Asset Tokens vs. Protocol Tokens

BEGINNERS & HELP
#1

Hey everyone,

I am a financial analyst and look at this whole crypto stuff from my perspective.

I was wondering about the valuation of tokens. I think there are several categories and I differentiate them in protocol tokens that are basically the fuel for their own network (like ETH, BTC, NEO as this is strongly related to GAS) and Asset Tokens that are just Assets like ERC20 that use a token function on other blockchains (like TenX, or almost all ERC20 tokens that will not be exchanged into network tokens).

When looking for high returns, we are actually looking at possible network effects (exponential growth). My thoughts about this topic is:

  • Protocol Tokens ofc enjoy network effects as they are networks by themselves. The value of BTC or ETH increases exponentially with its user base
  • Asset Tokens or any tokenized value (let it be a car or a burger voucher) generally do not offer a bigger value than their underlying asset or good that they represent. If you are not investing in a token of a company that is growing exponentially like an internet company, there is no exponential rise in value.

My conclusion is that it seldom makes sense to invest in ERC20 Tokens if you are looking for exponential returns in the long run. What do you think?

Why are ERC20 Tokens increasing so much in value if there is actually no underlying exponential growth? Where is my mistake?

1 Like
#2

I believe most are pure speculation, but just because there’s not a possibility of network exponential growth it doesn’t mean that the value of the tokens has no reason to grow, or that no one should buy it.

Each token has their own particular characteristics, and it’s really hard to fit all of them in your ‘tokenized value’ definition. While some are definitely that, you do have tokens that work as a currency in their own platform, which in turn runs on top of a main blockchain, but is a separate entity in some sense. You also have the tokens that act similarly to stocks, which have been know to give this types of return you are looking for.

In summary you really have to look at each particular case, I have yet to find a good generic model to assess the value of a token.

3 Likes
#3

For me it is this delicate distinction between opening a network and tokenizing a value. I know that there is no model that fits every case, but this is the best idea I came up with or found up to this date.

1 Like
#4

I feel like the perfect token would equate to its assets value perfectly. AKA there would be no benefit financially in having those tokens vs having the object itself. That being said, there is value in being able to perform trustless psuedo anonymous trades that out do that of traditional wire payments. So when the two exist side by side, I’d prefer to have the token over the asset itself because I know that the digital asset doesn’t age, doesn’t take up space, can cooperate with financial mechanisms for the next 10 or more years.

Evaluating token value today seems difficult but you can rest assured that if you manage to discover the next Ethereum or Bitcoin that it will have the best growth because tools like these build the scaffolding for all its tokens.

Help critique my response as I want to know if I have misconceptions! (Mistakes are worth making and resolving)