Exploration of Encryption Asset Valuation Models: From Public Chain to Bitcoin

With the rapid development of the cryptocurrency industry, how to reasonably value various encryption projects has become a key issue. The traditional financial sector has a mature valuation system, but encryption projects are diverse and have their own characteristics, requiring the exploration of valuation models suitable for different sectors.

Public Chain Valuation: Metcalfe's Law

Metcalfe's Law states that the value of a network is proportional to the square of the number of nodes, expressed as: V = K*N². This law is widely used in the valuation of internet companies and is also applicable to blockchain public chain projects.

Ethereum is a typical case. Research has found that its market value has a logarithmic linear relationship with daily active users, which basically conforms to Metcalfe's law, with the specific formula being:

V = 3000 * N^1.43

Actual data shows that this valuation method is indeed correlated with the market value trend of Ethereum.

However, Metcalfe's Law has limitations when applied to emerging public chains. For early public chain projects with a smaller user base, the applicability of this method is poor. Furthermore, it cannot reflect the impact of factors such as staking rates and burning mechanisms on token prices.

Exchange Platform Coin Valuation: Profit Buyback and Destruction Model

The platform tokens of centralized exchanges are similar to equity tokens, and their value is closely related to the exchange's revenue, ecological development, market share, and more. Most platform tokens adopt a buyback and burn mechanism, and some also have a burning mechanism.

The valuation of platform coins needs to consider both the overall income of the platform and the token burn situation. A simplified valuation model is:

Platform coin value growth rate = K * transaction volume growth rate * supply destruction rate

A well-known exchange's platform coin is a great example. It has undergone an evolution from profitable buybacks to automatic burns. Assuming the platform's trading volume grows by 40% in 2024, with a token burn rate of 3.5% and a K value of 10, then:

Value growth rate = 10 * 40% * 3.5% = 14%

This means that, as expected, the platform coin should rise by 14% in 2024 compared to 2023.

It is important to note that in practical applications, attention must also be closely paid to factors such as changes in exchange market share and the impact of regulatory policies.

DeFi Project Valuation: Token Cash Flow Discounting Method

For DeFi projects, the token cash flow discount valuation method ( DCF ) can be used. Its core is to forecast the future cash flow of tokens and discount it to the present value at a certain discount rate. The calculation formula is:

DCF = Σ(FCFt / (1+r)^t) + TV / (1+r)^n

Taking a certain DEX project as an example, assuming its revenue in 2024 is $98.90 million, with an annual growth rate of 10%, a discount rate of 15%, a forecast period of 5 years, a perpetual growth rate of 3%, and a FCF conversion rate of 90%.

According to calculations, the total discounted FCF for the next 5 years is approximately $390.3 million, with the terminal value discounted to $611.6 million, resulting in a total DCF valuation of about $1.002 billion, which is close to the current market value of $1.16 billion.

However, DeFi project valuations face numerous challenges: governance tokens often do not directly capture protocol revenues; future cash flow projections are difficult; determining the discount rate is complex; the impact of buyback and burn mechanisms, etc.

Bitcoin Valuation: A Comprehensive Consideration of Multiple Methods

Bitcoin valuation can comprehensively consider various methods:

1. Mining Cost Valuation Method: In the past 5 years, the time when the price of Bitcoin was below the mainstream mining machine's mining cost accounted for only about 10%, indicating that mining cost plays an important supporting role for Bitcoin prices.

2. Gold Substitute Model: Treat Bitcoin as "digital gold" and value it based on its share in the market capitalization of gold. The current share is 7.3%, and if it increases to 10%, 15%, 33%, or 100%, the price of Bitcoin will reach $92,523, $138,784, $305,325, and $925,226, respectively.

However, it should be noted that Bitcoin and gold still have significant differences in terms of physical properties, market perception, and application scenarios, and these factors should be fully considered when using this model.

Conclusion

A reasonable encryption asset valuation model is crucial for promoting industry development and attracting institutional investors. Especially during bear markets, we need to use strict standards and simple logic to find projects with long-term value. Through scientific valuation methods, we hope to identify potential stocks in the encryption field during downturns and prepare for future bull markets.