Calculating the Value of Proposals

TheSingleton

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Mar 27, 2017
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Hey everybody,

a short while ago @pablomp has created a way to calculate the fair value of a Currency in terms of another. Using no market data at all just transaction count, velocity and supply this method results in surprisingly accurate results. For more information, you should read his article: https://steemit.com/bitcoin/@pablomp/cryptocurrencies-what-is-the-fair-value-of-a-currency

I have worked on using this to Calculate the Effect Proposal have on the Dash price. Basically, you calculate the fair_value with the current values and then once with the number of transactions the proposal create and the new supply of dash coins that paid for the proposal subtracted.
The difference in results is then the effect that the Proposal had on the Dash Price.

Figuring out how many new Dash were created to fund the proposal is an easy task the hard thing is figuring out the number of transactions per day that are the result of the Proposal.

I have reached out to the guys at TenX which should have easy access to the transaction data created by their service. And they were so kind to share this info with me and are creating 5 dash transactions per day at the moment.

Considering the 300 Dash created for their proposal that currently results in a price increase of 0.000065 BTC = 0.15 USD
Note worthy is that the ignoring the 300 Dash the were created, the results basically stay the same. There is a slight increase but it is negligible.
So over all the TenX proposal has been positive for the Dash price though at the moment, even if it is just a tiny increase in price. Hopefully, when their cards are available to everybody this will become a more meaningful effect.

Still, I think this shows that any proposal that will lead to a continues amount of new transactions are very likely to have a positive impact on price.

If you have data on the transactions that were created by another proposal please share it with me.
 
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TheSingleton

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I looked at the article you linked to -- it is unintelligible to me. Is there a google spreadsheet you could share that shows how you came up with your results? It does seem like an interesting idea.
Well, I can try to explain the basics. The formula for calculating the fair value is:

price = (tx / tx_ref) * (supply_ref / supply) * (velocity_ref / velocity)

This only works for Coins with the same purpose. Which works for Dash and Bitcoin because both want to be general payment systems. For a complete explanation of why that formula makes sense, you will have to read the article.

So if we want to calculate the fair price of Dash in BTC we do

dash transaction in a day = 4550
btc transaction in a day = 234600
dash supply = 18000000
btc supply = 21000000
To be more accurate we should consider the part of the supply that has not yet been created for that take a look at the article.
Now we assume that the velocity of a coin is based on human properties so should be the same for all coins. Except that in Dash about 62% of all coins are held in MasterNodes and therefore have a lower probability of being moved and thus reducing the dash velocity.
dash velocity = 1 * (1 - %MN) = 0.38
btc velocity = 1

If we put that in the formula above we get a fair price of 0.05954517581 which is quite close to the actual price of 0.071. (Take a look at the article of a chart of these prices over time they better show just how accurate this method is)
Now we can subtract the 5tx per day that TenX creates + the 300 Dash that were created by the proposal and calculate the result again. Which is 0.05948073289

Now we can subtract the current fair value from the one were we assume the proposal never existed
0.05954517581-0.05948073289 = 0.00006444292

So in this simple example, the proposal caused a 0.000064 BTC price increase for Dash.
The way I do the actual calculations is using a tool created by @pablomp if you want to use that you would have to ask him.
This tool considers a couple more factors that I have ignored in this simplified example.

All data taken from https://bitinfocharts.com with a simple moving average. (Data is from yesterday)
 
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TheSingleton

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Nice spreadsheet. And yes that seems a bit counterintuitive at first. You have 5,671 dash transactions add 1 is a change of (100/5671)*1 = 0.01763357432% while increasing the supply by 1000 Dash is a change of (100/18M)*1K = 0.00555555555%.
Since the formula is linear in both of these terms as long as the number of transactions increase at a higher percentage than the number of Dash the outcome would be positive. Since at the moment, the number of daily transactions is relatively small increasing it by just a bit has a significant effect whereas there is already a big supply of dash so adding a bit to that has a low effect.

So yeah at the moment if we were to pay 3000 Dash for 1 tx/day that would result in basically no effect. But once the number of daily transactions is higher that number will decrease.

Also just because something would have a positive effect doesn't necessarily mean we should fund the proposal if there are other that can create more value. Though at the moment we seem to have quite a bit of headroom in the budget before we will have to decide between different proposals.
 

TheSingleton

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Some more numbers as food for thought:
The value of the dash network comes from providing people with the ability to transact. So if we take the total value of the network and divide it by the number of transactions we can see how much value each one of them is responsible for.
$1,432,992,670 / 6,309 = 227,134.676 US$
for comparison the same in Bitcoin:
$ 42,672,427,602 / 246 457 =173 143.5 US$

If that seems crazy high that's because it is. If you use the fair value model to calculate the fair Dash Price in USD it's about 22$ (BTC: 340$). Does that mean you should sell all your Dash or that the Modell is wrong? I don't think so.
I think this just shows that USD price is not based on current utility but instead on expected future usage. We would need about 8-9 times more transactions for the fair and actual price in USD to align. Which doesn't seem so unreasonable to happen soon.
 

pablomp

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Exactly @TheSingleton . You've just said it perfectly right. The speculative transactions for fiat currencies dominate in the total transactions. And not only they dominate, but they are biased towards future success of cryptocurrencies. Nonetheless, many of the trades of one cryptocurrency for another are utilitarian trades. And whats more, the speculative crypto/crypto trades cancel out and thus, have near 0 bias. When a currency succeeds (monetises) , the speculative trades are negligible with respect to the total amount of trades (utilitarian trades dominate). Should that happen, the model will yield a usd fair value very close to the actual price. In other words, for the fair value model to match current fiat price, one would need to speculate on future trades.
 
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