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OYI OKEx Research Institute: Will FIL rise in the future?

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How should Filcoin be valued?

Original title: "OYI OKEX Research Institute: Will FIL rise in the future?"

Original source: OE OKEx

Recently, the skyrocketing FIL has attracted the attention of the market. As the first digital asset platform to launch FIL perpetual contract, OKEx has been paying close attention to the actual operation and future development of FIL. In addition, in the field of blockchain, the issue of valuation and pricing of cryptocurrencies has always been the focus of the market. Therefore, we might as well take this FIL price rise as an opportunity, with the industry's latest valuation method tools, to discuss how much more space FIL will rise in the future.

Introduction to Filecoin

1. Filecoin and FIL

Filecoin is a distributed data storage and distribution network that relies on blockchain technology for proof of work (POS) storage and has built-in financial incentives to leverage the idle storage resources of a large number of users to build a reliable storage system at an ultra-low cost. Miners get native tokens (" FIL ") by providing data storage and retrieval, and users pay FIL to store and read data.

2. FIL distribution

FIL casting line is 2 billion. Of FIL's original block allocation, 10% will be allocated for financing, of which 7.5% will be sold in 2017 and the remaining 2.5% will be allocated for subsequent ecological development and financing applications. Fifteen percent is allocated to the protocol LABS, of which 4.5 percent goes to the lab teams and contributors. 5% is allocated to the Filecoin Foundation. The remaining 70% is allocated to miners as mining rewards to provide data storage services, maintain the blockchain, distribute data and run contracts, with 55% being allocated as storage mining rewards and 15% as mining reward reserves.

Figure 1: FIL token allocation

3. The FIL status quo

According to OKEx trading data, since February 8, 2021, FIL prices showed a significant increase, rising from $23 to $47 in 10 days, an increase of more than 200%, and fluctuated around $40 in the following month. Reflecting the strong market interest, FIL prices took off on March 12 and soared to a peak of $130, an increase of more than 550% in two months.

How much space does FIL have to increase?

1. The uniqueness of FIL valuation

Compared to other financial assets, cryptocurrencies are unique in that they do not generate cash flow, which makes it impossible for many traditional financial asset valuation tools to be used in the crypto sector. In addition, for traditional financial assets, the nature of their assets is difficult to change. In the case of digital currencies, however, the nature will change with the launch of the blockchain network or other situations: FIL tokens are a typical example.

In Filecoin, the FIL is used by miners as a pledge, and the customer uses the FIL to pay for storage and retrieval. In this case, the FIL is a utility token in nature and has application utility. On the other hand, some users buy FILs not as collateral, or to buy storage/retrieval services, but to sell them to someone else in the future for a one-time return on their investment, where FIL is more like a security token.

It is precisely because of these characteristics that FIL valuations are particularly tricky. The good news is that as the digital currency market grows, more and more excellent valuation tools have emerged. Here, let's try to price it using a few common relative valuation measures.

2. MVT relative valuation method

The MVT (Market Cap to Transaction Value) indicator was first proposed by Willy Woo in 2017. The main idea is that the Market Value of cryptocurrency is proportional to the Transaction volume of the blockchain network. In terms of online trading volume, different scholars use different indicators: it can be the number of transactions or the amount of transactions. The problem with FIL is that the main function of FIL is not to provide transfer payment services like BTC, and its utility is mostly focused on pledge, storage and retrieval fees, which is difficult to measure by transaction amount like BTC.

For this reason, we uniformly defined the trading volume of the blockchain network as the number of block packaged messages per day, and conducted smoothing processing for 15 days, and obtained the following table:

As can be seen from the above, if BTC is taken as a comparable project, the market value of FIL will reach US $788.25 billion in the future. Using ETH as a benchmark, FIL has a market value of $40 billion.

3. PMR relative valuation method

Metcalfe's Law has been widely used in the valuation of Internet companies since the dotcom boom of the 1990s. Metcalfe's law, proposed by George Gilder in 1993, basically states that the value of a network is equal to the square of the number of nodes in the network, and that the value of the network is proportional to the square of the number of users connected to the network.

In the field of blockchain, people also use the PMR indicator to estimate the network value of blockchain, that is, the market value of cryptocurrency is proportional to the square of the number of addresses in the blockchain network. As for FIL, its main network has only been online for more than half a year, which is still in its early stage and there are not many FIL in circulation. For this reason, through time factor analysis, we adjusted the number of BTC and ETH addresses. The address balance of BTC wallet is greater than 0.1 and the address balance of ETH wallet is greater than 1 respectively, and the smoothing process is carried out for 30 days. The following table is obtained:

As can be seen from the above, if BTC is taken as a comparable project, the market value of FIL will reach 20.79 billion US dollars in the future. Using ETH as a benchmark, FIL has a market capitalization of $29.427 billion.

4. TVLR relative valuation method

Currently, Filecoin is similar to Defi in that both sides need to take a lot of lockdown collateral to keep the system running smoothly. Therefore, we can measure the value of FIL by the Total Locked Storage Value (TVL). Here we chose Compound and Sushiswap, the header DeFi projects, as a reference.

Consider that FIL and DEFI belong to two different blockchain networks, with one of them using FIL as a pledge and the other mainly using ETH as a pledge. Therefore, we use the amount of pledge/circulation to construct the TVLR index, as the standard to measure the value of lockup positions of various currencies, as shown in the following table:

Therefore, in terms of TVLR, FIL's market value could reach $70 to $100 billion in the future.

3. Conclusion

The recent rapid rise of FIL has aroused great concern in the market. This paper summarizes common cryptocurrency valuation methods and applies them to FIL, providing FIL valuation methods and FIL values as a reference. Valuation results show that according to the information of the market, in the long run, FIL prices still have 2-10 times the growth space in the future. Of course, the current rate of increase of FIL is too fast, there is still a risk of decline in the short term. Therefore, we hope that investors can treat the digital currency market rationally.