【Observation】Check the valuation of exchange platform tokens to see if your token is truly worth its "price"!

Many exchanges issue their own platform tokens, and most incorporate a burning mechanism into the token economy. Leveraging the burning mechanism and stable cash flow characteristics, the cryptocurrency research platform Token Insight utilized valuation models from traditional finance to evaluate the "fair value" of various exchange platform tokens, only to unexpectedly discover that the platform token of a mainstream exchange is currently overvalued by the market.

Valuation of Platform Tokens

Valuing cryptocurrencies has always been a challenging task. Previously, a research article from the media outlet Bankless on the valuation of DeFi tokens was shared.

The reason DeFi tokens can apply traditional financial valuation models is that these DeFi protocols have transparent cash flows in the transaction process, and most DeFi projects allow token holders to share a portion of the protocol's generated revenue, whether through governance participation, becoming liquidity providers, or simply holding tokens, which gives the tokens an economic right to share in the protocol's revenue. Therefore, using the price-to-earnings ratio is somewhat feasible.

There is another type of token in the market that can analyze cash flows, and token holders can also passively earn income through some form, which is the exchange's "platform token." To better quantify the potential value of tokens, the data analysis company Token Insight used various traditional financial valuation models in its latestvaluation report to estimate the implied value of exchange platform tokens. The company stated in the article:

"Many cryptocurrency exchanges have issued their own platform tokens, and platform tokens, as a unique type of digital asset, can be valued due to their characteristic of 'stable cash flow,' seeking the 'Fair Price' of platform tokens."

Specifically, Token Insight used nine indicators including discounted cash flow, price-to-earnings ratio, price-to-earnings growth ratio, annualized burn rate, token burn multiplier, platform revenue, on-chain data of platform tokens, implied enterprise value, and implied enterprise multiplier as reference basis to provide a 'Fair Price' for exchange platform tokens.

A-Grade Exchanges

According to Token Insight's analysis, both Binance and Huobi are rated as A-grade exchanges, and the platform tokens of these two exchanges are currently "undervalued" in the market conditions. Token Insight stated in the report:

"BNB's price-to-earnings ratio, token burn multiplier, and implied enterprise multiplier are much lower than the average level of growth-type platform tokens, indicating that BNB's market price is mismatched, leading to the undervaluation of BNB's fair value."

As the leading spot exchange, Binance has also steadily grown its competitiveness in the derivatives trading market this year. Token Insight stated that a market price around $21.28 for BNB is a relatively reasonable prediction if Binance can maintain its current competitiveness. However, if Binance can further increase its market share in the derivatives market, the fair value is expected to rise to $22.48.

Another A-grade exchange, Huobi's platform token HT, is a major investment target for Chinese investors. The platform token is also considered undervalued, with the report stating:

"Comparative analysis shows that HT's price-to-earnings ratio and implied enterprise multiplier are lower than the average level of value-type platform tokens, and the token burn multiplier is slightly higher than the average level, reflecting HT's undervaluation under current market conditions."

Huobi's futures contract trading is significant globally, especially in China, with a considerable market share. According to data platform Skew'sdata, the exchange's contract trading volume ranks second in the market. Moreover, in 2020, Huobi changed its platform token repurchase and burn cycle from quarterly to monthly, increased transparency in the HT repurchase and burn program, and maintained close communication with the People's Bank of China and the Chinese government, boosting confidence among HT supporters.

B-Grade Exchanges

In Token Insight's analysis report, OKEx and FTX were rated BBB and B respectively, but these two exchanges still have significant market recognition and trading volume shares. The platform tokens of these two exchanges are also undervalued in the market, according to the analysis:

"OKB's token burn multiplier and implied enterprise multiplier are below the industry average, indicating OKB's undervaluation. Comparative analysis shows that when compared to the average level and median of growth-type platform tokens, OKB's value is underestimated."

The most significant news for OKEx this year was the exchange's announcement to burn 700 million unissued OKB tokens, a strategy indicating that OKB's burn will come solely from repurchases on the secondary market, providing strong support for OKB's long-term price increase. Since the announcement, the market has experienced over a month of adjustment, with OKB's secondary market price showing a stable upward trend after intense fluctuations. Token Insight believes that OKB's fair price is approximately $5.67.

Another exchange, FTX, rose as a rising star through derivative and contract trading, offering various play modes such as platform token indices, altcoin indices, MOVE contracts, in addition to perpetual and futures contract trading. Regarding token valuation, Token Insight stated:

"Comparative analysis shows that when tested against the average level of growth-type platform tokens, FTT is currently undervalued. The market believes that FTX's platform will experience significant growth in the near future, reflected in the premium valuation of the price-to-earnings ratio. In other words, FTT holders will only sell after FTT generates a premium in the secondary market, reflecting the overall market sentiment towards FTX's exchange positively."

Most of FTX's growth comes from a solid foundation of exchange platforms and recognition of innovative products that can meet hedging, investment, and speculative needs in different fields. The analysis results indicate that FTX's platform token FTT has a fair value of approximately $3.74.

The Sole Overvalued Platform Token

Lastly, Bitfinex, rated as a B-grade exchange, is the oldest exchange, and its ambiguous relationship with Tether makes it a "Too big to fail" entity in the market. Although Bitfinex is an exchange established in 2012, it only launched its platform token LEO last year. LEO is the only platform token analyzed by Token Insight that is overvalued.

"LEO's key indicators in the comparative analysis framework are far higher than the average values of growth-type platform tokens, indicating that LEO is overvalued. The price-to-earnings ratio, token burn multiplier, market value-to-earnings ratio, and implied enterprise multiplier are all higher than the average level of growth-type platform tokens, once again proving that LEO is overvalued under current market conditions."

Conservatively, Token Insight expects a price of $0.774 to better align with LEO's value in the current market.