Paradigm Shift for Calculating Value?

From David Einhorn’s latest letter to investors, via Josh Brown:

we wonder if the market has adopted an alternative paradigm for calculating equity value. What if equity value has nothing to do with current or future profits and instead is derived from a company’s ability to be disruptive, to provide social change, or to advance new beneficial technologies, even when doing so results in current and future economic loss?

Brown recently wrote a post with similar sentiment. It’s interesting to think about how business models and values are changing in light of the recent token sale boom. And beyond token sales, there will be successful projects that will operate completely decentralized and based upon the exchange of tokens. There still won’t be any public financials and traditional valuation methods will likely be just as challenging as they are now.

“Mainstream [blockchain] adoption is still pretty far ahead”

Alexander Lange published a piece titled Mapping the decentralized world of tomorrow, which includes an infographic showing the landscape of many of the tokens launched so far. He lays it out in a graph, beginning with platforms and protocols and followed by middleware, financing methods, and decentralized applications. A few interesting points:

On token value:

Value is created on token level rather than on equity level, therefore opposing everything we experienced in conventional software businesses. Tokens represent an atomic unit of a company’s business model. Some are sold to finance the project but their main purpose is to monetize products and services in the long run. Tokens don’t make sense for any business model and need to fit into the company’s landscape of services to be useful….. A more objective approach of valuing a token would be to define its “utility value” by analyzing real life KPIs.

On fundraising:

The fundamentally different value creation allows for new kinds of venture financing in form of ICOs attracting developers, technologists, early adopters and mainstream investors in that order.

On possible new business models:

We might see a paradigm shift from the “data economy” towards an “attention economy”. As soon as the infrastructure for self sovereign data ownership is in place and users get back the control over their data…think of being payed by the network for writing high quality stuff on reddit, medium or facebook… think of google with a transparent ranking algorithm fighting fake news and corruption.

Lange believe it will take time, since users don’t care about the backend technology, rather they care about the functionality. Still he believes the potential for major adoption is there:

Mainstream adoption is still pretty far ahead, maybe 5 years or more. People don’t care whether or not software is built on blockchain technologies, what counts is utility and price.

Some similar points to what Balaji S. Srinivasan wrote about recently, specifically in regards to looking at the bigger picture of the technology and temperament of timeframes.


“A 1000X improvement over the status quo”

Balaji S. Srinivasan, CEO of, published a list of 16 Thoughts on Tokens. He summarized:

The most important takehome is that tokens are not equity, but are more similar to paid API keys. Nevertheless, they may represent a >1000X improvement in the time-to-liquidity and a >100X improvement in the size of the buyer base relative to traditional means for US technology financing — like a Kickstarter on steroids. This in turn opens up the space for funding new kinds of projects previously off-limits to venture capital, including open source protocols and projects with fast 2X return potential.

And a few highlights:

Because token launches can occur in any country, the importance of coming to the United States in general or Silicon Valley / Wall Street in particular to raise financing will diminish. Silicon Valley will likely remain the world’s leading technology capital, but it will not be necessary to physically travel to the United States as it was for a previous generation of technologists.

Tokens will break down the barrier between professional investors and token buyers in the same way that the internet brought down the barrier between professional journalists and tweeters and bloggers.

After the early kinks are worked out, the token launch model will provide a technically feasible way for tech companies (and open source projects in general) to spread the wealth and align their userbase behind their success. This is a better-than-free business model, where users make money for being early adopters. Kik is the first example of this, but expect to see more.

He ends by acknowledging it’s early, saying a crash is likely, and that things are going to change quickly. It feels like many art starting to look at the bigger picture changes made possible by tokens beyond the ICO-craze, and how it change business models, fundraising, etc. and finally:

But the world has changed. Tokens represent a 1000X improvement over the status quo, and those don’t come around very often.