Coinbase listing effect: how to value the exchange platform currency as the focus of the market?

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Coinbase’s direct listing has been valued at hundreds of billions of dollars, and the cryptocurrency market is also repricing the exchange platform currency.

Written by: James Chiu
Source: BlockTempo

From the traditional strategic distinction, the exchange will have two routes: one is the “traditional financial compliance” route, which represents the exchanges such as Coinbase and Kraken. This type of exchange will eventually have a public listing (IPO) as the ultimate goal; the other is an “innovative expansion” route, like Binance, OKEx, Huobi, and FTX, which was only created in 2019.

After Coinbase announced that it would go public, its valuation has gone from 70 billion U.S. dollars to 100 billion U.S. dollars now. For exchanges like this type of traditional compliant listing, valuation is the job of investment banks, which creates another problem:

How to value other exchanges and how to value the platform currency?

Market reaction to Coinbase listing

After the news that Coinbase was valued at more than 70 billion U.S. dollars, the four major platform currencies have unsurprisingly increased several times.

The following are the recent gains of the four major platform currencies:

January increase Increase in February March increase total
BNB 18.6% 374% 43.8% 436%
FTT 92% 134% 54% 310%
OKB -24.6% 163% 11% 150%
HT 57.9% 92% 22.5% 172%

According to statistics, BNB has increased by 436% in three months, making it the best-performing one of the four major platform coins; while FTT has also increased by 310%, which is the second best performer. In comparison, OKB and HT have increased by 150% and 172 respectively. %, a lot behind.

Image source: TradingView

“Repurchase and burn volume” valuation

Since the four major exchanges do not provide financial reports, we cannot accurately value the platform currency, but we may be able to roughly estimate the value of the platform currency burned (profit) by benchmarking Coinbase.

According to information submitted by Coinbase to the U.S. Securities and Exchange Commission (SEC), Coinbase’s annual revenue in 2020 will exceed $1.2 billion.

Under the assumption of Binance’s old repurchase statement (20% of net profit), Larry Cermak, the research director of foreign media “The Block”, pushed back from the value of the platform currency burned in 2020 at 346 million U.S. dollars, and Binance’s 2020 net profit It may be as high as $1.73 billion.

Destruction is to permanently delete a part of the tokens from the market circulation. Assuming that the amount of tokens locked up has been fully released, destruction means that the circulation will always decrease, which will produce “deflation”.

Estimating revenue from the amount of destruction may be a feasible way.

According to the data, Binance will burn a total of US$346 million in BNB in ​​2020; OKEx will burn a total of US$79.5 million in OKB in 2020; Huobi will burn a total of US$200 million in HT in 2020; and the FTX exchange will burn a total of US$42 million in FTT in 2020.

According to Binance’s old version of instructions, it will repurchase tokens in the market with a net profit of 20% (this description has been removed in the new version).

If the same standard is applied to other exchanges, then the net profit of the four major exchanges in 2020 should be:

Binance FTX OKEx HT
Destroy value 346 million 42 million 79 million 200000000
Estimated profit 1.7 billion 210 million 390 million 1000000000
Estimated market value 100 billion 12.3 billion 22.9 billion 58.8 billion
Platform currency price 418 48.7 19.2 17.6
Platform currency market value 64 billion 4.62 billion 1.14 billion 3.21 billion
Market value gap 64% 37% 4.9% 5.4%

Note: The price of the platform currency is the closing price on April 8; the market value data is the CoinMarketCap data on April 9.

Simply push back and find that if Coinbase’s 1.2 billion net profit makes it a valuation of 100 billion U.S. dollars, then Binance’s valuation should even exceed 100 billion U.S. dollars (assuming 100 billion U.S. dollars). Then the question is, why The total value of platform currency obtained from Binance transactions is only 64 billion US dollars?

In fact, it’s not just Binance. According to this calculation method, OKEx’s market value should be 22.9 billion and Huobi 58.8 billion, but what’s the actual situation?

In contrast, the market value of BNB is 64% of the estimated market value, and FTT is 37%, which is much higher than OKB and HT.

The total market value of OKEx platform currency OKB is US$1.1 billion, and the market value of Huobi platform currency HT is only US$3.21 billion. Compared with Binance, the actual market value of OKEx platform currency is only 4.9% of the estimated market value, and Huobi platform currency is 5.4%.

The main reasons why OKEx and Huobi lag far behind Binance and FTX may be: “users are too concentrated” and “regulatory uncertainty”.

