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

• 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?

• 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

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

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

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

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

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

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

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

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

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

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

• 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

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

• 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