Sooo…. I made the point the other day that the formula sustaining BNTs, is a mathematical description of a Ponzi scheme.
To make it clear to anyone who reads this, I do not imply that the intention of Bancor’s founders is to defraud anyone. I do not know them nor do I have any reason to think that they show any sign of such intention, my comment is only meant to be descriptive of the formula.
Now that this was made clear, I believe that in order to be fair to the team, since I have explained why it could be seen as worthless, I will now take the opposite approach:
Reminder: BNTs are a Token, using 10% ETH as a reserve currency, meant to be used as a reserve currency for other tokens. It is meant to solve the issue of liquidity of “small” crypto-currencies or tokens by providing a continuous price at which to buy/sell such tokens.
As I have wrote in the previous post, at the moment, if all initial investors were to sell their tokens they would get ~ 50% of the initial investment, and it would require another $70M equivalent of investment in the token for all the initial investors to be able to get out at 100% ICO price in average.
Success therefore means that Bancor manages to generate inflows in BNTs larger than $70M.
Since BNTs are meant to be a reserve currency for other tokens, these other tokens will likely take BNT’s set-up as a lead example with a 10% reserve. This means that for an equivalent of $70M worth of investment in BNTs, you need to have ~ $700M worth of new tokens issued.
On the long run, the size of these “new tokens” is likely to be limited to usage : to take the example of the Fun Fair, you do not see lots of people stacking up Fun Fair tokens over long period of time in the hope that their value rises, therefore the amount of token purchased is likely to be in line with usage/circulation. So the question is mostly how much money circulates over a short period of time in a company selling services. This is probably to be compared with weekly revenues of small and medium companies. Another approach is to say that since the problem solved by BNT is liquidity, only illiquid Token will use it, if you make the hypothesis that above $10M equivalent exchanged per day you are liquid, you end up with a weekly order of magnitude of ~$50M as a required size for the “new token”, i.e. a $5M equivalent “buy” interest in BNTs, per token.
On the short term however, since the ICOs are meant to fund the development of the Fun Fairs, the required size of the new token is to be compared with the funding needs of a normal startup: looking at the short history of ICOs and at the longer history of Startup raising money in crowdfunding. the average order of magnitude is in the region of $10M without being too conservative. This would mean a generated “buy” interest in BNTs of $1M per “new token”.
Conclusion, if Bancor is successfull in marketing one can assume they will manage to get BNT’s used in ~20 Token in the next 2 years, and maybe up to 100 in the next 5 Years.
Assuming the raised interest in BNTs is ~$2M per token, that would mean a net “buy” interest of ~$200M
Such an interest would raise the price of BNTs by 650% from ICO price, allowing inital investors to sell their 40M BNTs at an average 115% profit.
So how about a fair value exercise?
Probability to go bust in the start-up world is ~ 99%, but we will assume that the ICO success gives Bancor an edge, so let’s say 90%, in which case the average investor goes out at 50% loss, in the other 10% of cases the average investor goes out at 115% profit, this makes for a fair value of 67%…
If you assume an average “buy” interest of $5M generated per token you end up with 92%.
As usual I assume it boils down to your estimate of the probability of default, but if it were a normal startup, that’s the ballpark of how it would be valued.
Critics welcome, the above is full of hypothesis that I deem reasonable but that can be challenged either way, that said, I believe that the above is an exercise that should be part of any white paper/ICO prospectus as in the equity world. (maybe some have, but i haven’t seen this).