# Valuation & Organizational Strategy

In this long post, I estimate an intrinsic value for SAFE coin, I identify potential problems with MaidSafe’s strategy, and I welcome constructive feedback and dialogue.

I have an equity research background and in that world, intrinsic value has an objective meaning. It’s objective in the sense that if you had a crystal ball and were able to give a dozen equity research analysts the future free cash flows for the next 20 years for the company in question, they will independently arrive at similar intrinsic value estimates using a discounted cash flow formula with some margin of error for different interest rate assumptions. And while stocks can go into irrational exuberance or pessimism for periods of time, it’s an efficient and liquid market so they generally revert back to something in the vicinity of their intrinsic value. I’m interested in applying a similar approach to cryptocurrencies since I think it’s possible and I think there’s a lot of hype in this space so intrinsic value helps ground the analysis and separate hype from fundamentals. I’m posting my analysis below for constructive feedback and dialogue. I’d argue this discussion is not just relevant for investors but also those in development who are deciding how to prioritize the allocation of development resources at MaidSafe. I can’t contribute with code since I’m not a programmer, but valuation analysis, and what that implies about effective strategy is something I do have some experience with.

There are two features that can give SAFE coin intrinsic value: 1) using SAFE coin to buy resources on the SAFE network and 2) using SAFE coin to buy goods and services in the real world. Since it appears like there is a relatively low level of attention being placed on facilitating the latter, I’m ignoring the latter aspect from my analysis for the time being and focusing on feature #1.

When dealing with currencies, I believe the intrinsic value formula that’s relevant is not the discounted cash flow formula that’s used in equity research but rather the quantity theory of money formula (namely Money Supply * Velocity of Money = GDP).

First, I’ll estimate SAFE’s GDP. A google search suggests that Apple/Google/Microsoft/Facebook collectively store 1.2 million TB of data and that the total amount of data on the internet is 1.3 billion TB. For the sake of analysis, let’s assume SAFE is a huge success and gets 12 million TB of data stored on it. Siacoin recently posted a tweet stating that rent on their decentralized storage network is \$0.38/TB/month. Assuming SAFE network has a similar price for storage, this would imply SAFE’s GDP would be \$55 million (calculated from \$0.38 * 12 months/year * 12 million TB).

Second, I’ll estimate SAFE’s velocity of money. The US economy’s velocity of money ranges from 1x to 10x depending on whether you use M1 or M2 as the money supply base and depending on which point in history you look. Let’s assume SAFE’s velocity of money will be 1x in order to be aggressive in our valuation of SAFE coin.

Third, I’ll estimate the value of SAFE coin money supply. Using the quantity theory of money formula, SAFE’s money supply would be worth \$55 million (calculated from \$55 million GDP / velocity of money of 1x).

Presumably at this type of scale, SAFE will have reached its maximum coin supply of 4.3 Billion coins and so if SAFE’s money supply is worth \$55 million per the analysis above, then each SAFE coin will have an intrinsic value of just \$0.013/SAFE coin. That sucks, since I bought some MaidSafe at \$0.15/coin because I thought the project was cool. While it’s obviously possible to change the assumptions to make the intrinsic value higher, I suspect that in order to get to a 10x return on investment at the current price, you’d need to believe virtually all internet data in the world goes through SAFE.

I think the best and only counterpoint to the above fairly pessimistic intrinsic value analysis is that I’ve excluded the intrinsic value associated with using SAFE coin to buy goods and services in the real world. The real world economy is much much larger than even a wildly successful SAFE economy could be and that helps to justify why the domestic fiat money supply in many countries is worth hundreds of billions of dollars and trillions for the largest countries.

However, just because the SAFE coin can work as a currency in the real world, doesn’t mean it will be adopted as such. Not even close. To be adopted by normal people, development resources would have to be allocated toward making it easy to use for the masses. A marketing budget would have to be created to educate people and build awareness. Relationship building and integration work would have to be done with payment processors. Merchant funded loyalty programs would have to be created to entice consumers given that credit cards give miles/rewards to consumers by taxing merchants. From watching videos of David Irvine, I get the impression that creating a global currency is not what motivates him, it’s not viewed as an interesting project for the MaidSafe team and it’s not something that excites them the way that creating a decentralized internet does. That would be okay if there was a plan to eventually create a treasury that’s directed by a DAO controlled by SAFE coin holders, since in that scenario, coin holders would collectively act in their financial self-interest and make sure that sufficient resources are allocated towards the global currency aspect of SAFE coin and not just the decentralized internet aspect. The latter is cool and technically game changing, but the real money is still in the former. My understanding is that a treasury directed by a DAO is not part of the plan. The closest thing to community-directed allocation of capital is the proposed rewarding of safe coins to app developers based on how much their app is used. However, that seems like a fairly ineffective solution relative to a DAO that could fund necessary projects that never get used much on the safe network but are still value add for the safe network (e.g. customer service support for the masses, marketing, relationship building with merchants / payment processors, etc.)

