NGMI Capital: Valuation of FLOAT and BANK through auction assumptions and models

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The market has not yet realized the value capture brought about by the possible destruction of Bank after each auction. The results of the first few auctions may wake up the market.

Original title: “NGMI Capital: Float-Bank, a fairy tale of a fair start, is the next generation of the Federal Reserve born here? 》
Written by: NGMI Capital Translation: Zhang Tianran

Introduction

Float is a new generation of algorithmic stablecoins. It does not bind a dollar, but links the price to the growth of Ethereum, but it is far less volatile than Ethereum. In a backtest with 2020 data, the price of FLoat has risen by more than 50% when ETH has risen by more than 500%. Bank is an equity token of this system, which represents the voting rights of the system. It will benefit from the expansion of the system and will also absorb the selling pressure of deflation. Float is its stable currency, which is currently in the creation stage.

Fair start

The fair launch of this system started at the end of January. Bank was distributed first. At that time, almost all other algorithmic stablecoins except Frax were much lower than the one dollar that should be anchored. The first phase of the whitelist was initially given to anyone who voted for Snapshot, and later expanded to people who participated in the governance of some other major agreements. Limit $30,000 per person to prevent big players from filling the issuance pool. A total of about 40,000 addresses met the requirements for the first phase of launch, and more than 3,000 addresses participated.

The team even forked Snapshot in order to allow multiple votes to vote, because Snapshot only supports single selection. The vote is to choose the shovel for bank digging in the second stage. At that time, the Bank turnout rate reached an astonishing 58%, which means that 58% of Bank holders participated in the vote. Surprisingly, YAM surpassed UNI and Badger, and joined YFI, SUSHI, ETH and WBTC to become the five new shovels in the second stage. YAM pioneered a fair start + algorithmic stable currency. Like YFI SUSHI, it is the largest fair issuance currency in the most classical community, although its market value is much smaller now. YAM’s victory in this voting is also the best interpretation of the fair start-up spirit and fully reflects the high quality of the Float startup community.

Good things can’t be hidden. Everyone likes such a fair and democratic way of launching new projects, but many new fans do not have the first stage of mining qualifications. At the end of the first stage and before the second stage where everyone can participate, the price of Bank soared from $800 to $1600 in just 2 hours. The chat groups and price charts looked spectacular that day. When the second phase was officially launched the next day, the highest TVL reached US$1.5 billion.

Team and community

This team has its own unique style. The four members each play a role in the Beatles. Their British accent was quite obvious at the community conference. From articles to community phone conferences and texts, to answering questions in the group, the team’s external communication is very clear and responsive. They have a grand blueprint for making Float a world currency, but they are also very down-to-earth in terms of implementation. They know the status of their opponents very well, and even wrote an article specifically to compare Float, Fei and Rai. Regarding the mistakes that Fei made during the release, they quickly learned and improved Float’s own release process. The team released their interactive white paper some time ago, and its interactive section shows the operation of the system under different potential conditions. This may be a pioneering work that no team has done before.

The team is also very cautious, insisting that the code audit must be completed before the casting ceremony. And there will be another audit. After another 6 weeks, we finally waited for the exciting moment.

An interesting observation is that the core Float WeChat group has about 330 people who claim to be wild Fed shareholders. But six weeks was too long. After the price fell by a quarter of the previous high, the number of group members fell to 294. There was less than one message a day in the Discord group. People seemed to have forgotten about this project until the Float minting time was confirmed.

The number of Twitter followers is 7,400, which is less than OHM’s 8,700, Reflexer’s 10,000, and Fei’s 24,000, but it is more than the previous generation of algorithmic stablecoins, such as ESD/DSD with only 3400, and Basis Cash only 6300.

mechanism

In fact, the white paper and Gitbook have clearly introduced and explained the entire system, so we will only briefly summarize and comment here.

Float Bank is a dual-token system. Float is a stable currency but not anchored to $1. Bank is an equity-like token of this system. It represents the voting rights of the system. It will benefit from system expansion and absorb deflation. Selling pressure. The issuance of the system relies on the fair distribution of banks to obtain the market fair value of a bank, and then relies on the fair distribution of banks to cast Floats equally, and finally relies on the market value of the Bank to support the mining demand required to cast more Floats .

