram personal profiles are now in Buffer! ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