# Discussion: Algorand valuation based on utility parameters

Putting the store of value argument and participation/governance rewards (~17% right now from reserves) aside and just focusing on the network utility we can calculate the investment return using the following parameters and a basic simplified model:

• N: number of transactions per second
• F: transaction fee
• P: profit margin (net profit percentage to the network revenue after deducting costs like running relay/archival nodes)

Investment Return Ratio: N360024365F*P/10B

• N: 18, F: .001, P: .1 → IRR = 0.0000056 (now)
• N: 1000, F: .001, P: .1 → IRR = 0.00032
• N: 10000, F: .001, P: .5 → IRR = 0.016 (reasonable return)
• N: 46000, F: .001, P: .5 → IRR = 0.07

A 7% return given other factors such as scarcity makes Algo a significantly better investment than most other available options.

Let’s say the Algo’s price increases to \$100 and therefore the transaction fee is reduced (by governors) to .0003:

• N: 46000, F: .0003, P: .5 → IRR = 0.02

A 2% return is still very good for a long-term value preserving asset.

WDYT?

Reddit

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I think it’s hard to apply IRR models to venture technology investments when they’re still early.

But I applaud the thinking!

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Hi @awesomecrypto I came across this interesting blog post today:

Have you seen it? I think there are some very good ideas in there.

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Yes, I posted it yesterday here: https://www.reddit.com/r/AlgorandOfficial/comments/qobu7z/discussion_a_valuation_model_for_l1_networks/

The follow up video on the article: Layer 1 blockchains as the new nation states, pricing L1 crypto tokens, & unbundling of money - YouTube

Another aspect of valuation is how co-chains and sovereign chains impact the scarcity story. The fees on those chains are paid using their own coins not \$Algo. The main question is what ensures that the Algorand network (supervised by the foundation) remained the main blockchain in the algorand ecosystem and hence can preserve and grow its value.