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Anatomy of the Token Market: Hard Cap Valuations, by Sandris Murins

Guest Post

As a tokenization strategist, I will share my insights on the anatomy of the token market as weekly posts. In my second piece, I would like to shed some light on a quick valuation framework for tokens at an initial coin offering stage.

READ PART 1: Anatomy of the Tokens Market: Supply and Demand Analysis, by Sandris Murins

In this week’s “Anatomy of the Token Market” series post you shall learn the following:

  1. If you are a startup, how to set a reasonable hard cap from the token market perspective?
  2. How the initial value of the token differs for different technologies?

The token market accumulates more information each day. This allows us to have a chance to develop some methods for evaluating ICO funding requests (or initial tokens values) set by startups. In this post, I will show you how to quickly calculate a reasonable hard cap for different ICO projects from a token market perspective.  

Method: Benchmarking a Reasonable Hard Cap

I’m proposing that a reasonable hard cap for ICO project should be equal to fair initial token value being sold in the token sale. It could be calculated in three steps:

  • Step 1. You can apply benchmarking method by estimating average market capitalization of similar tokens launched previously in the market.
  • Step 2. You adjust average market capitalization of similar projects to the ICO project that you are evaluating by multiplying the previous calculated estimate with the percentage of tokens being sold through the token sale.
  • Step 3. You calculate reasonable hard cap for ICO project by dividing adjusted average market capitalization of similar projects with the expected return of token-buyers who participate in the project token sale.

Therefore: Reasonable hard cap = average market cap of similar tokens *% of tokens in token sale / (1+expected return)

This number should give a very approximate, but a reasonable initial valuation of the token based on information accumulated in the token market. If the calculated number (reasonable initial token value) is significantly above hard cap of token sales set by a startup, then this could be a very lucrative token sale opportunity from the token buyer perspective as this token may be undervalued. If this number is significantly below the hard cap of token sales set by a startup, then the token value could be substantially overvalued. If both numbers are equal, then the initial token value is reasonably established.

Before demonstrating example on how to apply this perspective, I would like to stress, that this perspective is oversimplified as it assumes that there are similar projects and similar projects have similar token utilities, similar teams, etc. As these assumptions are more likely, than not, false, you always need to adjust the calculated reasonable initial token value by taking into account the project’s intrinsic values as well. This means that this framework is used for a quick and very approximate hard cap evaluation, however, for a more accurate initial token valuation you will need an in-depth analysis on team, utility, tech, and roadmap.

Reasonably set hard caps may vary

I will show you how to apply this approach to identify reasonable hard caps for tokens from different technologies in three steps:

  • Step 1. I calculated that the average market cap of one blockchain technology (ethereum, EOS, etc.) is $ 1 billion; the average market cap of one crypto exchange is  $ 290 million; the average protocol technology market cap is $ 152 million; average marketplace market cap is $ 75 million. I got these numbers by analyzing the whitepapers of 200 most valuable (by market cap on March 10 to March 20) tokens listed on and Tokens24.
  • Step 2. let’s assume that ICO projects use a token issuance where 50% of the tokens are sold through a token sale, so let’s adjust average market caps by multiplying them by 50%. So we get that adjusted average market cap for blockchain technology is $ 500 M, crypto exchange $ 145 M, protocol technology – $76 M,  and marketplace – $37,5 M.
  • Step 3 Let’s assume that investors would like 500% expected return on their investment and based on that let’s calculates reasonable hard cap levels by dividing adjusted average market caps with 6. I got to the following results that reasonable initial token value for blockchain tokens is $ 91M, for crypto exchanges is $ 24M,  for protocol tokens – $ 12M, but for marketplace tokens, it is $ 6M.

If you work for a startup, then you can apply this valuation approach for calculating what could be the reasonable funding request for your ICO project. From example, from the analysis above, we could assume that a rational  (inc. very well informed) token buyer who wants a 500% return on a token purchase on ICO projects with 50% distribution of tokens through token sales may not choose to buy tokens without a 40% discount from an ICO project with a $10M hard cap.

Based on ICO projects what I saw in the Year 2018, I can make the subjective conclusion that market is oversupplied with overvalued industry based marketplace token projects as their hard cap frequently exceeds $6M.


About the Author – Sandris Murins

I am the strategy director and co-founder of Iconiq Lab. We are a Frankfurt-based decentralized venture capital club that provides token buyers with access to a well-sourced token deal flow. We are issuing the ICNQ token on public sale which is live now. The ICNQ token is like the passport to pre-sales of well sourced and heavily vetted startup tokens. Check our website – to explore more.

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