Valuing digital assets remains a significant challenge within the cryptocurrency industry, as there is no universally accepted standard or entirely reliable methodology for determining their fair value. Many digital asset exchanges issue their own native platform tokens, which represent a unique category of crypto assets. Due to their backing by "stable cash flows," these tokens can be assessed to discover their "fair price."
Accurate and reliable analysis within the digital asset sector can provide crucial intuition about the market. Data from TokenInsight reveals that exchange trading volumes are highly correlated with overall market conditions, directly influencing individual exchange revenues. This analysis employs both fundamental and quantitative methods to construct a valuation framework for exchange platform tokens, based on TokenInsight's research.
With the help of TokenInsight's valuation framework, it's now possible to perform standardized analysis on exchange-based platform tokens to better reflect the real value of the exchanges behind them.
Key Valuation Metrics Explained
Given the nature of the digital asset market, multiple metrics are utilized to provide a reference "fair price" for exchange-based platform tokens. These measurement standards include:
Discounted Cash Flow (DCF) Method
The Discounted Cash Flow method estimates the value of an exchange's platform token based on operational data released by the exchange and forecasts of future revenue generation. This analysis helps determine the token's value in its current state.
Price to Earnings (P/E) Ratio
The P/E ratio measures the relationship between the current price of a single token and the average收益 it generates. Also known as the earnings multiple, this ratio is calculated using data from exchange announcements and TokenInsight research: current token price (as of valuation date) divided by the previous quarter's earnings.
Earnings Yield: Defined as the inverse of the P/E ratio, expressed as a percentage.
Price/Earnings to Growth (PEG) Ratio: The P/E ratio divided by the growth rate of the exchange's earnings. This provides more complete information than P/E alone by considering the exchange's expected earnings growth.
Price to Burning Metrics
Price to Burn Ratio (P/Burn): A unique metric in the digital asset space, this refers to the ratio of a single token's price to the value of tokens destroyed through exchange buybacks. It can also be calculated as the ratio of total market capitalization to the total value of tokens repurchased and destroyed.
Burning Yield: The inverse of the Price/Burning ratio, expressed as a percentage.
Earnings-Based Measurements
MarketCap/Earnings: Current circulating market capitalization divided by last quarter's revenue.
Implied Enterprise Value: The proportion of profit distribution allocated to platform tokens relative to the total token supply.
Implied Enterprise Multiple: Last quarter's revenue divided by the implied enterprise value.
On-Chain Fundamental Metric
Network to Transaction Ratio: The ratio of total platform token market capitalization to the total daily value of on-chain transfers (calculated in USD).
Valuation Assumptions and Methodology
The valuation process operates on a quarterly basis with five primary growth rate assumptions:
- Short-term exceptional growth rate (high)
- Short-term exceptional growth rate (low)
- Medium-term normal growth rate
- Long-term sustainable growth rate (high)
- Long-term sustainable growth rate (low)
The average required return for venture investments serves as a benchmark reference, based on AAA ratings. Risk premium rates incorporate TokenInsight's exchange ratings as adjustment factors to better capture and reflect operational risks. The model uses TokenInsight's internal risk premium transition matrix to reflect exchange transition risk premiums.
For simplicity, the model uses simple interest rather than compound interest. When exchanges publish relevant buyback/destruction data, that data is used; otherwise, proprietary research methods calculate the relevant data in US dollars.
Comparative analysis industry averages are categorized based on the market capitalization of exchange platform tokens. Higher-than-average P/E may indicate growth tokens, while lower-than-average P/E may indicate value tokens.
The current valuation framework does not consider additional benefits of holding exchange platform tokens, such as rewards or dividends. Profit split calculations for platform tokens average values over several future years.
All necessary valuation data is drawn from exchange official announcement pages, CoinMarketCap, Coin Metrics, Messari, Etherscan, and TokenInsight.
Correlation Analysis Findings
Correlation matrices examining relationships between BTCUSD prices and platform token BTC prices reveal several interesting patterns:
Throughout this year, most platform token BTC prices have shown some negative correlation with BTCUSD prices, with stronger negative correlation in Q2 2020 than in recent 30-day rolling correlation measurements.
Most platform tokens showed minimal correlation with ETH in Q2, but recent DeFi enthusiasm has created strong positive correlations over the past 30 days.
BNB demonstrated strong positive correlation with most platform tokens in Q2 2020, but this correlation has significantly decreased in recent 30 days. Conversely, HBC showed extreme negative correlation with most platform tokens in Q2 but has shifted to strong positive correlation across nearly all tokens recently.
HT, FTT, HBC, and LEO have shown high mutual correlation in recent 30 days.
Simple correlation analysis can be extended to include multiple correlation analyses, developing from multi-factor models to principal component analysis to study platform token market performance.
Platform Token Analysis
Binance Coin (BNB)
Binance continues to expand its ecological footprint with acquisitions like CoinMarketCap and launches of Binance Smart Chain and Binance Pool. As Binance expands its ecosystem, BNB prices have continued to rise.
Comparative Analysis: Data indicates BNB is generally undervalued. P/E, P/Burn, and implied enterprise multiples are significantly lower than growth exchange averages, suggesting BNB's fair value remains underestimated.
Risk: Operational status in mainland China remains problematic, with multiple citations by Chinese state media for违规运营.
Huobi Token (HT)
Huobi has achieved significant results in derivatives markets. Since 2020, major exchanges have increasingly focused on derivative trading, with Huobi合约 gaining substantial market recognition. The success of isolated margin trading has met market demand, bringing大量用户 to the Huobi platform.