I’ll probably keep my coins regardless, but I could see myself investing a lot more in SAFE if there were clear and thoughtful plans on how to create adoption as a global currency and not just adoption as a decentralized internet. I welcome constructive feedback and dialogue.

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The properties of safecoins defines the properties of digital cash, it is a way better cash than any other cryptocurrency out there.
There is no project out there that has the following properties:

1. Free transactions
2. Instantaneous transfer
3. Extremely cheap and energy efficient way of “mining” them
4. Centralization is penalized by design
5. Strong anonymity by design (no need of convoluted means of anonymizing it)

1 to 4 are unique properties that can’t be replicated by any blockchain based cryptocurrency, because it goes against to the core of their security model.
Even without an active promotion of Safecoin, it will eventually become the defacto currency for microtransactions by word of mouth.

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Microtransactions are a micro part of the real world economy and money supply base, so I’d suggest it’s better to focus the discussion on transactions. A \$20B valuation for bitcoin or any cryptocurrency is arguably way too high if the dream scenario is just for microtransaction usage.

And it’s not just active promotion that would be needed. Active promotion is arguably the least important part. I would never use a cryptocurrency to buy goods and services in the real world because I get miles and rewards on my credit cards. Merchants would love it if I did since they could then avoid high credit card fees and merchants would likely be willing to fund loyalty programs to entice me to use a SAFE coin debit card over a VISA credit card, but that’s not going to happen organically or by word of mouth. SAFE would have to pay people to organize that and create systems to make it possible.

That’s just one practical issue. There’s quite a few other practical issues you’d have to have a plan for if defacto currency was a legitimate goal.

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Seems you forgot recycling of the coins. Its very unlikely the maximum supply will be reached. Also even if it is, it is being recycled (destroyed & reissued elsewhere). The algo slows down supply of new coins as the issued coins increase

Thats the point, its not the dream scenario, but just one feature that satisfies a wide ranging use case.

You make many valid points. SAFEcoin was/is not developed as a currency but designed as a way to pay for resources and pay people for providing resources.

Maybe the long term price isn’t going to be a basis for large wealth, but it will reflect what people are willing to pay for storage and usage of the coin. Maybe it will only go up 2 times from here, or 20 times or more, that is uncertain and dependent on many things which you mention some of.

If you don’t think MAID (& later SAFEcoin) is going to satisfy your goals then maybe wait for the next rise and sell some/all. Then at least you won’t have lost money. SAFEcoin is not meant to make rich people of those who buy now, but to make the network run smoothly. Any increase in value is a side benefit which many of us expect to happen but its not a certainty.

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Thinking of safe net just as storage is not sufficient, imo. It will become the platform for apps, including IoT. A quick Google reveals IoT is being valued at nearly a trillion dollars in 5 years (https://www.google.co.uk/amp/www.marketwatch.com/amp/story/guid/b9811797-5ac2-4051-aad5-4f12e48d04ed).

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You should do research on the market size of microtransactions in gaming and the market size of the unbanked in the informal economies.
60 billions USD in gaming microtransactions is a “micro” for you?
How about 380 billion dollars in the unbanked informal economies?
(Globally, it is estimated to be close to \$10 trillion dollars)

I think it is time for you to do some deep research.

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Even though it wasn’t developed mainly focused for its currency, the design of the SafeNetwork nurtures the properties of the perfect digital money for its adoption in the System D (the informal economies).
And the best aspect of Safecoin is that because it will always be redeemable for usable computing/storage resources, it will always hold an underlying intrinsic value, something that other cryptocurrencies lack.

There is a reason of why the banks are salivating with the blockchain technologies, it is because they think that they will be able to lower their costs and tap into this unexploited market which has always been the critical last mile they wanted to cover.
As I mentioned in the previous comment to Tarak, globally it is a 10 trillion dollar market.

Little do they know that the technology that helps them lower the costs, actually will make them obsolete in the long run. If blockchain based currencies are the gold, Safecoin will become the defacto cash.

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Why use the Sia network and not something with greater market exposure like dropbox or google cloud?

Sia says on their FAQ the price of storage is determined by a free market of users and providers.

