0 Introduction

In the world of digital assets, there are projects and businesses with a variety of different structures. Depending on the type of business, it is possible to build an organization that does not involve traditional venture capital investment or standard equity ownership. In such cases, alternative token models can be used to align incentives for all parties involved and achieve a net positive result.

In the article we will look at Valuing DAO`S and crypto projects with absolute valuation and Berkus method .

So what are these alternative token models? One example is the decentralized autonomous organization (DAO) model, which has become popular in the blockchain space in recent years. The DAO structure is useful in situations where a company or project has separate investors, owners, or stakeholders who do not necessarily have equity interests but instead own some sort of token that grants them various rights or privileges within the organization. Value is the most important word for any investor. It is also one of the factors that are often overlooked by crypto investors. As a result, there have been numerous cases where investors have made losses in investments that could have resulted in great gains if they had considered value.

In this article, we will explore how to evaluate a project’s value and see what kind of risks investors will take when investing in it. You will learn why it is important to understand valuation, the various methods of valuation and how to apply them when evaluating investment opportunities.

1 Absolute Valuation

We should take the future cash flows of DAOs and compare them with rates of return on similar projects..

Discount Rate

We will give the example of how to obtain a discount rate of a project like lbry to apply it to similar projects. Knowing that the number of tokens issued is 655051449 LBRY and the company takes 10% of the tokens. Seeing that each token has a value of $0.01765 as of 9/1/2022 we can estimate that LBRY inc has made about $1,156,165.81 this is obviously an estimate and the methods can be refined. Taking into account that the initial investment was approximately 1.67m dollars taking numbers from 7/17/2016 we can figure out that the growth was 693% for the company but not for the holders

Taking into account the reinvestment of profits, if all these years we were reinvesting the profits, we would obtain a rate of 38.1% (Let us obviously take into account that if you had bought 1 lbry 6 years ago, you would have lost a lot of money because it is an inflationary currency)

Determining cash flows

This all sounds great, but how the hell are we going to determine the cashflows of a project?

Well, comparing it to its web2 counterpart.

YouTube is worth US$180 billion in 2022. LBRY’s current market cap is 11.55 million. This would give us that LBRY represents 0.00642% of the youtube market cap.

Suppose we are valuing a crypto native spotify. then we could think that being the spotify market cap of $20.83 B, this multiplied by 0.00642% would give us an estimated market capitalization of 6 years of the project of $1,337,286.

In this way, if the necessary investment is less than the stipulated number(168,636), it will have a higher return than lbry and other similar projects based on these returns. The more accurate the flow estimate, the better the result.

2 Berkus method

Berkus Method of Valuation is an early-stage valuation method that was explicitly created to find a starting point without relying upon the founder’s financial forecasts. The Berkus Method studies five crucial areas of a startup and indicates a value ranging from zero to a certain number for each area. These areas are:

• Valuable business model (base value)

• Available prototype (reducing technology risks)

• Abilities of the founding or management team (reducing implementation risks)

• Strategic Relationships (reducing market risks)

• Existing costumers or first sales (reducing production risks)

A good way, then, would be to take into account this growth of 38.1% per year in the case of greatest success and take it to 10 years, which would give us a 2523.11% return in 10 years. So let’s suppose that we decided to use the 38.1% rate because it seemed to us the best project to compare and that the developers ask for, for example, 100k dollars. So, in an ideal situation, this project should leave a profit of $2,523,110 in 10 years. so we divide this number by 5 and start allocating money to each of the categories

Crypto project’s value estimation with the help of qualitative parameters

All the above methods are quantitative methods and are based on number and metrics. Crypto projects valuation can also be done with qualitative parameters. Examples of these would be the team, the idea of the project, the market it is being developed in, and the culture of the project. For instance, you’ll want to look at the experience of the team members and the advisors behind the project. You’ll also have to consider the market the project is being developed in and whether it is a suitable market for the project. You’ll also have to take a look at the culture of the project to see if the team is following best practices and if the project is progressing as intended.