A model to determine the theoretical value/price of the DENT token
A model to determine the theoretical Dent Token valuation
Before using this model, let me first explain how I see the DENT token.
The Dent token has 2 main features:
- It’s the required “payment method” to buy, sell, or trade the products inside the Dent Apps and on DENT Exchange. Or in other words the required cryptoCURRENCY.
- By depositing Dent into the AB Vault (Afterburner Loyalty Program), you can get benefits (as lower trading fees, free international, voice minutes, higher daily rewards). For this feature, you can see the Dent token as a crypto UTILITY token.
But for both features, the DENT token value (or DENT token price) as for any currency is determined by the “purchase power” of the token. Or in other words:
What can you buy or will you get for your DENT?
And what is the equivalent of that value in USD (or any other fiat currency)?
Below, I’ll use a model, but for some of you it’s too technical, just skip to the “What you should remember” section.
As for any other “fiat” currency, there is this economic value model…
MV = PT (Quantity Theory of Money)
M = Money Supply
V = Velocity of Money
P = Average Price of Goods
T = Index of Expenditures
This model can be used for cryptocurrencies/tokens:
MC (Market Cap) = T/V
M = Total number of tokens in circulation
V = Token Velocity
C = Price per token
T = Transaction Volume
And of course, we want to make this model usable for the Dent token.
But the current price of the DENT token is purely based upon “speculation” about the future progress of DENT Wireless…
So, let’s add another component to this formula, and call this the X-factor, the speculation factor, the multiplier that investors are willing to pay as they expect future growth and higher usage of the token.
We know the total number of DENT tokens (M=100 Billion), we know the daily transaction volume (let’s assume T=100 million Dent a day), and we know the current price (C).
(Note: in accordance to the formula, I should use the Circulation Supply (81 Billion), but I prefer to use the Total Maximum Supply of 100 Billion as I expect DENT Wireless will release all tokens into circulation within the next 2 years)
So, let’s assume the Token velocity is 1 day. Now, we can calculate the implied X factor by using this formula (and we even don’t have to enter the real value for C).
MC = X*T/V
100B*C = X*100M*C/1 (assuming daily transaction volume is 100M Dent)
Hence X = 1,000
Or to say it in other words…
If you have all the DENT (100B), and you’ll use 100M Dents a day to buy all available packages/products that day, it takes you 1000 days to spend all your DENT. In the end, you are willing to wait 1,000 days to get paid a value of 100 Billion times C dollar.
Note: this implied X-factor of 1,000 is calculated based upon current daily transaction volume, and assumed token velocity of 1. Of course, the daily transaction volume and token velocity will change as DENT Wireless develops and grows. But also the investors expectations will change over time, such that the X-factor will change over time.
Anyways, maybe this is all too technical.
What you should remember:
- The theoretical DENT token price is based upon the purchase power of the token.
- The theoretical DENT token price is based upon the number of tokens in circulation. The more in circulation, the lower the price (also called inflation).
- The theoretical DENT token price will increase if the (daily) transaction volume goes up.
- The theoretical DENT token price will decrease if the velocity increases. Or to say it in other words… if a user buys uses his dollars to buy the exact number of DENT he needs for a package (no friction), and the receiver immediately sells these DENT for dollars, the velocity is super high, and this hurts the DENT token price as DENT isn’t stored and there is less friction.
- The more DENT is stored (e.g. deposited in the AB Vault, kept for trading opportunities, invested for the long term, purchase friction), the lower the supply, the higher the price.
- The price of the DENT token is based upon supply and demand on exchanges. To get a fair price, the exchange needs enough liquidity and market participants (i.e. enough buyers and sellers without domination by “big holders”). But speculation (X-factor) about future growth and token usage, is a major factor that determines the actual price, and that’s why actual prices differ from theoretical values. And of course, as any cryptocurrency or token, prices do fluctuate in accordance with market sentiment.
Recommended further reading:
DENT Token Velocity: How can DENT Wireless increase token velocity and boost the token price?