A Framework for Valuing Crypto Tokens

Published on by Coindesk | Published on

The value of these crypto tokens came, not so much for their use in the exchange of goods and services, but rather the use of the underlying service that required these tokens to operate.

The flexibility with which contracts could be programmed on ethereum gave rise to many projects listing their own application-specific crypto tokens on the platform.

Like Waves, were built specifically to help new projects issue and manage these crypto tokens.

'Initial coin offerings', or ICOs, are a form of crowdfunding and bootstrapping for crypto projects, where the founding team receives funding to develop the project from backers, in exchange rewarding those backers with crypto tokens.

Many of these crypto tokens work in a crypto ecosystem that is powered by the token.

There are usually two steps involved with valuing a crypto token: modeling the market size and the extent that the project can reach, plus how the market reach translates to returns on individual crypto tokens.

An important factor to realize when valuing crypto tokens is that they naturally present higher risk than even regular startups.

Due to the very short history of such crypto tokens and crypto-economic systems, there are several challenges that investors face when trying to value these projects.

First, the short history of crypto tokens has generally shown an even shorter lifespan of many of the projects.

In due time, crypto tokens will likely be sold to the public in several stages, depending on different milestones being hit by the project.