What is the value of Filecoin? (Part 2)

"What is the value of Filecoin? (Part 1)" uses some models to analyze Filecoin. This article will expand on the valuation model of the previous content.

The following will mainly make some calculations on the discounted cash flow valuation method, the locked position valuation method, the Fisher equation and the Fat Protocol. Because the market is ever-changing, this article is for research reference only and does not constitute investment advice.

In August 2016, Joel Monegro of the famous American fund USV published an article titled "fat-protocols", which is called "fat protocol" in the Chinese world.

In the Internet era, the value of basic protocols such as HTTP, FTP and SMTP has not been mapped to value, but they have indeed built the entire Internet era;

On the contrary, the application layer like Google, Facebook, Twitter, etc., has even been magnified to a market value of trillions of dollars. This is called "thin protocol fat application".

In the blockchain era, because the use value of all applications can be captured by the tokens of the protocol layer, and the consensus function of the application depends on the development of the protocol layer, and because blockchain can assetize all things in the digital world, the transaction value of each application will be reflected at the protocol layer.

This is why the market value of underlying protocols such as Ethereum and Polkadot is much larger than that of their applications. This is called "fat protocol and thin application".

Similarly, as a basic protocol for distributed storage, Filecoin’s valuation will also be gradually magnified by the application layer in the future. Since there are no large-scale applications on Filecoin, the following article will use the discounted cash flow valuation method to conduct valuation and analyze Filecoin as a distributed super enterprise.

1. Discounted Cash Flow Valuation: $11 billion

The author analyzes Filecoin as a company. The financing is regarded as the early financing of the company, which expands the valuation scale; the scale growth from the test network to the present is regarded as the expansion cost, that is, the company continues to increase its investment; the operating expenses and the expenditures invested by the ecological foundation can be regarded as the minting of FIL in circulation (understood as stock incentives), which can be directly included in the circulating tokens together with the FIL released by mining rewards, SAFT, etc., to reflect the valuation.

Known: 257 million US dollars in financing, the planned FIL cost for most miners is 100 US dollars per coin (the actual cost may be different), the scale of investment cost = the scale of the entire network * hardware cost (estimated at 2,000 yuan/TiB) + (locked mortgage + Gas consumption) * 100 US dollars per coin, about 120 million FIL in circulation, and a total of 2 billion FIL tokens.

Substituting into the calculation, the market circulation valuation of Filecoin is about 11 billion US dollars, which is close to the market value reflected in the market.

Variation Factor:

The investment cost will gradually increase, and the valuation will also increase accordingly. Because the current FIL unit price is relatively high, future investments may increase the overall average investment expenditure;

P/E ratio leverage. Traditional industry valuations use the P/E ratio to magnify the value of an industry, which can reflect the value over a certain period of time. Since the blockchain industry is not mature enough, the author did not add leverage here;

The expected valuation in the future needs further calculation. The above is only the current market situation. If you want to estimate the valuation of Filecoin in 3/5 years, you need to bring the predicted 3/5 years of scale investment cost into the calculation.

The calculation method of the discounted cash flow valuation method itself is close to the "efficient market hypothesis". However, the core idea of ​​the "efficient market hypothesis" is that every investor participating in the market is rational enough and can respond reasonably to all market information quickly. In other words, even if the market fluctuates greatly, it will eventually return to the value of its reasonable investors.

In the 20th century, the "Efficient Market Hypothesis" was relatively mainstream, but after the 21st century, many people believe that the "Efficient Market Hypothesis" is invalid. As Buffett said: "Since all public information about stocks is fully reflected in stock prices, stock analysis is meaningless. Simply put, the market always knows everything."

However, for the author, the "efficient market hypothesis" itself can be used as a reference and measure of blockchain valuation, not as a complete creed.

2. Lock-up valuation method: $18.7 billion

The locked-in valuation method was first used in the country's macro-control. By adjusting the bank's deposit reserve policy, it provides a stable monetary environment for price-based regulation, which is indirectly reflected in the price of legal currency.

DeFi lock-up situation, source: defipulse, 2021-5-2

DeFi projects use the lock-up valuation method as a measure of the project's valuation, and they use TVL (total value locked) as a standard to measure their market value. However, TVL is a relatively mature and reliable indicator, because the benefits, effects and functions generated by the "lock-up value" of the protocol are different.

Filecoin is somewhat similar to DeFi projects, both of which have locked positions and mortgages. It has currently locked 68,010,137 FILs, with a market value of approximately US$18.7 billion at current prices.

3. Fisher Equation: $26.2 billion

The Fisher equation has been explained above: M*V=P*Q. M represents the average amount of currency in circulation in a certain period; V represents the average turnover of a unit of currency in a certain period, that is, the currency circulation velocity (the number of currency transactions); P represents the weighted average of the prices of goods and services; Q represents the number of transactions of goods and services (the growth scale of the total network computing power).

Factors affecting the Fisher equation

According to the above formula, Filecoin market circulation valuation = circulation quantity * P, which equals 26.2 billion US dollars.

Friends can get the reasonable unit price by dividing "Filecoin market circulation valuation/circulating FIL" and the overall valuation of Filecoin by "Filecoin market circulation valuation/circulating FIL*total number of tokens".

Since blockchain is currently in its early stages of development, there is no comprehensive valuation model to predict its future value. Therefore, some data in the calculation process are far-fetched, and future scale development is difficult to predict. Therefore, the above data is for reference only.

At the same time, I am also thinking about whether the thin protocol can be used in valuation calculations? A previous document used the valuation of the protocol layer = network value (gas fee used by the network) + locked value (similar to the above) + speculative value (secondary market transaction value) to make predictions.

Lean Protocol valuation, source: Force Zone, 2021-5-2

Because the network value can well reflect the usage of the application; the locked value can reflect the scale of the network and the future development of financial derivatives; the speculative value can reflect the influx of funds in the secondary market.

I believe that when this valuation model matures in the future, I will share it with you.

PS: The above data and analysis are recent analysis and are for research reference only and are not investment advice.