The digital asset landscape is a potentially attractive frontier for institutional investors to diversify their portfolios. As the ecosystem evolves, it is essential to appropriately define and value blockchains and tokens. Because the asset class is young, there are no congruent strategies across asset managers. However, this wide range of valuation techniques presents exceptional opportunities for alpha generation and is, we believe, what makes digital assets one of the most attractive investable asset classes.
Arca’s Valuing Digital Assets webinar series demystifies the digital asset landscape to highlight how institutional investors can apply traditional valuation methods to tokens and when unique approaches are necessary. Additionally, each webinar features a Q&A session allowing viewers to engage with the speakers and gain deeper insights. View the first installment, How to Value Crypto Assets, and register for the next session, How to Value DeFi Incentive Tokens in Bear Markets, which will explore DeFi token incentive models, their impact, challenges, and opportunities for improvement.
In the first installment, viewers learned how to apply conventional methodologies, namely debt and equity fundamental analysis, to this new asset class. With our decades of experience in traditional finance and extensive knowledge of digital assets, we help professional investors contextualize the ecosystem and understand the various blockchains and tokens. Further, the webinar highlighted how tried and true traditional valuation techniques outlined in Graham and Dodd’s Security Analysis and Frank Fabozzi’s The Handbook of Fixed Income Securities may provide suitable frameworks for valuing digital assets.
As digital assets have evolved into a nuanced landscape beyond Bitcoin, the ecosystem is no longer one homogenous market. Instead, various risk, reward, and value accrual characteristics exist within different pockets of the market. To analyze these variables, we compare digital assets to fixed income, considering the issuing body and the varying asset functionalities. This is a crucial aspect of valuation in traditional and digital assets; just as investors use specific considerations to value stocks in differing verticals, the distinct objectives of each token require unique valuation methods.
While many similarities exist between digital assets and traditional financial vehicles, digital assets have distinct properties. For example, pass-through tokens combine payments, rewards, and utility. This novel blend of properties requires an integrated assessment of token and project objectives for optimal valuation outcomes. In addition, traditional financial vehicles are subject to regulatory oversight and protections that many digital assets lack.
In our upcoming second installment to this valuation series, we will dive into valuation methods for the DeFi sector and the impacts of economic conditions on token incentive models. In the webinar, we will:
- Examine DeFi tokens: how they work, what they incentivize, and their sustainability
- Walk through dYdX use case: the impact of token incentives on business core metrics
- Explore ways to find fair value in fluid incentive tokens
View our Digital Asset Investing webinar to learn more about how we approach the ecosystem, develop a core fundamental valuation strategy, and consider price targets and models. To continue the discovery, register for the next webinar, How to Value DeFi Incentive Tokens in Bear Markets.
This post is commissioned by Arca and does not serve as a testimonial or endorsement by The Block. This post is for informational purposes only and should not be relied upon as a basis for investment, tax, legal or other advice. You should conduct your own research and consult independent counsel and advisors on the matters discussed within this post. Past performance of any asset is not indicative of future results.
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