CryptoCurrency Token Valuation and Design

1. A New World? CryptocurrencyToken
Valuation And Design
Dr Jamsheed Shorish
http://shorishresearch.com
http://linkedin.com/in/jshorish
jamsheed@shorishresearch.com
Crypto42Token Investment Summit — 16 April 2018

2. Traditional Roles of Money: Reflected in a SingleValue
• Cryptocurrencies can fulfil traditional roles of fiat money:
• Store of Value
• Medium of Exchange
• Unit of Account
• The “price” of money reflects all roles, but (perhaps) fundamentally
as a Medium of ExchangeImage source: clipart.com

3. Do Cryptocurrencies Have A FundamentalValue?
• Bitcoin has an underlying “fundamental” value.
• But: speculative (market) value is unoptimised/unregulated.
• Valuations as Store-of-Value, Medium-of-Exchange lower than they
could be.
Image source: clipart.com

4. • A cryptocurrency token is not single valued—it is a multivalued instrument.
• Utility value: defines interaction with protocol
• Incentivises behaviour
• Security value: future consumption
• Governance value: rights management
• Speculative value: market
• Funding value: ICO, pre-seed etc.
A Cryptocurrency Token is Natively Multivalued

5. TokenValuation
• Token value “lives” in a d-dimensional space:
• Token design requires getting each of these
valuations “right”.
• Which values a token has is a collectively
endogenous problem.
v := (v1, v2, . . . , vd) 2 V 1
⇥ V 2
⇥ . . . ⇥ V d
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© Shorish Research 2018; Creative Commons License CC BY

6. Measuring a Token’sValue(s)
• Token “metric”: opportunity cost + value-added
• Utility cost: next best protocol/incentive
• Security cost: next best investment; underlying
• Governance cost: centralisation vs. decentralisation
• Speculation cost: market

7. • For optimisation, a multiobjective function must
exist:
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• Strategy sets:
• Select strategies to maximize as a Pareto optimal solution
• Multicriteria decision making/aiding (MCDM/MCDA)
• Heuristic optimisation (e.g. simulated annealing, agent-based
modeling)
Valuation: Multiobjective Optimisation
v = U(s1, s2, . . . , sN ), si 2 Si, i = 1, 2, . . .<latexit sha1_base64="T6tFrVWFjQrxZwYnXKAVx8PLZBQ=">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</latexit><latexit sha1_base64="lv3HJWFMaG88C0JwlGB4oSIJvoI=">AAACTXicdZFbS8MwFMfTeZ+3qY++HBRBsYx2MG8gDH3xSRStCmspaZbNYJqWJBVG2bfwW/kivvkxfPFBRcw2Cyp6IPA7/3NJzkmUcqa04zxZpZHRsfGJyany9Mzs3HxlYfFCJZkk1CMJT+RVhBXlTFBPM83pVSopjiNOL6Obw3788pZKxRJxrrspDWLcEazNCNZGCis09wdNmrITBblTrdW3tt0d+wucAuo9uIV98NZV6NqgwpoNPm8lWvWd4w3j7Rlg4DMBZyGzge27ds0e5kAvrKwWraFoXUAd3KozsNXGir9599TonoSVR7+VkCymQhOOlWq6TqqDHEvNCKe9sp8pmmJygzu0aVDgmKogH0zSgzWjtKCdSHOEhoH6vSLHsVLdODKZMdbX6nesL/4Va2a6vRPkTKSZpoIML2pnHHQC/d1Ci0lKNO8awEQy81Yg11hios0PlM0Siknhf/Bq1d2qe2qWcYCGNomW0QpaRy7aRg10hE6Qhwi6R8/oFb1ZD9aL9W59DFNL1lfNEvphpYlPcESvpQ==</latexit><latexit sha1_base64="lv3HJWFMaG88C0JwlGB4oSIJvoI=">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</latexit><latexit sha1_base64="UHIg2DLgacD7DM5zyfcxXuPLvgQ=">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</latexit>
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8. Optimal Token (Mechanism) Design
• The more decentralised the blockchain, the greater the need
for incentive engineering
• Mechanism design: an engineering solution for blockchain
ecosystems
• Allows incentive alignment without an external third party
authority.

9. Design Determines Regulation
• Initial Coin Offerings &Token Generation Events = important part of
the blockchain business model/use case
• Regulation will become vital to implement ICOs/TGEs => close
collaboration of token designers with legal experts required
• Governments will need to coordinate with token design experts to
understand token use cases and implement proper regulations.

10. Moving Forward:TokenValue & Design Framework
• Currently token distribution is hampered by poor valuation understanding
• Placing tokens on firm multidimensional footing will help
• Mechanism design improves valuation and elicits truthful behaviour
• Requires an understanding of: game theory, contract theory, incentives
• Requires an appreciation of: economic engineering; securities design;
regulation

11. Thank you for your attention!
http://shorishresearch.com
http://linkedin.com/in/jshorish
jamsheed@shorishresearch.com