NGMI Capital: Value Capture of FLOAT and BANK
Original title: "NGMI Capital: Float-Bank, a fairy tale of a fair startup, where the next generation of the Federal Reserve was born? "
Original author: NGMI Capital
Original compilation: Zhang Tianran
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Introduction
Float is a new generation of algorithmic stable currency, it is not bound to one dollar, but the price It is linked to the growth of Ethereum, but it is far less volatile than Ethereum. In the backtest with 2020 data, FLoat price increased by more than 50% while ETH increased by more than 500%. Bank is the equity-like token of this system, which represents the voting rights of the system, will benefit from system expansion, and will also absorb the selling pressure of deflation. Float is its stable currency, which is currently in the creation stage.
Fair launch
The fair launch of this system is from the end of January At the beginning, the Bank was distributed first. At that time, almost all other algorithmic stablecoins except Frax were much lower than the $1 that should be anchored. The Phase 1 whitelist was initially given to anyone who voted on Snapshot, and was later expanded to include those who participated in the governance of some other major protocols. Limit $30,000 per person to prevent big players from filling the pool. In total, around 40,000 addresses qualified for Phase 1 launch, and over 3,000 addresses participated.
The team even forked Snapshot to allow multiple voting, because Snapshot only supports single selection. Voting is to choose the shovel to dig the Bank in the second phase. At that time, the Bank voting rate reached an astonishing 58%, which means that 58% of Bank holders participated in voting. Surprisingly, YAM surpassed UNI and Badger, and tied with YFI, SUSHI, ETH and WBTC to become the five new shovels in the second stage. YAM pioneered a fair launch + algorithmic stable currency, and like YFI SUSHI, it is the largest fair issue currency in the most classical community, although the current market value is much smaller. YAM's victory in this vote is also the best interpretation of the spirit of fair startup, and fully reflects the quality of the Float start-up community.
Good things cannot be hidden. Everyone likes this fair and democratic way to start new projects, but many new fans do not have the qualifications for mining in the first stage. At the end of the first phase, before the start of the second phase, which everyone can participate in, the price of the Bank soared from $800 to $1600 in just 2 hours. The chat groups and price charts looked spectacular that day. When the second phase officially launched the next day, the highest TVL reached $1.5 billion.
Team and Community
This team has its own unique style. The four members each play a role as The Beatles. Their British accents were pretty obvious on the community call. From articles to community conference calls and conference transcripts, to answering questions in the group, the team's external communication is very clear and responsive. They have a grand vision of making Float the world's currency, but are also very down-to-earth on the execution level. They are very aware of their opponent's state, and even wrote a special article to compare Float, Fei and Rai. Float's own release process was quickly learned from the mistakes Fei made in its release. The team released their interactive white paper some time ago, and its interactive section shows the operation of the system under different potential conditions. This may be a pioneering work that no team has done before.
The team is also very cautious and insists that the code audit must be completed before the casting ceremony. And there will be another audit. After another 6 weeks, the exciting moment finally arrived.
A very interesting observation, the core Float WeChat group has about 330 people, who claim to be Wild Fed shareholders. But six weeks was too long, and after the price fell to a quarter of its previous high, the number of group members dropped to 294. There was also less than one message a day in the Discord group. People seemed to have forgotten about this project until the Float minting time was confirmed.
The number of Twitter fans is 7,400, which is less than OHM's 8,700, Reflexer's 10,000 and Fei's 24,000, but more than the previous generation Algorithmic stablecoins, such as ESD/DSD, are only 3400, and Basis Cash is only 6300.
Mechanism
whitepaper and Gitbook has actually introduced and explained the whole system very clearly, so we only give a brief overview and comment here.
Float Bank is a dual-token system, Float is a stable currency but not anchored to $1, Bank is the equity-like token of this system, representing The voting rights of the system will benefit from the expansion of the system, and will also absorb the selling pressure of deflation. The issuance of the system is based on the fair distribution of Banks to obtain the fair market value of a Bank, and then relying on the fair distribution of Banks to cast Float equally fairly, and finally relying on the market value of Banks to support the mining needs required for casting more Floats .