The target price of Float is not $1, but is linked to the growth of Ethereum, and the volatility is greatly reduced. Even if Ethereum doubles in one day, the Float target price on the day will only increase by 0.2%. If the price continues, the Float price will gradually catch up with the 700% increase of ETH in the past six months, which only increases the Float target price by about 40%.

In general, 1 Float (the initial price is $1.618, to pay tribute to the golden ratio) is supported by nearly equal ETH. The ratio of the market value of ETH in the inventory (officially called Basket) to the market value of the floating float is called the basket ratio. The system will use the Dutch auction format to bring the mortgage ratio back to 1 (it can also be changed to a number lower than 1 in the future) .

There are four situations in total

Expansion : Float is higher than the anchor price, and the mortgage ratio is greater than or equal to 1

The agreement will issue more Floats for auction, hoping to bring Float back to the anchor price. The auction price will be paid with ETH+Bank. Among them, ETH is used for the anchor price, and Bank is used for the upper price. Bank will be destroyed afterwards. The mortgage ratio will fall, but it will remain above 1.

This may be the main situation in the next month. Because the team has added a limit of no more than 10% for each additional issuance, the price of Float will run above the anchor price for a long time, because the initial supply of Float is very limited, and the bank mining The reward is relatively high. Take a look at our model analysis after the casting ceremony.

Expansion : Float is higher than the anchor price, and the mortgage ratio is less than 1
At this time, the agreement will still issue additional Float but only accept ETH, hoping to increase the mortgage ratio back to 1. This will be a situation where Float demand is strong but the price of ETH falls.

Contraction : Float is lower than the anchor price, and the mortgage ratio is greater than 1
The agreement will use ETH to buy Float to bring Float back to the anchor price.

Contraction : Float is lower than the anchor price, and the mortgage ratio is less than 1
The agreement will use ETH and some additional banks to buy Float together and try to buy back 1. This is the only situation that has a dilutive effect on Bank holders.

Other key factors in some mechanisms

●The Dutch auction is a tried-and-tested form of fair pricing. Both Maker and Gnosis have been used for a long time. It settles quickly and is compatible with decentralized exchanges and flash loans, so that capital efficiency can be maximized. ●The expansion cycle can destroy a lot of banks. This makes Banks have significant additional value in addition to voting rights, just like Maker same

In general, we think that the mechanism of Float is very thoughtful, and it also takes into account most of the situations, and will at least achieve Frax-level stability. Given that partially mortgaged assets are unstable, this mechanism is even better. Linking the growth of the system with the growth of Ethereum (or other unstable assets) should also be a better choice than binding centralized stable assets. Readers can go to the interactive white paper to simulate it.

Casting ceremony

From May 9th to 15th, each Bank in a separate bank pool can mint 100 Floats at a price of $1.618. In order to encourage long-termism, if the bank pledged in the pool wants to be withdrawn, it must be locked for 8 days, and there is no profit for 8 days, and then it can be withdrawn.

At the current price, this means that every bank worth $700 can generate a float worth $161.8. But will this be the real price movement of this system? Probably not

Although the interactive white paper made a good data simulation for the long-term performance of the system, it did not touch on the casting ceremony and subsequent initial auctions. This is why we designed and released this model for everyone to play with. We will show the main parameters, assumptions, and related results for your pleasure.

Click this link to play this excel valuation model by yourself.

Optimistic situation

We set the main parameters of the optimistic situation as the Bank of $2000, the Float of $3, and the pledge ratio of 80% of the Bank in the separate bank of the Bank. We think that $2000 is possible, because the last time we fetched $1600. And this time the product went online, the price of Ethereum has risen by more than 80%. The price of Float will reach $3, which is much higher than the anchor price of $1.618 because the initial supply of Float is too small, and the high Float-eth and Float mining yields. We also believe that a pledge ratio of 80% is possible because 45% of the pledge is less than 2 days. If 80% are locked, the price of Bank may fluctuate greatly.

