Assessing the Market Opportunity

Unlike all the other projects that don’t provide any guidance about business models, total addressable market or the market opportunity, we model the Discounted Cash Flow of the fees obtained from the future trading volume of Private and Verifiable Smart Contracts (i.e., Cryptographically Secure Financial Instruments) based on the methodology “Justified Token Value”:

Download (XLS, 83KB)

The projections of the model use very pessimistic parameters:

  1. We include only a subset of the whole worldwide market of traded financial instruments:
    • Worldwide markets mainly traded on the most important exchanges: stocks, OTC Foreign Exchange, interest rates derivatives, credit derivatives, and FX derivatives.
    • First world markets: the US, Japan and EU Bonds; US Futures.
  2. Low penetration after 10 years: only 1% of the turnover will be using Private and Verifiable Smart Contracts (i.e., Cryptographically Secure Financial Instruments) following a S-Curve adoption model. Note that the current trading volume of algorithmic/program trading is >50% in many markets.
  3. Low fees: only 10 basis points of the traded volume. Note that expense ratio for USA equity funds has ranged from 66bp in 1980 to 69.2bp in 2010; the average fees paid to active domestic equity managers for institutional investors have ranged from 46.8bp in 1996 to 55bp in 2011; the average fees paid to active fixed-income managers for institutional investors have ranged from 29bp in 1996 to 30bp in 2011; and the equity trading costs in Europe went from 42bp in 1997 to 33bp in 2004.
  4. High and constant discount rate: a very high annual discount rate of 80% (8 times the discount rate for risky stocks with high WACCs) has been chosen. Conversely, this also implies that investors holding RAZ tokens for 10 years could get an 80% annual return (i.e., the discount rate is interpreted as the expected rate of return at the same time, but in no way this can be understood as a promise of future returns).

We invite you to estimate better projections: download the spreadsheet and change the input parameters to check the growth of the market capitalization using higher penetration ratios, higher fees and a better discount rate.

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