The target price of Float is not $1, but is linked to the growth of Ethereum, and the volatility is greatly reduced. Even if Ethereum doubles in one day, the target price of Float on that day will only increase by 0.2%. If the price continues, the price of Float will gradually catch up with the 700% increase of ETH in the past six months, which only increases the target price of Float by about 40%.
In general, 1 Float (initial price is $1.618, in order to pay tribute to the golden ratio) is supported by nearly equal amount of ETH. The ratio of the market value of ETH in the inventory (officially called the basket Basket) to the circulating Float is called the mortgage ratio Basket ratio. The system will use the form of the Dutch auction to bring the mortgage ratio back to 1 (it can also be changed to a number lower than 1 in the future) .
There are four cases in total
Expansion: Float is higher than the anchor price, collateral ratio Greater than or equal to 1
The agreement will issue more Float for auction, hoping to bring Float back to the anchor price, and the auction price will be paid together with ETH+Bank, of which Those within the anchor price use ETH, and those above the anchor price use Bank. After that the Bank will be destroyed. The collateralization ratio will decrease, but remain above 1.
This may be the main situation in the next month, because the team has added a limit of no more than 10% for each additional issuance, so the price of Float will be below the anchor price It has been running for a long time, because the initial supply of Float is very limited, and the rewards for mining Banks are relatively high. Check out our model analysis of the aftermath of the casting ceremony below.
Expansion: Float is higher than the anchor price, and the mortgage ratio is less than 1
At this time, the agreement will still issue additional Float but only accept ETH, hoping to increase the mortgage ratio Faster increase back to 1. This would be a situation where Float is in high demand but ETH prices are falling.
Contraction: Float is lower than the anchor price, and the mortgage ratio is greater than 1
The agreement will use ETH to buy Float to bring Float back to the anchor price.
Shrinkage: Float is lower than the anchor price, and the mortgage ratio is less than 1
The agreement will use ETH and issue some additional Banks to buy Float together, and strive to buy back 1 , which is the only dilutive effect on Bank holders.
Other key factors in some mechanisms
The Dutch beat is a tried and tested A form of fair pricing that Maker and Gnosis have used for a long time. It settles quickly and is compatible with decentralized exchanges and flash loans, so that capital efficiency can be maximized
The expansion cycle can destroy a lot of Banks, which makes Banks have significant additional value in addition to voting rights, Just like Maker
In general, we think that Float's mechanism is very thoughtful, and it also takes into account most of the situations, and will at least achieve Frax level stability. This mechanism is even better given that partially collateralized assets are volatile. And linking the growth of the system with the growth of Ethereum (or other unstable assets) should also be a better choice than binding with centralized stable assets. Readers can go to the interactive white paper to simulate it.
Casting Ceremony
From May 9th to 15th, Each Bank stored in the Bank's separate pool can mint 100 Float at a price of $1.618. In order to encourage long-termism, if the Bank pledged in the pool wants to be withdrawn, it must be locked for 8 days, and there will be no income during the 8 days before it can be withdrawn.
At current prices, this means that every $700 worth of Bank can generate $161.8 worth of Float. But will this be the real price action in this system? Probably not
Although the interactive white paper does a good data simulation of the long-term performance of the system, it does not touch the casting ceremony and the initial auction after that. That's why we designed and released this model for everyone to play with, we will show the main parameters, assumptions, and related results for your enjoyment.
Click this Link You can play this excel valuation model by yourself.
Optimistic scenario
We set the main parameters of the optimistic situation as the Bank of $2000, the Float of $3, and the pledge ratio of 80% of the Bank in the Bank's separate pool. We think $2000 is possible because last time it was $1600. And this time the product was launched, and the price of Ethereum has increased by more than 80%. The price of Float will reach $3, which is much higher than the anchor price of $1.618 because the initial supply of Float is too small, and the mining yield of Float-eth and Float is very high. We also think 80% staked is possible because 45% staked in less than 2 days. If 80% are locked, the price of the Bank may fluctuate greatly.
