I’ve been working on a basic discounted cash flow model to provide a high level estimate of MKR’s value and wanted to share it with the community – both to receive feedback and improve the model, but also to provide a lens into valuation for newer and less experienced investors. Shoutout to @Sebventures for providing valuable feedback and advice.
Anyone who’s been in the crypto community for more than a few years understands the immense amount of sh!tcoins out there with questionable use-cases and poor/obfuscated tokenomics. As we know, MKR is different – the value proposition and use-case is clear, fundamentals continue to improve, and the tokenomics are strong.
In this model there are several key inputs which drive the ‘fair’ value of MKR, all quite subjective this early in Maker’s growth. The discount rate and interest spread (difference between the long term interest rate on risk weighted assets and the DSR) are the two most important inputs. For most venture capital investments, a discount rate between 30-70% is often used. Typically the earlier one is in the investment cycle, the higher the discount rate used. If Maker was a traditional company, the discount rate would be lower, but in crypto there are unique risks – smart contract, legal/regulatory, central to decentralization, etc. Therefore, a higher discount rate was chosen both in the short/medium term and for terminal value calculations.
Regarding the interest spread, the ~5.5% rates we enjoy today will likely decrease over time as discussed in Seb’s Crypto Banking 101 post Crypto Banking 101. A 2% rate was chosen to be conservative though rates could stay elevated in the near term. Other key inputs include: YoY growth, Net Margin, and P/E Multiple. I’d encourage anyone interested in the model to adjust the inputs and enter their own assumptions to see how that changes the present value.