In Q2 2020, the derivatives/spot ratio on Huobi Global/Huobi合约 increased 3.7 times, reaching 7.26 times.
Comparative Analysis: HT's P/E and P/Burn ratios are lower than value exchange averages, nearly matching median values, reflecting HT's undervaluation under current market conditions.
Risk: Imbalanced globalization strategy has slowed business growth; Binance and other exchanges have already or are preparing to launch delivery contracts.
OKEx Token (OKB)
OKEx's established user base provides strong support for OKB's long-term price appreciation. In global ecological construction, OKB expanded with 19 new partners in Q2 across multiple hot sectors, providing value support for OKB.
Comparative Analysis: OKB's P/E, P/Burn, and implied enterprise multiples all below industry averages reflect undervaluation. Comparison with growth exchange averages and medians indicates OKB is undervalued.
Risk: Quality of digital asset listings on spot markets, talent drain, and insufficient talent attraction may affect market confidence in long-term development.
FTX Token (FTT)
FTX has emerged from the competitive derivatives exchange field with unique advantages. As expected, derivatives markets have grown steadily and rapidly, with FTX gaining market attention and recognition. In Q2, FTX launched Bitcoin hashrate futures contracts and DeFi index contracts while planning to launch spot exchange FTX.US in America.
After Phase 1 market testing, TokenInsight upgraded FTX derivatives exchange to a BB rating this quarter.
Comparative Analysis: Comparison with growth exchange averages indicates FTT is currently undervalued.
Risk: The market lacks clear futures demand for digital assets with lower liquidity; some products on FTX suffer from insufficient liquidity.
HBTC Captain Token (HBC)
HBTC addresses secondary market liquidity issues through crowdfunding liquidity listing solutions. Meanwhile, the HBTC public chain has entered the code testing and audit phase, with testnet launching cross-chain flash exchange and heterogeneous chain cross-chain asset mapping functionality.
Comparative Analysis: Testing against value exchange averages indicates HBC is in normal development status.
Risk: HBC valuation still references部分原先BHEX交易所的平台币BHT as a basis for estimation, requiring continuous observation and testing.
KuCoin Shares (KCS)
KuCoin has entered the DeFi space with its public chain testnet Kratos Betanet launching public testing in Q2. Kratos addresses needs in DeFi and DEX through four-layer network technical design, modularizing multiple protocols and functions.
Comparative Analysis: Testing against growth exchange averages indicates KCS is in normal development status.
Risk: Exchange public chains possess liquidity advantages but face challenges including scarce DeFi projects and users, plus high customer acquisition costs.
BitMart Token (BMX)
BitMart focuses on compliance to provide transaction security. As an exchange legally issuing security tokens in the US market, BitMart致力于提供合规、安全、方便的数字资产交易环境. BitMart has also established blockchain project incubation platform BitMart Labs to help quality blockchain projects with incubation and global development.
Comparative Analysis: Testing against value exchange averages indicates MBX is in normal development status.
Risk: BitMart is a young exchange requiring more testing time; user returns may experience significant fluctuations.
UNUS SED LEO (LEO)
Bitfinex maintains a leading position among digital asset exchanges. As one of the oldest exchanges, Bitfinex boasts a large number of loyal users. In Q2, Bitfinex partnered with digital asset custody service provider Koine to launch a post-trade service for institutions, helping investors reduce counterparty risk.
Comparative Analysis: All key metrics in the comparative analysis framework significantly exceed value exchange averages, reflecting LEO's overvaluation.
Risk: Historical issues continue to create trust problems for Bitfinex. In July, New York's Supreme Court dismissed Bitfinex's appeal against the New York Attorney General's Office (NYAG) jurisdiction. In August, Bitfinex experienced "performance degradation" issues, suspending trading for over four hours.
Frequently Asked Questions
What makes platform tokens different from other cryptocurrencies?
Platform tokens represent a unique category of digital assets because they are backed by exchanges that generate stable cash flows. This characteristic makes them more amenable to traditional valuation methods compared to other cryptocurrencies that may lack fundamental revenue models.
How reliable are these valuation methods for platform tokens?
While more established than valuation approaches for other digital assets, platform token valuation remains an evolving discipline. The methods provide useful frameworks but should be supplemented with ongoing market analysis and consideration of exchange-specific factors that may impact token value.
What are the most important metrics to watch when evaluating platform tokens?
Key metrics include P/E ratio, burning mechanisms and yields, exchange revenue growth, trading volume trends, and the expansion of token utility within exchange ecosystems. Each of these factors contributes to understanding a token's fundamental value proposition.
How does exchange rating affect platform token valuation?
Exchange ratings serve as adjustment factors for risk premium rates in valuation models. Higher-rated exchanges typically benefit from lower risk premiums, which can positively impact token valuations, while lower-rated exchanges may face higher risk premiums that negatively affect valuations.
Why do correlation patterns between platform tokens and major cryptocurrencies change over time?
Correlation patterns shift due to changing market conditions, emerging sectors like DeFi, exchange-specific developments, and broader macroeconomic factors. These dynamic relationships highlight the importance of regular analysis rather than relying on historical correlation patterns.
What risks should investors consider beyond valuation metrics?
Investors should consider regulatory challenges, competition from emerging exchanges, technological risks, security concerns, and the overall adoption trajectory of digital assets. These factors can significantly impact exchange performance and consequently platform token values regardless of attractive valuation metrics.
For those interested in exploring more advanced valuation techniques and real-time analysis, check out comprehensive analytical tools that can enhance your investment decision-making process.
Source: TokenInsight