💸Methodologies for Token Valuation

This section explores various traditional and modern approaches to valuing cryptocurrency tokens, including established and emerging models. These approaches are crucial for buyers, developers, and stakeholders.

Traditional Valuation Approaches

• Cost of Production Model: The token price is determined by assessing the resources required for creation, especially for newly minted tokens or proof-of-work networks.

• Store of Value Model: Views a cryptocurrency's value in its ability to serve as a store of monetary value, similar to precious metals like gold.

Modern Valuation Approaches

• Token Velocity Model: This model studies token velocity, noting that higher velocity may indicate limited utility while lower velocity may signify appreciation.

• Metcalfe's Law Suggests a network's value grows proportionally to its user base. Thus, its token value rises with increased usage and adoption.

• NVT Ratio: Compares a network's market capitalization to transaction value transmitted through its blockchain. A lower ratio may indicate undervaluation.

• Equation of Exchange: Estimates token value using the Equation of Exchange (MV=PQ), also known as the Quantity Theory of Money. Considers factors like money supply, velocity, transaction volume, and prices.

These methodologies offer various perspectives on assessing token value, considering factors like usage, market dynamics, and economic principles.