• CF is the cash flow at a specific period
  • r is the discount rate
  • n is the period
  • t is the total number of periods. Length of timeline expressed in n number of periods.
  • TV is the terminal value

Then we further express the terminal value as:


  • g is the long term growth rate
  • A is the assets during the last period n

Here, E represents the exchange rate (price) of the token with regard to USD. Now we can rewrite the formula as:

This means that in order to solve for the token value, we need to first determine the token velocity. As it turns out, it is another pain point for this approach since velocity is somewhat hard to determine and can vary greatly. Furthermore, there are multiple other factors that come into play when determining the velocity, such as lost tokens, speculators holding the token, staking schemes, burning, rewards, and others. Here is how the full formula accounting for all those factors looks:

For the purposes of simplicity, we will ignore all those, but if you would like to take a look at how a complete model, taking all those factors into account, might look like, check out one here. The best we can usually do is to use other coins as a benchmark, which can be a challenge of its own. For BreadCoin, let's take a look at Bitcoin's and Ethereum's hybrid velocity (velocity-based not only on circulating coins but all coins available). Also, we will consider the M1 (money supply of currency in circulation - notes and coins, traveler’s checks [non-bank issuers], demand deposits, and checking deposits) and M2 (includes M1 in addition to saving deposits, certificates of deposit (less than $100,000), and money market deposits for individuals) USD velocity.

Data sources:

As you can see, the figures can vary greatly not only from currency to currency but also for the currency itself. Let's be conservative and choose a higher velocity (high velocity = lower price) for BreadCoin of around 30. From here, it is trivial to calculate the expected value of the coin, based on the company's turnover.

At this point, it may appear that an investor would break even in year 3.5 and have a ~350% Return on Investment in year 5 (recall that the price during the BreadCoin ICO was 20 cents). Again, I need to stress, that the model provided in this article is very simplistic and does not take into consideration many important variables. For example, if we consider (and we do) that some of the participants in the BreadCoin token sale are investors and not platform users, this would mean that the circulating supply of coins would not be equal to the total coin supply.

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In essence, the formula takes our last known cash flow, discounts it by the chosen discount rate, and then extrapolates the expected perpetual returns of the investment based on the expected annual growth of the company. The last two steps in order to finalize the valuation are to add the NPV, which we have calculated, to the terminal value and divide it by the total number of shares (tokens in our case) outstanding. It is important to point out that here we are using the sum of the discounted cash flows, while in the previous two examples we used the discounted value of a single cash flow. The reason for this is that we are assuming that in the current example, the company pays dividends annually, while in the other two examples, it was a single cash out. Before we run the final numbers, in order to calculate the terminal value, we need to decide on the long-term growth rate of the company. Recall that we estimated that the revenue would grow 20% year-on-year. However, we cannot use this number as it is the growth rate of the company at its inception and not at maturity. Determining the long-term growth rate can be a topic of its own, but for now, let's just assume it to be 8% annually. Putting it all together, this gives us a fair token value of 2.263 USD per token, or the ever-elusive > 10x in value for the token. We could also calculate the fair token price based on cash out for each of the 5 years. As can be seen on the chart below, the value slowly grows over the five-year period.

Looking at the numbers above, you might be tempted to conclude that, given the numbers, an equity model is best suited for the BreadCoin token. Before you do so, please consider that, in this example, we have given away 100% of the company in the form of equity tokens, eventually forfeiting any profit from our company apart from salary. In a real scenario, it is likely you would be willing to give away only 10% of your company, which would also mean that the actual value of the token would be 0.26 cents rather than 2.26 dollars.

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