Telegram; a sleeping giant awakens

The Telegram Open Network (TON), is the most eagerly anticipated Mainnet launch in 2019 - and not without reason. TON has conjured up the 2nd largest fundraising effort in crypto, second only to that of EOS, and promises to launch a 5th generation blockchain that introduces its native asset, the Gram, as a payments tool to approximately 250 million active users of the Telegram Messenger.

But not all appears to be rosy over at Telegram HQ. The project is late in its roadmap by more than one year, and has only recently released a public Testnet, with all too many variables being currently classified under “unknown”. TON is faced with a dire dilemma; either deliver a working Mainnet by the 31st of October, or return capital to investors.

The small ecosystem around TON is currently seeing a flurry of activity as the deadline approaches fast, with mystery abound as the core developer team continues to keep a very low profile. Will the network launch in time? Will it be sufficiently decentralized? Will it attract the necessary developer interest to populate the network with applications?

In this report, I provide answers to above questions - and many more, in what is possibly the most comprehensive piece of research on all-things TON.

A commentary on Burniske's "cryptocommodities vs cryptoassets"

Chris Burniske recently published a blog post titled "Value Capture & Quantification: Cryptocapital vs Cryptocommodities" as an attempt to extending and amending his popularized framework of valuing cryptoassets (MV=PQ) - which you can access directly here. In today's edition I'll provide a summary of the key propositions.

The extension of the thesis, introduces an important distinction of all cryptoassets in two main buckets; cryptocommodities - non-productive digital assets (e.g. Bitcoin) and cryptocapital - productive (stake based) digital assets (e.g. Cosmos ATOMs). The following table provides a conceptual backdrop for the two clusters, borrowed and adapted from Robert Greer's (1997) framework of defining different types of assets.

Burniske  asserts that one's best bet in valuing cryptocapital, by merit of its potential for productively generating returns, is a customized DCF, while for non-productive cryptocommodities, the best approach is probably still some rendition of the MV=PQ equation (e.g. NVT, MVRV).

Getting more specific into what constitutes cryptocapital, Burniske offers a loose definition as "any asset that is staked, bonded, or otherwise committed in orderto get a claim on value flows. "Given that within the proposed framework no cryptoasset is of a purely singular nature (CA+CT/A), it is implied that some part of its value might be calculated via a DCF and some other via NVT - though it is further implied that the consumable part might often be negligible, given the supply side insulation that many of these assets are subjected to. What this means is that these assets are used by the supply side to secure the network, and might never be used as demand side instruments.

When considering cryptocommodities, things are presented in a more straightforward fashion - as this strand of thinking has been around for a little longer, and iterations exist since Burniske first proposed the model in 2016. Here's an example of an attempt at valuing cryptocapital from HASH CIB btw, where CUV - current  utility value = PQ/V

SoV type assets are presented as an add-on property to cryptocommodities, that according to Burniske make the asset display the unique property of perfect hardness. According to the author, few commodities make the leap into being considered reliable SoVs and for the cryptocommodities that don’t achieve the financial premium associated with SoV assets, their value capture prospects are grim. Here's how this "superclass" is characterised in the whitepaper;

A couple more interesting assertions being made in the paper are that:

• commodities are typically thought of as having a floor at their marginal cost of production - and Bitcoin seems to so far exhibit similar behaviour (miner's PnL).

• in a digital world, there is no natural consumption/destruction of the commodity - which is where the artificial constriction of supply through forced burning and extreme scarcity becomes vital (bye bye GRIN).

• most physical commodities have ​marginal costs of production that fall​ as the systems cales in its ability to extract it - in crypto it's the opposite.

• assets that have to be somehow put to work to earn residual income, are distinctly different than assets on which passive income is earned, and therefore are more difficult to define as securities.

But perhaps the most valuable takeaway of all is the following:

It is becoming increasingly clear that for a token economy to attract value, there has to be some form of stake and/or work involved - the clearer the implication, in fact, the better - as the closer we get to repeatable business/network models, the closer we get to the promised land.