This book looks at the analogic application of standard corporate valuation approaches to trendy digital tokens, expressed by cryptocurrencies, and validated through blockchain systems. Whereas traditional firm appraisal follows institutional guidelines and best practices, frontier research still must define the boundaries of these trendy issues, linking a strong theoretical background to practical advances that still need fine-tuning. This book, written by an academic and a senior consultant, combines theoretical rigor with practical insights, providing an innovative framework for evaluators, managers, and practitioners, and academics of corporate valuation and financial technology.
Author(s): Roberto Moro-Visconti; Andrea Cesaretti
Edition: 1
Publisher: Palgrave Macmillan
Year: 2023
Language: English
Pages: xvii, 500
City: Cham
Tags: Economics and Finance; Financial Engineering; Investment Appraisal; Business Finance; Corporate valuation; Cryptocurrency;
Contents
List of Figures
List of Tables
1 Introduction
2 Asset Class Taxonomy and General Valuation Approaches
2.1 Purpose of the Firm Evaluation
2.2 Back-to-the Earth: Functional Analysis and Business Planning as a Prerequisite for Valuation
2.3 Are Cryptocurrencies an Asset Class?
2.4 General Valuation Approaches
The Balance Sheet-Based Approach
Monetary Equity
2.5 The Income Approach
Estimated Normalized Income
Choice of the Capitalization Rate
Choice of the Capitalization Formula
2.6 The Value Added
Use Value and Exchange Value
Practical Example—The Value-Added Cake
Cash is King: The Superiority of the Financial Approach
Empirical Approaches
2.7 Terminal Value
References
3 The Scalable Valuation of Digital Intangibles
3.1 The Intangible Roadmap
3.2 Accounting for Intellectual Property as a Prerequisite for Valuation
Intangible Assets and Capitalized Costs
Valuation Drivers, Overcoming the Accounting Puzzle
3.3 Intangible Assets Valuation According to IVS 210
3.4 Financial Evaluation
“With or Without” Incremental Valuation
3.5 Value Co-creation and Economic Marginality
3.6 The Valuation of Scalable Digital Platforms
3.7 Sliding Doors: Network-Bridging Multisided Platforms
References
4 Cryptocurrencies and Non-Fungible Tokens
4.1 Taxonomy and Features
4.2 Taxonomy of the Main Cryptocurrencies, With Some Evaluation Hints
Backed Stablecoins—More on Value and Key Features
Crypto-Collateralized Stablecoins—More on Value and Key Features
Algorithmic Stablecoins—More on Value and Key Features
4.3 Crypto Risk
4.4 Impact of the SWOT Analysis on the Valuation of Cryptocurrencies
4.5 The Impact of Cryptocurrency Volatility on Market Value
4.6 Non-Fungible Tokens (NFT): Main Features
4.7 NFT Valuation
References
5 Digital Art and Non-Fungible Tokens
5.1 Digital Art
5.2 Timestamps
5.3 Evaluation Approaches
5.4 Interactive Art (Participatory or Relational) and Value Co-Creation
5.5 Copyright Framework and Valuation
Exploitation and Copyright Protection
From Copyright to Copyleft and Creative Commons
5.6 Reproducibility of Works, Real Options, and Digital Scalability
The Secondary Market
Non-Fungible Tokens (NFT)
References
6 Blockchains, Internet of Value, and Smart Transactions
6.1 Blockchains: Definition and Main Features
6.2 Disrupting Traditional Business Models
6.3 Internet of Value
6.4 The Legal Nature of Public or Private Blockchains as a Prerequisite for Valuation
6.5 Valuation Patterns
6.6 Blockchains and Cryptocurrencies
References
7 The Metaverse
7.1 The Metaverse: Definition and Business Applications
7.2 Scale-Free Networks and the Metaverse Topology
7.3 Scalability and the Network Effect
7.4 Multilayer Networks
7.5 Sliding Doors: Network-Bridging Multisided Platforms
7.6 From the Internet to the Metaverse
7.7 Synchronizing the Physical and Virtual: the Avatar Bridging Node
7.8 A Holistic Ecosystem: From Physical Reality to the Internet and the Metaverse
7.9 From Business Modeling to Economic Valuation
7.10 Crypto-Backed Metaverse