We believe that the market has not realized the value capture brought by the possible destruction of Bank after each auction. A few early auction results could wake the market up. But this is only our bold guess, and it cannot be reflected by the model. To make a model, you need to set an initial price before the auction starts, so we set the price before the auction in the model to a relatively high level, and then see what will happen to the system if these prices can last for a period of time, For example, how much BANK is destroyed.
Auction
After communicating with the team discord several times, The team told us that for the stability of the market, each auction will increase by up to 10%, and the frequency of auctions will be reduced from once every 24 hours to once every 30 minutes, and the increase in frequency will be gradually realized within four weeks.
We assume that each auction will use up the 10% additional issuance limit, but the price will be discounted dynamically, and this dynamic discount will start from 3%. All the way down to 0.2%, because the price of Float may be quite high at the beginning. Specifically, the price of Float will go like this, 3, 2.9, 2.81...1.623, 1.62, 1.618. The pledge ratio of Float-ETH's pledge pool will gradually increase from 50% to 80% as Float gets closer to the anchor price.
We think that the price of Float will evolve in the above way because the supply of Float is very limited at the beginning, and the reward of Float-ETH will be high enough to offset Therefore, some people will continue to choose to buy Float at such a high price. On the other hand, we assume that the market value of the Bank remains unchanged even when it is destroyed, but ignore the Bank generated after the minting ceremony for simplicity. We hope to use the Bank price and other system-related data to simulate some situations of the entire system after the Bank is destroyed.
But we can't predict the volatility of the market anyway, so this is our best attempt.
Results It is also quite shocking. After 40 such auctions, the price of Float will drop from $3 to $1.6, the market value of Float will grow to $362 million, and the circulation of Float will reach 226 million. More interestingly, Of the forty auctions, 30 will burn more than $750,000, destroying a total of $32 million in Bank, or 17.5% of Bank in circulation, and raising the Bank price to $2425.
General situation
General situation assumes that Bank is in the first auction The previous price was $1200, and the initial price of Float was $2.5. This model results in a Bank market cap of $101 million, 8.5% of the Bank destroyed, a $Bank price of $1319, and a Float market cap of $125 million.
In fact, the model cannot make accurate predictions, so the conclusion is that we may see a $2500 Bank with a market value of 200 million U.S. dollars, and 20% of the circulating Bank will be destroyed , Float has a market capitalization of more than $300 million. Even so, even the most optimistic Float assumptions look undervalued compared to Tribe’s $700 million and Fei’s $1 billion.
Valuation comparison with other decentralized stablecoins
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According to the above table, we can see the equity-like tokens and issuance of stablecoins The market value of stablecoins is roughly maintained at one to one, the lower limit is 0.5, and the upper limit is 3. If we don’t look at Luna, it is basically in the range of 0.5-1. We think that Bank will have some premiums, which may be closer or even More than 1, the reasons are as follows:
Bank is launched fairly and undertakes the important task of community governance
Bank in circulation About half of the entire supply of Bank, while Fxs only has about 10% of the circulating disk Fei has been withdrawn after FIP-2, and the circulation of Fei is still far beyond the data it should have at the current stage
Our Float-Bank system The short-term optimistic assumption data is only less than half of the Tribe-Fei system, and the general assumption is similar to the current Frax and peak BAS-BAC data. In the long run, the project ceiling of this track will be higher than the current market value of Maker and Luna. These two industry giants have shown us the full potential of the decentralized stablecoin industry.
Float-Bank really needs to speed up its commercial promotion process if it really wants to be commercially successful, and we are happy that the team can tell us that they have Many cooperation and usage scenarios are prepared and will be announced in due course.
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