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My Valuation of XRP by Mathematics - I think it's worth $100+

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41 minutes ago, Mpolnet said:

So I'm not too familiar with xPool but it's sounds like a tool they are creating to hedge price volatility and to help liquidity. There are definitely a fair amount of people locking away their XRP and we can't rule out any possibilities this early in the game. However, my one counter point in regards to shortages would be that individuals who bought low and are currently hodling for higher prices will eventually sell at their target price level. This would then result in more XRP entering the circulating supply. I think we'll see this type of supply re-balancing play out more so than experience a shortage of supply (but in that case price would have to go up to meet demand) but that's just my thinking. I could be totally wrong as per the words of Danny Aranda - "if the evolution of the crypto market is a clock, then we're only in the first 5 seconds" so who knows!

I think they mentioned XPool some months ago and then shut up ever since.

Did you ever make a table showing expectations of value against projected volume of daily trade

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1 hour ago, Mpolnet said:

So I'm not too familiar with xPool but it's sounds like a tool they are creating to hedge price volatility and to help liquidity. There are definitely a fair amount of people locking away their XRP and we can't rule out any possibilities this early in the game. However, my one counter point in regards to shortages would be that individuals who bought low and are currently hodling for higher prices will eventually sell at their target price level. This would then result in more XRP entering the circulating supply. I think we'll see this type of supply re-balancing play out more so than experience a shortage of supply (but in that case price would have to go up to meet demand) but that's just my thinking. I could be totally wrong as per the words of Danny Aranda - "if the evolution of the crypto market is a clock, then we're only in the first 5 seconds" so who knows!

I have just been looking at your spreadsheets again and see that they answer some of my questions.   I am not very good at reading spreadsheets etc, but from what I can gather you project penetrations of

0.76% = $7.53

1.9% = $9.75

3.6% = $12.68

5.9% = $16

18% = $53

33% = $116

43% = $132

These are the conservative estimates of prices that would be created by the utility demand?   It does not include speculative investment market making XRP into a store of value.

Brad is expecting to be working with 50% of the worlds banks within 3(?) years

This is very reassuring.  Have there been other models than yours

 

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1 hour ago, Julian_Williams said:

I have just been looking at your spreadsheets again and see that they answer some of my questions.   I am not very good at reading spreadsheets etc, but from what I can gather you project penetrations of

0.76% = $7.53

1.9% = $9.75

3.6% = $12.68

5.9% = $16

18% = $53

33% = $116

43% = $132

These are the conservative estimates of prices that would be created by the utility demand?   It does not include speculative investment market making XRP into a store of value.

Brad is expecting to be working with 50% of the worlds banks within 3(?) years

This is very reassuring.  Have there been other models than yours

 

Yup! The utility value per token is based on the size of the total addressable market, the market share of that market that is available to XRP, and lastly the % that XRP is able to penetrate of that respective market share. All of this projected out into the future with some assumption around velocity of money and attempting to model out the XRP supply schedule. 

Tbh I'm not sure if there are any other versions of the XRP specific one but the INET base model in the google drive is the one that Chris Burniske did - it models out file storage. He created the original model, I just tried to add to and rework the formulas to be what I think represents decent assumptions around the supply and how the XRP economy functions. So I'm definitely not saying the model is 100% accurate but I think the assumptions are conservative and show that XRP should be worth a minimum of $10 - $100+ over time in order to support it's use case. If anyone has created an alternative version of this I'd love to check it out.

I know another method for potentially valuating crypto assets is through metcalfe's law. @Kalarie put together something interesting utilizing metcalfe's law.

Edited by Mpolnet

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On 12/15/2017 at 4:30 PM, Streamliner said:

Yes, agreed! The total XRP in circulation will actually be less than 100bn because of:

1. XRP burned

2. Some XRP will sit dormant as savings/investment and exchanges as you mentioned and hardly ever be in circulation (i.e. velocity of zero)

You can take ~24 million XRP out of equation due to the 20 XRP minimum per account.

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2 minutes ago, jdimstrnate said:

You can take ~24 million XRP out of equation due to the 20 XRP minimum per account.

Yes agreed! That is getting factored into the model right now and I have linked the source where I'm getting the total number of wallets created. I have also deducted 540,000 XRP for the XRP greyscale trust since there are 5,400 shares outstanding and each share is worth 100 XRP. 

Let me know if you think there's anything else that you think is a factor for reducing total supply due to it being non liquid!

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5 hours ago, Mpolnet said:

Yes agreed! That is getting factored into the model right now and I have linked the source where I'm getting the total number of wallets created. I have also deducted 540,000 XRP for the XRP greyscale trust since there are 5,400 shares outstanding and each share is worth 100 XRP. 

Let me know if you think there's anything else that you think is a factor for reducing total supply due to it being non liquid!

The 20 XRP minimum for a wallet is likely to change over time, especially as the price increases. I.e. if XRP is $100 each, it won't make much sense for people to have to pay $2000 for a wallet. I think as the price of XRP increases, the required amount for a wallet will decrease. Therefore there will be less 24 million held up in wallet minimums if my line of thought holds up. 

