Tokens as CAC - Are Crypto Companies More or Less Efficient in Acquiring Customers? by @ttunguz

A basic model for evaluating web 2 hypergrowth tech businesses is looking at Customer Acquisition Cost (CAC) versus the Lifetime Value (CLV). Everytime you give away tokens can be likened to web 2 marketing spend (CAC), while CLV is the total of economic rewards (such as protocol earnings) that a user brings by using the platform.

So far, this post has focused almost exclusively on tokens’ ability to capture value by generating income streams for their holders. They are productive capital assets. This may very well be sufficient to value most tokens in the long-run. Equity-like analysis will do the trick here. Think DCF and DDM.

However, valuing tokens based on cash flows rem... See more

Most companies in the public market are valued on revenue or EBITDA; if revenue increases, so does the value of the stock...  As for tokens, it’s an open question. The valuation methodologies haven’t coalesced yet. Cryptoassets written by Burniske and Tatar in 2017 contemplates a few different models including velocity of money (mv=pq), discou... See more

The beauty of the work token model is that, absent any speculators, increased usage of the network will cause an increase in the price of the token. As demand for the service grows, more revenue will flow to service providers. Given a fixed supply of tokens, service providers will rationally pay more per token for the right to earn part of a growin... See more

The most important takehome is that tokens are not equity, but are more similar to paid API keys. Nevertheless, they may represent a >1000X improvement in the time-to-liquidity and a >100X improvement in the size of the buyer base relative to traditional means for US technology financing — like a Kickstarter on steroids. This in turn opens up... See more

If you’re considering whether or not to buy a crypto asset, understanding the tokenomics is one of the most useful first steps you can take to make a good decision.