Although OKEx and Huobi are registered offshore, they are one of the most important cryptocurrency exchanges in China, and most of their users are Chinese users.

According to Similarweb data, 20.47% of the traffic on the OKEx exchange website comes from China, followed by Russia and Turkey; 29.33% of the traffic on the Huobi website comes from China, and the second and third are Ukraine and Vietnam respectively. .

The over-concentration of users in a single market is not a single problem. This also makes the two exchanges deeply affected by Chinese regulation. As everyone knows, the Chinese government has strict supervision in this field, and the regulations are relatively opaque, which makes the volatility risk of the platform currency even greater.

For example, last year OKEx founder Xu Mingxing was taken away by the police without warning to assist in the investigation. Interestingly, Xu Mingxing was the “only” private key manager, so OKEx shut down the withdrawal service, so OKB fell in two days 31%.

Generally speaking, although the two exchanges are actively facing the global market, due to the regulatory uncertainty caused by the concentration of users, it is unlikely that OKEx and Huobi will be listed in the United States in compliance with Coinbase to raise funds; also because of regulatory The problem is that the launch speed of crypto derivatives on the two exchanges lags behind Binance and FTX. This is reflected in the market value of the platform currency, which is only 4.9% and 5.4% of the estimated market value.

Binance also needs to face regulation

Not only OKEx and Huobi Exchange, but Binance is also facing regulatory issues, but the target is changed to a US regulatory agency.

After Binance’s rapid growth in 2017 and 2018, it began to worry about the diversion problem and avoid being “concerned” by the regulators of various countries. Therefore, in 2019, Binance and US partner BAM Trading Service established Binance US, and at the same time refused to serve US users anymore.

It shows that Binance in 2019 has already begun to face regulation.

Last (March), “Bloomberg” cited sources familiar with the matter and pointed out that Binance is being investigated by the US Commodity Futures Commission (CFTF). It is an unauthorized situation that provides derivatives transactions for US users. Cannot avoid follow-up accountability.

Backward advantages of FTX

The FTX exchange was established in May 2019, at which time Binance was already in the process of establishing Binance US. The advantage of backwardness allowed FTX to introduce stricter compliance procedures from the first day of operation. According to FTX’s KYC regulations, users must provide their legal name, passport or identity certificate of the governing government when registering, and registration is not possible in jurisdictions prohibited.

In this way, FTX solves the current cause of concern for Binance by the US CFTC: providing services to US users.

Coinbase listing effect: how to value the exchange platform currency as the focus of the market?Image source: FTX Exchange

FTX’s innovation is more like Binance in 2017. It actively creates more new products and provides them to users in the way of “rural surrounding the city”, just like the “Move contract” that predicts price fluctuations, or It is a “prediction contract” launched based on current events, such as the Trump contract and the Olympic 2021 prediction contract.

In addition to crypto derivatives, FTX has also brought traditional financial thinking into the crypto market, creating “diversified commodities”, including equity tokens and Pre-IPO contracts. According to FTX founder Sam-Bankman-Fried, the reason for the launch of such products is that the market for these products is larger than expected, and traditional investors in the non-crypto sector will also be attracted by it.

The market for these products is larger than everyone thinks. In addition to FTX users who want to trade, traditional investors in the non-crypto sector will also be attracted by them; more importantly, no one in the market provides this service, we are the only one. One.

Compared with the three major exchanges, FTX’s recently launched products are not limited to encrypted derivatives. Diversified products have gradually weakened the boundary between traditional finance and encrypted finance. This is related to the founder’s background in Wall Street Quantitative Fund.

Not only product thinking, FTX also brings the “transaction thinking” of traditional finance. The sub-account system makes it easier for users to control capital risks. In October last year, a “spot leverage service” was launched, allowing users to pledge spot (cryptocurrency) and borrow other assets, plus the original “hybrid margin system”, allowing a single sub-account The capital efficiency of the company has been maximized.

On the other hand, the appetite for traditional investors or traders has increased the demand for funds. In this regard, the P2P lending service also provided by FTX provides users who only need stable income with extremely low risk “passive income”. “.

CZ, the founder of Binance, has stated that it has no plans to go public, but as the cryptocurrency goes mainstream, the scale of Binance is not comparable to 2017. “Sustaining stability” is a relatively smart choice, but this has also caused Binance to lose its original Advantage: product iteration speed.