 

I could be totally wrong, the wallet system could change entirely as XRP grows in adoption. We really don't know at this point 

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8 hours ago, Mpolnet said:

Yes agreed! That is getting factored into the model right now and I have linked the source where I'm getting the total number of wallets created. I have also deducted 540,000 XRP for the XRP greyscale trust since there are 5,400 shares outstanding and each share is worth 100 XRP. 

Let me know if you think there's anything else that you think is a factor for reducing total supply due to it being non liquid!

While this is not a factor that you could even remotely quantify, I’d have to assume there is an unknown amount of XRP locked in wallets that will never be accessed due to lost keys, deceased owners, or flat out forgotten, etc. 

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23 hours ago, Mpolnet said:

Yes agreed! That is getting factored into the model right now and I have linked the source where I'm getting the total number of wallets created. I have also deducted 540,000 XRP for the XRP greyscale trust since there are 5,400 shares outstanding and each share is worth 100 XRP. 

Let me know if you think there's anything else that you think is a factor for reducing total supply due to it being non liquid!

This may be a stupid question:  Will XRP have to be distributed and held in pools like Nostro accounts are.  For instance America has a trade deficit with China, so XRPs will be trading mostly one way.  When the XRP arrives in China and exchanged for a load Yuan will it be available for sending from America again?   Or does the American bank have to source XRPs that are already in the US? 

Edited by Julian_Williams

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@Mpolnet- how did you come up with the number for velocity?  If the xrp ecosystem is working wouldn't the velocity of the token have to be quite high even with taking into account hodlers, xrp's sitting on exchanges, escrow, account funding, etc? 

All your work is appreciated!!

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1 hour ago, xrphilosophy said:

@Mpolnet- how did you come up with the number for velocity?  If the xrp ecosystem is working wouldn't the velocity of the token have to be quite high even with taking into account hodlers, xrp's sitting on exchanges, escrow, account funding, etc? 

All your work is appreciated!!

Yes you're 100% correct that there needs to be a high velocity of XRP in order for the ecosystem to work! XRP sitting in escrow, exchanges, and wallets that is non-liquid helps to counteract this high velocity by reducing the total supply. This leads to either velocity needing to go even higher or for the value of 1 unit to rise, in order to support the $ amount of value being transferred on the network. At least this has been my understanding. 

The user can see how if a larger % of total XRP is hodled (by changing this % on the supply schedule) how much it has an effect on price, due to reducing total supply available to facilitate use cases.

As for velocity you can technically solve for it using the equation of exchange, which is MV = PQ, which is what the model is based off of - courtesy of Chris Burniske. So M is monetary base (lets say 100 billion XRP, P is a price of a basket of goods being sold and Q is the quantity of a basket of goods. For Ripple's cross border payments market I am assuming that the PQ side of the equation is equal to $150T. Using the U.S. GDP as an example - the U.S. GDP is roughly $20T (so P*Q = $20T) and we know that the monetary base is $5T. So in order to get to a PQ of $20T with a $5T monetary base (i.e. M) you would need a velocity of 4x. Velocity also is referenced for a specific period in time, in the models case it is annual. (I need to incorporate a step function that allows you to change velocity in any year.)

However, for the purposes of the model I have been working on I have just been assuming an arbitrary velocity number. From the podcast I listened to of Chris Burniske he said that in their research a few years ago that BTC had a weighted average velocity of around 6x. So I assumed a higher velocity than that as a starting point. For markets like derivatives settlement and micropayments I assumed an even higher velocity than cross border payments. My thinking was that these markets have transactions that will occur more frequently and thus will inherently have a higher velocity. 

But again, these are just my assumptions and what I believe to be conservative. I would rather undervalue the price and be pleasantly surprised when it exceeds the projections rather than overestimate and be disappointed due to my expectations not being grounded in reality. Due to the model being assumption heavy it's "garbage in, garbage out" meaning that if my assumption are garbage then the model will spit out garbage results. This is why I'm super open to discussing the assumptions used, trying to track down hard data to narrow in on them, and refining the model from there.

Edited by Mpolnet

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On March 30, 2018 at 12:23 PM, Julian_Williams said:

Brad is expecting to be working with 50% of the worlds banks within 3(?) years

This is very reassuring.  

 

Wow, this is the first I'm hearing of this.  Where did he outline 50% of the worlds banks within 3 years?  Did he specifically mention products (if not XRapid) utilizing XRP for settlement?  

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2 hours ago, aavkk said:

Wow, this is the first I'm hearing of this.  Where did he outline 50% of the worlds banks within 3 years?  Did he specifically mention products (if not XRapid) utilizing XRP for settlement?  

I should have written five years:  This was what he really said “promote the introduction and set the goal of over half of the world's banks to adopt the company's remittance service over the next five years."  https://oracletimes.com/breaking-how-ripple-xrp-plans-to-partner-with-over-half-of-worlds-financial-institutions/

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