Valuation of Utility Tokens based on the Quantity Theory of Money

This article is gold, I have learned a lot about the basis of the theory of money and token valuation. Thanks Jay Pazos for sharing it.

Acronyms to remind:

  • TAM: Total addressable market.
  • SAM: Serviceable available market.
  • SOM: Serviceable obtainable market, the market that the company can realistically address.
  • PSOM: %market penetration of the company in SOM.
  • Q: quantity of the resource provided.
  • Q = SOM x PSOM


Ok, you do not have time to read the 6 pages article, just read the abstract, I guess it will convince you to read the rest.

A framework to value utility tokens would allow for more transparent Initial Coin Offerings (ICO) and help in the development of digital assets. In this paper, we derive a formula to value utility tokens and the network that supports it. We found that valuation is directly proportional to the price of the resource being provided and the size of the Serviceable Obtainable Market (SOM) for that resource. Also, it is inversely proportional to the velocity of the token. In section 4 we derive a formula for a crypto conversion factor that relates the price of the token to the price of the resource provided, the factor is not linear and has seven variables. For cases where the growth of SOM and the growth in price of the resource are not high, longer times to develop the network will
decrease valuation; this is because discount rates for start-up and growth companies are high. On the other hand, if the build-up of the network goes on-time as planned, posterior valuations of the network will yield higher values. As expected, valuation doesn’t depend on the number of tokens issued as that variable doesn’t appear in the formula. We believe that by making these formulas available to the Blockchain/DLT community,
we can help network developers to understand how key variables impact the valuation of the network they are trying to build.

The impact of ICOs on cryptos’ value

I have had some conversations related to this during the last months.

The topic

So many companies/start-ups are opening ICO processes to fund their blockchain business. They create a business plan with a budget to fund it, the currency is in dollars/euros or other FIAT currency.

The majority enable the investors to fund the project with crypto-currency, mainly bitcoins or ethers. (It would be ironic that a company based on the block-chain will not trust the 2 main block-chain coins, right?).

The point is that the money they have raised is to fund the project that is based on real cost needs: salaries, equipment, other services. The majority of the services are paid in FIAT, so you are obliged to sell these coins in the market and then use the money for your business plan.

The questions I ask my self are

  • How many of these “sells” are provoking the market to bear?
  • Is there a real impact on the market?

Let’s do some math

I have used the data from to do some basic math of the situation, and this is the result.

Let’s assume:

  • Take only in consideration the number of ICOs from 2018, as the ones for 2017 are already cashed in FIAT.
  • that the companies only enable to fund with Bitcoin and Etherium (data taken from on August/2018).
  • Let’s assume 2 scenarios:
    • Scenario 1: 30% of the collected money is done in crypto-currency.
    • Scenario 2: 70% of the collected money is done in crypto-currency.

The math would be:

The result

Ok, the analysis is very simplified, and there could be a lot of bias on it.

But at rough estimate it looks like the impact is very low even if a high percentage of the collected funds comes from crypto-currencies.

On the other hand it’s a good bunch of dollars, isn’t it?

View Ether transactions live is the type of visual pages you can view for hours, you learn with the different things that are represented, and enjoy how they move.

Last weekend had the opportunity to discover this place with a group of people that were explaining me the details about:

  • How the transactions are validated,
  • how the blocks are completed,
  • how the nodes are connected and how they are mining.
  • why some blocks are discarded and the transactions moved to other blocks.
  • how the transactions with more gas are managed with more priority,
  • etc.

To me, to understand the dynamics of a block chain, this is now the best visual reference I know.




Ether is a fundamental cryptocurrency for operation of Ethereum, which thereby provides a public distributed ledger for transactions. It is used to pay for gas, a unit of computation used in transactions and other state transitions.

A wei is a fraction of an ether:

  • 1: wei
  • 10^3: Kwei
  • 10^6: Mwei
  • 10^9: Gwei
  • 10^12: szabo
  • 10^15: finney
  • 10^18: ether

Where can I see what miners are accepting?

You can visit and obtain that information from there.

You can also calculate the cost of a transaction (TX) on

Ether gas calculation

Cryptoasset Valuations


I have had some conversations about the maturity of the cryptocurrencies market related to the maturity of the companies and how I miss to have the fundamental indicators as you can have for a public company (Revenue, Costs, P/E, balance sheets…).

The companies publishing cyptocurrencies are private companies and they do not have  obligation to share this information, but there should be in the future a general consensus about how to valuate their assets, the coins they put in the market.

As everybody can easily figure out, I always has stated that there will be a moment where so many cryptocurrencies will disappear as they do not make sense, and others will survive as they make sense and provide value.

Well, I would like to understand how to valuate them (better before they disappear).

Value… where? on the transaction.

The basis

The basic value of a cryptoasset is the value provided to a given transaction. If you perform a transaction via the traditional or existing channel this has a cost, a speed of execution and a given security.

If you execute that transaction through a crytocurrency, is it cheaper? faster? more secure?…

On top of that, the volume of transaction:

  • how many of these transactions are happening in the market?
  • how many of these transactions are managed through this blockchain environment?
  • What are the efforts of the company to attract more transactions to their ecosystem?

Cryptoasset Valuations

I’m a beginner on blockchain and on asset valuations, so I have look for the experts. I found this article written by  Chris Burniske, where he explains how to do the valuation (he attaches a nice excel that helps a lot to understand the details).

