If you follow any token communities on Telegram or Slack, you've likely noticed that people LOVE to speculate about price. This kind of drives me nuts when there's absolutely no basis for the numbers being thrown around.

I acknowledge that the token business model is new and different, so there are no pre-existing valuation frameworks we can use, but I still think there's ALWAYS an analytical approach to estimating how much a token should be worth. It might be more difficult for certain tokens than with others, but I've come up with an approach for PPT that I think makes sense. With this in mind, I built a valuation model for PPT tokens using the thesis that the price will primarily be driven by two factors:

1. Volume of invoices
2. Number of tokens in circulation

You can download the model here: PPT Valuation Model!

There are a number of assumptions in the model that determine these two variables, so I encourage you to play around by inputting different numbers to see what impact it has. I've done my best to label everything well, but please let me know if anything isn't clear.

The one thing I'd like to specifically point out is that I've also included a "Growth Premium" factor that can be applied on top of the calculated price. The reason I included this is because the model doesn't really account for expected growth when calculating the current price and it would be naive to think that human emotions don't come into play. So, even if the January 2018 calculated price is much less than where the token is currently trading, that doesn't necessarily mean that you should sell. Seeing that the price is projected to exceed $100 by June 2018, with significant growth thereafter, it's not unreasonable to expect that people will want to accumulate tokens today.

The consequence is that the total coin market cap will exceed the value of available invoices, so some people won't be able to invest their tokens. I expect there's a subset of token holders that will be happy to just hold for potential appreciation even if they aren't generating income, so the market may always transact at a premium to my valuation until growth starts to stabilize. Remember, tokens don't represent equity in the company, so you can't look at growth in the same way. Tokens are an opportunity to earn income, so the prospect of that future opportunity is still worth something today.

This growth factor is probably the most difficult to quantify because it's partially based on human emotion, and can include an element of FOMO (Fear of Missing Out), but it's real and very important.

I personally keep it set to zero and just look at how far out in the future it would take to hit certain price targets to determine how comfortable I am with the token price. For Populous, if I expect it to exceed $250 by the end of the year and $1,000 by mid-2020 (especially with the prospect of also generating ~30% annual returns through cash flow), I certainly wouldn't sell any tokens today. Others may prefer to just apply a premium to the current valuation, so I've included the Growth Premium assumption for anyone who likes that approach better.

I'd love to get feedback on the model, so don't hesitate to reach out if you have any comments or questions, even if you disagree with my approach.

The information contained within this article is provided for informational purposes only and should not be construed as investment advice.