But they also say in a table on their homepage there’s competing markets for storage supplied by google / aws / azure with prices ten times theirs - ie the market is currently happily paying over ten times the Sia price. So I don’t think using Sia as an indicator of market size or market valuation for storage is correct.

The Sia homepage also says storage is \$2 / TB / month, but their tweet says \$0.38 - that’s a massive difference.

So my question still stands - why use Sia as the measure for the market?

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This is true for now only because microtransactions aren’t financially feasible. The per-transaction fee in the current system (even for cryptocurrrencies) means that if you want to transact 1/10 of a cent (for a minute of reading an online newspaper, or a minute of work), it will cost you a multiple of that transacted amount in transaction fees. IF microtransactions were possible in a financial feasibly way, as they would be with the SAFE Network, then entirely new economic possibilities open up.

The example of being paid for a minute of work I used above may have sounded like a joke, but in fact paying someone “in real time” for their work could provide enormous economic benefits (as long as doing so remains financially feasible), and open up entirely new areas of the economy.

TL;DR: Microtransactions are basically irrelevant today only because they are financially infeasible. If they were feasible, there’s a good chance that the overwhelming majority of transactions would be microtransactions.

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I agree with the sentiment, but microtransactions are entirely possible (and used) today.

An example that comes to mind is flattr. Whilst it’s true the initial funding does have a relatively high transfer fee, the microtransactions after that are essentially free (merely the cost of a single entry in the flattr database).

Doing decentralized micropayments, now that’s another story. I hope the safe network will make this feasible, but we will have to wait and see how it unfolds.

As for microtransactions being a micro part of the economy … even the myopic microtransactions page on wikipedia shows this is untrue.

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This guy says maidsafe be worth \$600

https://www.alexfortin.com/top-5-crypto-currencies-invest-2016/

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The suggestion that IoT is tiny is insane. There are estimates of IoT being a \$7 trillion dollar industry by 2020 and as much as \$19 trillion in a decade.

At the end of the day you cannot ignore any individual aspects of SAFEcoin that could give it value and then expect to calculate the unknown.

The value of SAFEcoin will NOT be defined by intrinsic value, but by simple supply and demand. As is the case with all free markets.

If the network and coin function as described then obviously it will be used as currency (in exchange for goods and services other than data storage). If there is pervasive demand for the network then people WILL use a private, anonymous and secure mechanism to trade things, that’s an inevitable consequence of a successful Network imo. But even if it were never really used much as currency that would not be be nearly as significant as you make out.

You can’t point at a minimum intrinsic value and claim it has any more relevance than conservative estimates of the potential in other areas. Even if the unthinkable happened an no one thought to use this perfect currency as ‘currency’ your figures don’t account for any of the other real implications.

Let’s take all the market caps of all crypto’s - since SAFE certainly has the potential to replace ALL of them (anonymous, instant, no pow, feeless, scales, smart contracts etc). Then lets add in gold and silver at another \$7 trillion, IoT at a conservative \$10 trillion, the bottom end of the value of ‘the internet’ at \$15 trillion, a \$10 trillion black market etc ad nauseum. My conservative numbers are already getting silly long before I get to currency.

If you’re just looking at this from an investor pov then you should be looking at the potential upside to work out the risk/reward and how much exposure you want. Trying to define something like ‘digital freedom and digital cash’ within the bounds of ‘data storage value’ is not going to get you on the right planet, let alone the same ball-park.

Just sayin…

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Exactly.
The minimum price if the SafeCoin becomes currency of the informal economies, used as cash, it should be valued at 2328 USD per SafeCoin.

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I admire your careful attempt to apply your experience to this incredibly difficult calculation. I am though unconvinced of the result, or even if it is possible to estimate it in this fashion at all.

I’d be interested to see if you could apply the same process to comparable areas and demonstrate it’s effectiveness there. Bitcoin for example, even gold, or the US\$, because I don’t see it applying with any degree of accuracy as a predictor because the factors are too complex and largely unknown.

As an aside, I believe that David is interested in a lot more than creating a decentralised internet. You’ll find this if you delve deeper into his blog metaquestions.me, or the many discussions we’ve had on this forum. I’m not surprised you would think otherwise because those topics have taken a back seat to delivering the technology and so have been few in the last 18 months. Also, the focus of this forum is much more on the technology than its potential to deliver much wider benefits, though they do get discussed too.

He and others here () are interested in creating a way for the large part of the world population who are currently excluded from the financial system, to have access to it. A search for “unbanked” might turn up some discussions on this, and “Johan Gevers” (IIRC).

