Assessing the relative economic impact of public blockchains

Transcript

1. Assessing the relative economic
   impact of public blockchains
   HBS Blockchain and Crypto Club
   The Path Forward
   Nic Carter
   

   View Slide

2. • Developers: to receive market feedback on decisions
   • Builders: to determine which blockchain/protocol to build on
   • Users: to find out which network is the most vibrant
   • VCs: to calibrate attention & help founders avoid protocol risk
   • Asset managers: to build baskets/weighted financial products
   Why bother?
   

   View Slide

3. • Huge incentives to skew the data and advertise your chain
   • Blockchains are inherently hard to read
   • Practitioner – academic gap
   Why is it hard?
   "When a measure becomes a target, it ceases to be a good measure.”
   – Charles Goodhart
   

   View Slide

4. Problems with the “dominance index”
   • Doesn’t capture actual returns – use a real
   index!
   • Compares heterogeneous assets:
   currencies, tokenized equity, tokenized USD
   • Relies on “market capitalization”
   • Does the appearance of a new ICO or
   token actually lessen the significance
   of a major public blockchain?
   CoinMarketCap
   

   View Slide

5. Issues with “market capitalization” for cryptoassets
   • What counts as supply?
   • Forks inherit the supply of
   the parent but often have
   very little uptake
   • Market capitalization can
   mask very low float &
   liquidity
   Coinmetrics.io
   

   View Slide

6. More issues with with “market capitalization”
   These coins haven’t
   moved since 2011 and
   are presumed lost or
   out of circulation – do
   you count them or not?
   Coinmetrics.io
   

   View Slide

7. Variable issuance/dilution rates
   Bitcoin
   Ethereum
   Stellar
   Ripple
   Monero
   20.98 m
   147 m
   142 b
   100 b
   22.5 m
   Asset 2050 expected supply
   n/a
   72 m
   100 b
   100 b
   n/a
   Units at inception
   Defined at inception
   Being formalized
   Ad hoc
   Formalized 2017
   Defined at inception
   Supply schedule
   17.5 m
   104 m
   19.1 b
   41 b
   16.7 m
   Circ. supply
   21 m
   Uncapped
   Uncapped
   100 b
   Uncapped
   Ultimate supply
   Litecoin 83.9 m n/a Defined at inception
   60 m 84 m
   No standard supply models means that consistent comparisons are nigh impossible
   

   View Slide

8. Alternative measures: Transaction count
   BTC ETH EOS ADA BCH Tron
   Coinmetrics.io
   • EOS and Tron dominate –
   but at the cost of
   centralized validation
   • 0-fee chains are trivial to
   game and create illusory
   economic activity
   • Not an ideal comparative
   measure
   

   View Slide

9. Alternative measures: On-chain transaction value
   BTC ETH EOS ADA BCH Tron
   • Measures the usage of the
   blockchain for final
   settlement
   • Transaction value is harder
   & costlier to fake
   • Adjustments are made to
   account for non-economic
   activity
   Coinmetrics.io
   

   View Slide

10. Alternative measures: On-chain transaction value
    • Sample covers the
    last 30 days worth
    of transactions
    • Weighting by txn
    value would
    underweight XRP,
    overweight BCH &
    Tether
    ** Stellar data covers XLM transfers only
    * XRP data covers all Ledger volume, xrpcharts.com
    Coinmetrics.io
    

    View Slide

11. Alternative measures: ThermoCap
    • ThermoCap, or accumulated security
    spend, measures the accumulated
    economic work present in a blockchain
    • Assuming that miners mine at near
    marginal cost, miner revenue is a proxy
    for miner expenditures
    • Since miners are committed sellers of
    their new coins, miner expenditures
    roughly equal new investment
    • ThermoCap is a proxy for net inflows
    Coinmetrics.io
    Bitcoin’s Market Cap is $69b on rough net inflows of $11.2b
    

    View Slide

12. Alternative measures: ThermoCap
    • ThermoCap gives
    similar results to
    market cap for BTC
    Dominance
    • The measure only
    covers Proof-of-
    Work chains
    Coinmetrics.io
    

    View Slide

13. Alternative measures: Realized Cap
    Coinmetrics.io
    Realized cap:
    • Aggregate value of coins priced by their value
    when they last moved
    • Roughly measures average cost basis for holders
    Ethereum
    Bitcoin
    

    View Slide

14. • Can be interpreted as
    platform revenues
    • How much are users
    willing to pay to transact
    on this blockchain?
    • Ethereum and Bitcoin
    dominate in fees, other
    chains are negligible
    • Some blockchains like
    EOS pay for security
    with inflation, not fees
    Alternative measures: Aggregate fees paid
    On-chain fees paid in the last 30 days
    

    View Slide

15. Alternative measures: Addresses with a meaningful balance
    • Addresses with a meaningful balance measures on-chain ownership dispersion
    • Bitcoin’s forks tend to re-concentrate ownership
    Coinmetrics.io
    

    View Slide

16. • No silver bullet!
    • To calibrate relative economic significance, a pattern of evidence must be
    built
    • No single metric captures all relevant information
    • Blockchain analysis is adversarial
    • The moment you define a desirable metric, someone will try to spoof it
    • Endless game of cat and mouse
    • Take a holistic approach
    • Public blockchains are mini economies, treat them as such
    Takeaways
    

    View Slide