On Crypto Valuation
Table of contents

Preface

To my parents, and Ms Chen, my 1st teacher, who gave me language.

In the nascent and rapidly evolving landscape of cryptocurrencies, often referred to as programmable money, a fundamental principle is frequently overlooked: the critical importance of classification based on inherent monetary functions before design, minting, or trading commences. This book, On Crypto Valuation, addresses this foundational need by providing a clear framework rooted in the tradition of Austrian economics.

Drawing upon Austrian monetary theories, particularly the Three Utilities of Money – Store of Value, Medium of Exchange, and Unit of Account – this work argues that a deep understanding of these distinct roles is paramount for navigating the complexities of the crypto market. Just as sound monetary principles have historically guided the development of robust economies, a clear classification of crypto assets based on their primary utility is the essential first step towards building sound money for the crypto industry.

By adopting this utility-focused perspective, we can move beyond market hype and speculation to develop more informed strategies for understanding and valuing cryptocurrencies, from Bitcoin to altcoins and beyond. This book aims to empower readers with the mental models necessary to critically assess the design and potential of various crypto assets, ultimately contributing to a more mature and sustainable crypto ecosystem.

Chance Jiang, Feb 17, 2025

Acknowledgement

  • Markus Thielen, Founder, 10x Research / Crypto, for his inspiration and advice.
  • FuturesChain team, for offering me the experience building permissionless PoSA (Proof-of-Stake-Authority) blockchain.
  • Eric, for his kind invitation to work with him, and his mind-sharing as web3 investor.
  • Allen You, Wang Yiming, and ZoomQuiet, core members of DuoNB Foundation.
  • Ben Chodroff, Group Head of HSBC Labs, for his active sharing in crypto, web3 and the OffChain Global communities, since we knew each other in 2018.

Table of Content

1. Introduction: Crypto Valuation and the Austrian School

Summary: This book is to provide a framework for crypto valuation based on Austrian economics. This section should state the importance of understanding money’s functions from an Austrian perspective to navigate the complexities of the crypto market.

2. The Three Utilities of Money: An Austrian Perspective

Summary: The Three Utilities of Money framework, Store of Value, Medium of Exchange, and Unit of Account. It should cite Austrian economists like Carl Menger on the spontaneous emergence of money and Ludwig von Mises on the regression theorem, linking money’s current value to its historical purchasing power. Explain that money arises spontaneously in a free market and is not created by decree.

3. Bitcoin as a Store of Value

Summary: Analyzes Bitcoin’s role as digital gold, emphasizing its scarcity, security, and growing acceptance as a store of value. Relate this to the Austrian focus on gold’s ability to preserve purchasing power over time.

4. Stablecoins as a Medium of Exchange

Summary: Discusses how stablecoins address volatility, making them suitable for transactions via fiat money, which has been enforced by nation states. Compare their function to traditional money, namely, fiat.

5. Altcoins as Units of Account

Summary: Explores how altcoins, especially those with smart contracts, facilitate accounting and measurement within their ecosystems.

6. Utility Overlap in Cryptocurrencies

Summary: Addresses the complexity of cryptocurrencies serving multiple utilities simultaneously.

7. Case Studies in Utility Overlap

Summary:

  • Ethereum: Discusses how Ethereum serves as a platform for smart contracts (unit of account) but also as a store of value and medium of exchange.
  • Cardano: Analyzes its aim to balance different utilities.
  • Stellar: Explores its design for fast, low-cost transactions, positioning it as a potential store of value.

8. Challenges and Explainatory Power

Summary: Discusses the dynamic nature of the crypto market and the need for a flexible framework. Acknowledge limitations in fast-changing environments.

9. Valuating Multi-Utility Tokens

Summary: Suggests frameworks or models to account for complexities in traditional valuation methods, due to the presence of multiple utilities in tokens.

10. The Future of Crypto Valuation

Summary: Speculates on how the utilities of existing and future cryptocurrencies might evolve, considering technological advancements and regulatory changes.

11. Real-World Asset (RWA) Integration

Summary: Create challenges focused on integrating real-world assets into the altcoin market, emphasizing the practical utility of money and its integration into everyday economic activity.

12. Mastering Crypto Valuation with Austrian Economics

Summary: Reinforces the book’s goal of empowering readers with mental models for crypto valuation, grounded in Austrian economic principles.

13. Appendix