Each cryptoasset serves as a currency in the protocol economy it supports. Since the equation of exchange is used to understand the flow of money needed to support an economy, it becomes a cornerstone to cryptoasset valuations.

The equation of exchange is MV = PQ, and when applied to crypto my interpretation is:

  • M = size of the asset base.
  • V = velocity of the asset (shows the number of times an asset changes hands in a given time period).
  • P = price of the digital resource being provisioned (price of the cryptocurrency or crytoasset).
  • Q = quantity of the digital resource being provisioned

A cryptoasset valuation is largely comprised of solving for M, where M = PQ / V. M is the size of the monetary base necessary to support a cryptoeconomy of size PQ, at velocity V.

Next steps

  • I need to understand better the calculation of the market value.
  • Go deep on a real ICO and perform a valuation.
  • Understand how to do a token utility calculation.


Corda is an open source blockchain project, designed for business from the start. Created in 2016 by the R3 consortium of financial institutions.

Key features

  • No unnecessary global sharing of data: only parties with a legitimate need to know can see the data within an agreement.
  • It choreographs workflow between firms without a central controller.
  • Corda achieves consensus at the level of individual deals between firms, not at the level of the system.
  • The design directly enables supervisory and regulatory observer nodes.
  • Transactions are validated by the parties to the transaction rather than a broader pool of unrelated validators.
  • A variety of consensus mechanisms are supported.
  • It records an explicit link between smart contract code and human-language legal documents.
  • It’s built on industry-standard tools.
  • There is has no native cryptocurrency.


This is a new concept for me; it is basically an entity or organization that is an operator of Corda nodes. We are in a financial environment, so Oracles can provide information such interest rates, exchange rates or any other information that forms a component of a contract.

Oracles operate in a commercial manner that assures they can receive payment for their services.

Oracle providers can deploy their Oracle services into one interoperability zone and service all business networks within that zone.

Commercial offer or Opensource offer

If you want to compete in the payments word, you will better go to the commercial solution offered by R3 consortium.


The basis

Etherium platform for enabling the trading of sport players rights.

There are different solutions explained in the white paper, the more interesting one to me is the solution for Athletes:

GLOBATALENT will allow young players to sell part of their future incomes without having to have an everlasting mortgage on their life.

The other brilliant alternative is the engagement offered to the funs:

Fans will be able to buy future benefits of the club that
they support and at the same time are able to make
investments and receive profits.

This part of the business does not exist at this moment, so there are no numbers about the volume. The potential is huge, the sport bets are very popular right now, imagine to bet not on a specific game but around young players or consolidated players that offer part of their rights to the supporters, so they can long and short a percentage of these rights through their own tokens (Can you imagine to have a GlobaPlayerLebronJames token?).

Other revenue thread I see can come from the people who has been playing to sport games since years, there are people that play to these virtual games trading players in a season, doing a wolrdwide competition, etc. So well, in 2019 they can do it live, with real money.

Lauch calendar

  • Private Pre-Sale: before the Public Sale.
  • Primary Crowd Sale: from 16th April, 2018 to 06th May, 2018.
  • Partner on-boarding: April – June 2018
  • Platform release: October – December 2018.

Some numbers

The investment target is 42m€

The table below shows the sports market revenue.

The total spending on transfer fees by year is a key element for Globatalent. Imagine they are able to manage a 2% of 5B$. This will mean at 3% fee that the revenue would be 3m$.


  • GLOBATALENT Tokens (GBT) being security tokens will be limited to users who are accredited investors.
  • GlobaPlayer Tokens: Each player will have their own custom token.


Learning Solidity with

Solidity is a contract-oriented programming language for writing smart contracts. It is used for implementing smart contracts on various blockchain platforms. It was created by the Etherium team. Remix is the official Solidity IDE.

How to learn about it? there are already so many places where you can learn about it.

I’m testing

I have completed the lesson 1 of the course. The experience for me is really nice as it goes step by step showing new features of the language.

For expert developers this way to learn is probably very slow.

The major learning to me was to understand how:

  • the concept of contract is defined.
  • the contract entiry works and the transactions are done (the block chains).
  • to interact via javascript with your solidity program.

Metronome (MTN)

Metronome (“MTN”) is one of the crypto currencies that will be launched at the end of

2017. They define themselves as first cross-blockchain cryptocurrency, making decentralization possible and delivering institutional-class endurance.


The goal

Reading some articles from founder (Jeff Garzik) it enable the users to jump from one currency to others, so an individual can avoid the volatility of a currency moving the assets to other currency.

Applying the tragedy of commons principles, if everybody changes their positions from one currency to other, doesn’t it increase the volatility?

Target launch

First try was for the end of 2017. It was finally postponed.

It’s scheduled for March 2018, but today (March 16th) there is still not final date announced.

Today, March 28th the launch is rescheduled for May 2018.

Blockchain, learning about the basis

I have started to read about this topic and I cannot stop reading articles and things related to it. I am starting from the basis to understand the concepts and how all this will change the paradigm of our lives.

I have started with this book:

La-economia-de-blockchain It’s in Spanish and they do a good review of the theory of blockchain and examples to understand the finance and technical basis. Then there is a good review of the applications that we have today in the market. If you are reading the book after 2016, it’s clear the application landscape can be so much different.