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.
See comments under this post: https://www.reddit.com/r/AlgorandOfficial/comments/qpk5sq/is_this_the_first_confirmed_co_chain/hjv1nld/?context=3