Another Day, another Crypto Metric to ignore

in cryptocurrency •  last month 


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I posted the other day about Crypto rankings and how I don't rate them.

Another thing, I'm cautious about are new cryptocurrency 'metrics' that pop up, claiming to give us 'greater insight' into the value of tokens.

A new metric that caught my attention, thanks to a video by one of my favourite Crypto-YouTubers @louisthomas, is called the “Network Value to Token Value Ratio” (NVTV) produced by venture capital firm Placeholder.

If I'm honest, it quite a crude and simple metric. The NVTV compares the price of a 'platform-based' cryptocurrency (such as Ethereum, EOS, NEO and the like) and the price of all the tokens sat on top of that network.

If the network token value is high in comparison to the tokens it hosts, the network is over-valued and vice versa, so the theory goes.

For me, this is a completely meaningless metric.

From the off-set, it is obvious (at least to me) that this measurement will likely result in Ethereum appearing under-valued compared to its competitors. The ICO craze of 2017, saw hundreds over overvalued tokens created on the Ethereum network. Most of these token have little (or no) user-adoption and merely a notional value given the illiquidity of the markets.

To try to concoct a meaningful metric from the token price fledgling projects built on top of nascent technology is fanciful.

If I was an EOS fanboy I could create my own metric; call it Transfer token into Technical Substitute (TITS for short). The thesis being that Dapps have shown to be chain agnostic. The majority of these projects will gravitate towards the best chain. Thus you can gauge the best blockchain by the number (and value) of the Dapps switching over to it and vice versa.

Bingo. I've created a metric that makes EOS look undervalued compared to Ethereum... especially given their relative marketcaps.

For me, the metrics that matter haven't really changed as regards to cryptocurrency. They look something like this:

  • use case - what problem does the blockchain solve/ new opportunity does it offer?
  • dev team - what is the technical expertise of the team behind the blockchain? Can they deliver the technology and pre-empt/ troubleshoot likely problems effectively?
  • community/ user adoption/ network effect - what is the size, passion, commitment of the community? How are users being adopted/ retained? What is the network effect?
  • market sentiment/ price/ tokenomics - what is the overall market sentiment towards the token (currently and historically)? How does the sentiment compare to the current price (i.e. is it relatively under/ overvalued)? Do the 'tokenomics' make the price sustainable?

This kind of analysis has served me well over the years. While I'm open to new data, information, I'm skeptical about new metrics. It is all too easy to devise (or be attracted to) metrics that reaffirm your own confirmation bias.

Image by Clker-Free-Vector-Images from Pixabay

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Wow, in reference to this new metric, I sense your being kind calling it fanciful. I believe your right that use case, developer skill and involvement, community involvement and the market determine value. It seems all are important as even good use cases and active use of a token can’t save it from depreciation if market forces are aligned to drive down its price. One has to look no further then our own Steem to understand the necessity of all four. Thank you for reminding us it’s the “fundamentals” not the “metric of the month” that determines value.

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Upvoted!

I just watched the youtube video.

I like ETH and EOS I do believe ETH is undervalued but I also feel many of the projects on EOS is also undervalued because they haven’t major exchange listings. So if the dapps sitting on top of the protocol is undervalued this metric would make the underlying protocol seem overvalued just my opinion.

I love your metric. It actually makes sense.

Not to mention the catching acronym :)

!BEER

NVTV seems a little obscure to me. I'll have to research this later.

Yeah it's true that there were loads of overvalued ERC20 tokens.They were mostly riding the hype 🌊 like ::cough cough:: CryptoKitties.

I do think Ethereum has a lot to offer. I've dabbled in token creation but nothing too serious. I was looking into one of the newer token models (ERC-721 I think it was) but have been so busy w Steem that I haven't really had a chance to build anything... Yet

Damn I just glossed over this. Lol

Transfer token into Technical Substitute (TITS for short).

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There is probably a bunch of useless indicators for sale somewhere as well smh...

Hmm, how long before we start using the TITS prediction model on Steemit?

Cg

For me the use case is important as it is one of the best metrics for a token to serve its value and yes there must be some active and brilliant dev team behind it plus the community that uses the token @nanzo-scoop

If the network token value is high in comparison to the tokens it hosts, the network is over-valued and vice versa, so the theory goes

This is more than meaningless, it's obscure and bizzare and definitely adulterated, if this metric is determinant to how token value is being derived then I would say they'll be misplacing the yardstick to measure the basic and right things that determine a token adoption or value, I think the NVTV is just to really get people to look into this metric style. But I'm really wondering how they'll really come up with such theories.

Congratulations @nanzo-scoop!
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