You may be right that the latter will require marketing effort, but I’m conscious that everything does. The internet, railways, roads etc did involve marketing to prime the pump, or between competitors, but not once their potential was becoming apparent. To the world’s unbanked, or unconnected, it may be a no brainer that can spread through grass roots movements, NGO’s and governments.

Another thing with groundbreaking change is that we fail to predict what it will enable us to do. Who imagined YouTube, Facebook or Twitter, or even that email would become ubiquitous. SAFE network has storage at its core, but delivers something never before seen, and creates an unimaginable number of new possibilities.

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Thanks for the analysis @Tarak, it has incited a lot of response and debate, a sign of an interesting post!

I’m inclined to agree with @happybeing on this. Establishing value with any new technology is particularly difficult, especially with technology like the SAFE Network that is so nascent. It would be good to see how these same metrics apply to technologies/apps such as bitcoin, Twitter and Ethereum for example.

I see a couple potential issues with the logic used. When we look at other storage companies, Google, Apple, Sia…take your pick… the assumption is that these technologies are like for like. However this is not the case. Should the SAFENetwork be as secure, private and scalable as we believe it will be (yes we still need to prove this :)), it will offer security that other products cannot match. I would suggest that this would place a significantly higher demand on using storage apps on the network and would therefore drive the utility of the network and the price of safecoin. As others have pointed out, SAFE is also not just about storage, but also secure communications.

The other thing I see playing an important part is speculation, and the significant part it plays in the price of many of the world’s leading cryptocurrencies. The act of buying and holding of course increases the scarcity of the coin and drives the price. I think much of the \$1055 price for btc and \$50 for Ether is not really driven by their utility as blockchains, but by speculators holding coins in anticipation of the next price bump.

I would also like to clarify on your final point that seems contradictory, but this could of course be my need to need to scan quickly. You mention that “create a treasury that’s directed by a DAO controlled by SAFE coin holders, since in that scenario, coin holders would collectively act in their financial self-interest” and then within the same paragraph “that seems like a fairly ineffective solution relative to a DAO that could fund necessary projects that never get used much on the safe network but are still value add for the safe network”.

If coin holders act in their own self interest, would they fund projects that never got used much? I would think they would fund projects that they believe would see maximum financial return and not select projects by any other means.

I do think that we need to give more thought to how the governance, management and development of the network can become more decentralised though, so I appreciate you bringing this up. Can you point to some examples where you think this has gone beyond theory and is working well in the real world?

Thanks again!

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I was going to make the same point. I think that microtransactions are a new paradigm looming right on the horizon. My reasoning:
Cryptos removed counter party risk from payments. Instead of paying via 3rd party IOUs, people can pay each other directly digitally. What might be the next counter party risk to overcome? How about delivering services in large chunks, like a month’s worth, and then hoping to get paid. When it becomes possible and easy to be paid in continuous streams for services rendered, I think it will become the standard. Once the present day technology hurdles are removed such that non-geeks can do it, the remaining barrier will just be the societal momentum of ‘the old way’ of doing things. That can change quicker than expected actually, as I’ve already seen a couple times in my life with internet access and smart phones becoming ubiquitous.

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How does this make any sense, how would this be relevant?

Edit: sorry, I now see that many others have already asked this. Sorry, disregard

Do you mean 1.2 million TB on SAFE or really 12?

If it’s12, why do you assume SAFE immediately being 10x larger than the current internet /clearnet? Are you trying to account for the deep web or something?

STEEM has a blockchain, has zero transaction, 3 second block time and has no energy intensive mining (PoS).

How is centralization penalized in the safenetwork ??? If I run a data center and had 100 000 VMs with as many IP I don’t benefit from economy of scale ? AFAIK Safenetwork cannot discern between geographical location or whether it’s a VM or a real PC.

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The resources from data centres are not ‘spare’, so there would be an opportunity cost for using the data centre to provides resources to SAFE rather than using it for what it was designed for.

The point is that building a data centre specifically to farm safecoin (like miners do with their mining operations) would not be economical, since the public are only having to pay electricity, whereas you’d have the capital outlay for the hardware and bandwidth. Spare (free) outcompetes economies of scale (cheap). If you already use the resources in a business then they are not spare. If you don’t then great, they can contribute to the spare economy, since they were not being used before. That won’t cause centralisation, it would be a good thing to mop up any unused resources

I’m not a fan of PoS personally. PoR is the way it should be done imo. It just makes sense.

And STEEM isn’t anonymous/private, it doesn’t scale positively, nor does it have anything like the same kind of utility. It’s really not on the same playing field.

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