How to value Utility Tokens ? Here is a short guide giving the keys to understand token valuation.

1. “We trust in a Blockchain ecosystem compliant with the financial practices used at
Investment Banks, Investment Trusts and Consulting firms.”
Token Valuation Guide

2. Security Token & Utility Token
Token Type Security Utility
Right tied to
the asset
Traditional ownership (Equity or
any asset)
Access a good, a service or a
Network
Regulation Securities Law Depending on countries
Valuation Discounted Cash Flow (Dividend
Discount Model for Dividend
Token)
Quantity Theory of Money
works well but is tricky to
model
With the Initial Coin Offering boom, we saw the born of Token as a new
asset class
We distinguish Security Tokens, representing traditional assets whose
ownership is tied to a private key, and Utility Tokens which really are new
assets allowing to value and make liquid voucher and access to
decentralized networks

3. Utility Token Value
• When considering issuing a Utility Token, it is very
important to figure out what is the real Utility of the
Token
• A lot of ICO issued Utility Tokens without making
sure the Token has a fundamental value: without a
strong fundamental value the Token price is led by
speculation
• Building a Token Model with a strong fundamental
value is a hedge against speculation

4. Market Value & Fundamental Value
• The Market Value of a Token is defined by demand and
supply on Crypto-Exchanges: it is the empirical price at
which the Token is traded. The Market Value is moving on
a daily basis
• The Fundamental Value of a Token results from the use of
the Token inside its ecosystem: the Fundamental Value of
a Token is tied to what it is used for and to the Token Flow
(velocity plays a key role)
• Without speculation, the Tokens acquired on Crypto-
Exchanges are used inside the Token ecosystem and the
Market Value equals the Fundamental Value

5. Valuation Model
The theoretical fundamental value of a Token can be modeled thanks to the
Quantity Theory of Money whose primary equation being:
M * V = P * Q
Where:
M is the total supply (in USD)
V is the Velocity (per year)
P is the price of the service offered (in USD)
Q is the Quantity (per year)
For each Token, there is often several use cases for the Token, we need to
model the demand (P * Q) and the velocity for each use case

6. Velocity & Holding Time
1
𝑉𝑒𝑙𝑜𝑐𝑖𝑡𝑦
= 𝐻𝑜𝑙𝑑𝑖𝑛𝑔 𝑇𝑖𝑚𝑒
Velocity seems very theoretical when working with ICO entrepreneurs, to make the
understanding easier we prefer to about Holding Time thanks to the following
equation:
Let’s say an asset is exchanged 2 times a year (each 6 months):
- The Velocity is 2 (2 echanges per year)
- The Holding Time is ½ =0.5 year (0.5 year = 6 months)
The Quantity Theory of Money gives:
M * V = P * Q
Can be written:
M = P * Q / V
With H representing the Holding Time it becomes:
M = P * Q *H
It helps to figure out the fundamental value of the Token increases with the Holding
Time

7. Token Model Design
We design Token Models to enhance the value creation, we use
several levers to increase the Token’s fundamental value:
• Increasing the Holding Time (or decreasing the velocity)
• Build a Stake mechanism (creating demand for the Token)
• Incentivize the Token Holder to Hold the Token as long as long
as possible with a well designed Burn Mechanism
By designing the Token Model, we also design the relation between
the size of the user base and the fundamental value of the market
capitalization.

8. Value Creation
Fundamental value modeling is essential when analyzing value
creation behind a Token Sale
There is value creation for Token Holders occuring when:
Market Cap Fundamental Value > Market Cap at the ICO
Where:
 Market Cap fundamental value is modeled thanks to Quantity
Theory of Money
 Market Cap at the ICO = # of Circulating Tokens * Token Price

9. Tokencapitalmarket.com
Reyan.lamrani@tokencapitalmarket.com