Compared to Binance, FTX is much like technology stocks or growth stocks, with fast product iterations. Although the advantage of latecomers allows it to better understand regulatory trends and formulate stricter compliance procedures.

And this advantage is reflected in the growth rate of transaction volume.

Both transaction volume and burn volume surpass Binance

According to CoinGecko data, the FTX exchange’s 24-hour contract holdings are the world’s third largest, reaching 5.2 billion U.S. dollars; at the same time, Binance’s 24-hour holdings are 9.14 billion U.S. dollars.

It is worth noting that the trading volume of Binance Exchange is the world’s largest, but in the past year, FTX’s trading growth has exceeded that of Binance.

In April last year, the daily trading volume of crypto derivatives on the FTX exchange was US$550 million. At the peak of this year, the daily trading volume of FTX reached US$17.6 billion, with an annual growth rate of 3,200%; compared to the same period, Binance’s growth The rate is 2,800%.

Coinbase listing effect: how to value the exchange platform currency as the focus of the market?Image source: CoinGecko

The rapid growth of FTX is also reflected in the “number of platform coins burned”.

The FTT burn volume of Q4 on FTX Exchange in 2020 increased by 257% compared with Q1, from 2.8 million USD to 10.02 million USD in Q4. Binance’s BNB burn volume increased from US$52.34 million in Q1 to US$165 million in Q4, and the burn volume growth increased by 210%; Huobi’s HT burn volume increased by 45%, and OKEx increased by 26%. Large exchanges have the least increase.

Coinbase listing effect: how to value the exchange platform currency as the focus of the market?The burn volume of the four major platform coins Q1 to Q2 “percentage”

Coinbase listing effect: how to value the exchange platform currency as the focus of the market?FTT weekly price change and total burn

Is it possible for FTX to go public?

Currently, in addition to the Coinbase exchange, Bakkt, the “first compliant” crypto exchange for physical delivery, will also merge with the SPAC company VPC Impact Acquisition Holdings to publicly list; a spokesperson for the old exchange Kraken also confirmed that it would consider Directly listed in 2022.

Bakkt is expected to be listed on the New York Stock Exchange (NYSE) in Q2 this year, with an estimated market value of 2.1 billion U.S. dollars, while Kraken is valued at more than 20 billion U.S. dollars.

Although Sam Bankman-Fried (SBF) has never said that listing is a goal, it is hard to imagine that he was born on Wall Street and did not consider listing. In theory, it is still too early to talk about public listing at this stage, but it does see that FTX is making a strong move towards the public eye.

At the end of last month, under the lead of Miami-Dade County Mayor Daniella Levine Cava, FTX signed a contract with the NBA Heat for US$135 million, of which US$90 million was handed over to the local government for administration. In addition, FTX will pay the Heat every year US$2 million.

On April 7, the Heat wrote in the announcement that starting from the 2021-2022 season, the Heat’s stadium will be officially renamed FTX Arena (FTX Arena). The Heat became the official exclusive crypto exchange partner of FTX. In addition to appearing at home, they will also assist the Heat in holding cryptocurrency competitions or other cryptocurrency promotion activities.

Bitcoin has entered Wall Street, and the popularity of NBA Top Shot implies that the public is getting to know cryptocurrency, and the Heat attract 2 million visitors every year. Reaching such an agreement is not only one of the key elements of FTX expansion, but also Symbol of entering the mainstream.

Coinbase listing effect: how to value the exchange platform currency as the focus of the market?Image source: Boardroom

Generally speaking, Binance has entered a period of stability, and FTX is in a stage of rapid expansion. Binance is now a leader in the industry, and every move has attracted the attention of the market or regulators; in other words, regulatory issues must be considered before launching products or services. In addition, Binance is already a thousand-person company, which also means that innovation may slow down.

In contrast, FTX is in a stage of rapid expansion and is more like a growth stock. On the one hand, it creates new types of encrypted derivatives in accordance with the needs of the community, and at the same time introduces derivatives of traditional financial thinking to attract traditional investors; on the other hand, it also introduces Wall Street’s trading thinking, “spot leveraged trading” and “hybrid margin system.” To strengthen risk control and capital efficiency.

Finally, the latecomer advantage allows them to understand the regulatory risks. Coupled with the traditional Wall Street background, and the beginning of dealing with the government and the general public, it is not difficult to imagine the possibility of FTX’s subsequent public listing as its goal.