7.11 Metaverse and Decentralized Finance
7.12 Metaverse, Blockchains, and Cryptocurrencies
References
8 Networking Digital Platforms and Virtual Marketplaces
8.1 Definition and Features
8.2 Legal Aspects
8.3 Networked Governance Around Digital Platforms
8.4 Digital (Smart) Supply Chains
8.5 The Assumptions of Evaluation, Between Digital Scalability and Network Theory
8.6 A Theoretical Background for the Economic Valuation
8.7 Open Source Platforms
8.8 Proprietary (Commercial) Platforms
8.9 Adaptation of the General Valuation Approaches
8.10 Specific Valuation Approaches
8.11 The Valuation of Virtual Marketplaces
References
9 Decentralized Finance (DeFi)
9.1 The Architecture of Decentralized Finance
A Closer Look at Liquidity Pools
A Closer Look at Automated Market Makers
9.2 DeFi vs Traditional Finance
The Ethereum Name Service, ENS
A Hypothetical Venture Capital Protocol
9.3 The Blockchain
Traditional Versus Blockchain Networks
Blockchain and Its “Nodes” in a DeFi Protocols
9.4 The Value of the DeFi
9.5 Key Characteristics of DeFi
9.6 Benefits and Potential of DeFi
9.7 A DeFi Project in Deep
The Protocol
The Players
Pools
The Process
Process of Choice of Investment by Voting Pool
Control Over the Target Company
Smart Contracts
Required Standards of the Projects
9.8 Challenges and Risks of DeFi
Systemic Risk
9.9 DeFi Valuation
Market Approach
Income Approach
Further Elements to Be Analyzed in Any Valuation Approach of DeFi Projects
Risk Assessment
References
10 Cybersecurity
10.1 Introduction
10.2 SWOT Analysis
10.3 Digital Tokens and Cybersecurity
10.4 Valuation
References
11 Digital Token Valuation: Looking for a New Gold Standard?
11.1 The Digital Token Underlying as a Prerequisite for the Valuation
Tokenomics
11.2 Asset Class Valuation
11.3 Digital Token Valuation
11.4 Valuation of the Digital Tokens Linked to the DeFi Projects
11.5 Income approach
The perpetuity growth rate
The Discount or Required Rate of Return
11.6 Market Approach
11.7 The Total Value Locked ratio
11.8 The Market Cap to Total Value Locked Ratio
11.9 The Price to Earnings Ratio (P/E)
11.10 Valuation of Non-backed Cryptocurrencies Locked Up in Staking on a Proof-of-Stake Network
11.11 Conclusion
References
12 The Cryptocurrency Crash of 2022: Which Lessons for the Future?
12.1 Annus horribilis
12.2 The Cryptocurrency Bubble
12.3 Which Lessons for the Future?
12.4 Volatility Does Not Give Guarantees
The Role of the Exchanges in the Volatility of the Cryptocurrencies
Ownership Concentration
The Ghost of Charles Ponzi is Still Among Us
12.5 Due Diligence is Still in Fashion
12.6 Pump and dump
12.7 The Crypto Assets Are of This World
12.8 “Too Big to Fail” Doesn’t Work in the Crypto World
12.9 Contagion is Real
12.10 Let’s Get Physical
References
13 FinTech and Digital Payment Systems Valuation
13.1 Introduction
13.2 The Digital Ecosystem
13.3 Financial Bottlenecks: Inefficiencies and Friction Points
13.4 The Accounting Background for Valuation
13.5 FinTech Business Models
13.6 Digital Payment Systems
13.7 Banks Versus FinTechs: Cross-Pollination and Scalability
Cross-Pollination
Scalability
13.8 Insights from Listed FinTechs
13.9 Valuation Methods
The Financial Approach
The Cash Flow Available to the Company (Free Cash Flow to the Firm)
The (Residual) Cash Flow Available to Shareholders
Empirical Approaches (Market Multipliers)
13.10 Market Stress Tests and Business Model Sensitivity
13.11 Challenges and Failures: Why FinTechs Burn Out
13.12 Concluding Remarks
References
14 Digitalization and ESG-Driven Valuation
14.1 Introduction
14.2 Sustainable Business Planning
14.3 The Cost of Collecting Capital: A Comparison between Traditional and ESG-Firms
14.4 Sustainability Patterns
Circular Economy
Resilient Supply and Value Chains
Sharing Economy and Collaborative Commons
Scalability and Real Options
Impact of ESG Parameters on the Valuation of Digital Tokens and Cryptocurrencies
References
Index