We believe that the market has not yet realized the value capture brought about by the possible destruction of Bank after each auction. The results of the first few auctions may wake up the market. But this is only our bold guess, and it cannot be reflected in a model. The model needs to set an initial price before the auction starts, so we set the price before the auction in the model to a relatively high level, and then see what happens to the system if these prices can last for a period of time. For example, how many banks are destroyed.

auction

After communicating with the team discord several times, the team told us that for the stability of the market, each auction will increase by up to 10%. The frequency of auctions will be reduced from once every 24 hours to once every 30 minutes, and the frequency will increase in four weeks. Gradually realized in the time.

We assume that each auction will use a full 10% additional issuance limit, but the price will be dynamically discounted. This dynamic discount will start from 3% and drop all the way to 0.2%, because the price of Float may be quite high at the beginning. Specifically, the price of Float will go like this, 3, 2.9, 2.81…1.623, 1.62, 1.618. The pledge ratio of Float-ETH’s pledge pool will gradually increase from 50% to 80% as Float gets closer to the anchor price.

We believe that the price of Float will evolve to this way because the supply of Float is very limited at the beginning, and the reward of Float-ETH will be high, high enough to offset the decline of Float, so some people will continue to choose to buy at such a high price. Float. On the other hand, we assume that the Bank still maintains the same market value when it is destroyed, but for the sake of simplification, the Bank generated after the minting ceremony is ignored. We hope to use Bank prices and other system-related data to simulate some situations of the entire system after the Bank is destroyed.

But in any case, we cannot predict the volatility of the market, so this is our best attempt.

NGMI Capital: Valuation of FLOAT and BANK through auction assumptions and models

NGMI Capital: Valuation of FLOAT and BANK through auction assumptions and models

The results are also quite shocking. After 40 such auctions, the price of Float will drop from $3 to $1.6, the market value of Float will grow to $362 million, and the circulation of Float will reach 226 million. What’s more interesting is that In these 40 auctions, 30 times will destroy more than 750,000 U.S. dollars, destroying a total of 32 million U.S. dollars of Bank, or 17.5% of the Bank in circulation, and raising the Bank price to $2425.

Ordinary situation

As a general case, assume that Bank’s price before the first auction is $1200, and the initial price of Float is $2.5. The result of this model is that the market value of Bank is 101 million U.S. dollars, 8.5% of Bank is destroyed, the price of $Bank reaches $1319, and the market value of Float is 125 million U.S. dollars.

In fact, the model cannot make accurate predictions, so the conclusion is that we may see a $2500 Bank with a market value of US$200 million, 20% of the circulating Bank has been destroyed, and a Float with a market value of more than US$300 million. Even so, compared with the $700 million Tribe and the $1 billion Fei, even the most optimistic Float hypothesis seems to be underestimated.

Valuation comparison with other decentralized stablecoins

NGMI Capital: Valuation of FLOAT and BANK through auction assumptions and models

NGMI Capital: Valuation of FLOAT and BANK through auction assumptions and models

According to the above table, we can see that the market value of stablecoin-like equity tokens and issued stablecoins is roughly maintained at one-to-one, with a lower limit of 0.5 and an upper limit of 3. If we don’t look at Luna, it’s basically 0.5. In the range of -1, we believe that Bank will have some premium, which may be closer to or even more than 1. The reasons are as follows:

  1. Bank was launched fairly and is responsible for community governance
  2. The initial Float circulation is very limited, it may take a while to reach the full blood effect, refer to the early ratio of Maker and Dai
  3. The bank in circulation is about half of the bank’s entire supply, while Fxs only has about 10% of the circulating disk
  4. The launch of Fei has exhausted the short-term issuance potential. Even if half of Fei has been withdrawn after FIP-2, Fei’s issuance volume still far exceeds its current data.

Our short-term and medium-term optimistic assumptions for the Float-Bank system are only less than half of the Tribe-Fei system. The general assumption is similar to the current Frax and BAS-BAC data during peak periods. In the long run, the project ceiling of this track will be higher than that of the Tribe-Fei system. The existing market value of Maker and Luna, these two industry giants have fully demonstrated the potential of the decentralized stable currency industry.

If Float-Bank really wants commercial success, it really needs to speed up its commercial promotion process. We are very happy that the team can tell us that they have prepared many cooperation and usage scenarios, and will announce them when appropriate .

Source link: nevergonnamakeit.medium.com