Have you ever wondered what the “real” i.e. fundamental value of bitshares is? I think about this a lot.

Value is one part subjective and one part objective. Fundamental value derives from utility. The utility for bitshares stems from how it can be used by individuals. If Bob has a diverse portfolio of investments and understands how to leverage smart contracts and smartcoins then bitshares presents great value. If Alice is living in rural America and does not own a computer then her valuation of bitshares is effectively zero. This is the subjective component of value.

Objective value on the other hand refers to a market price. The market price is determined by the last quoted exchange in a public marketplace. If my subjective value of bitshares is higher than the lowest posted order to sell then rational behavior would dictate that I buy those bitshares. The market price is objective in the sense that it refers to the price that any market participant can get for bts

A general formula for calculating the fundamental price of bitshares.

Price Bts = (Aggregate Demand for all Smartcoins x 1.75) + (L)

Where L = a liquidity/optionality premium. In essence it is valuable to own a token that can not only be transacted with quickly but can be leveraged into exposure to other assets through the native smart contract functionality of the bts platform.

The multiplier 1.75 represents the lower bound of demand for bitshares via smartcoins. It comes from the minimum collateral ratio required of smartcoin positions. In practice this multiplier will be higher, yet given the measurement problems associated with a variable collateral ratio it is helpful to keep 1.75 fixed as the critical number because it represents the technical lower bound of demand for bts as the smartcoin economy grows.

It is clear from this rudimentary model that the key determinant for the nominal price of bts is the demand for smartcoins. The application of smartcoins that can scale and be of interest to many different people (or few people with deep pockets) will be the most promising support for the price of bts. This is my humble contribution to the bts community - support smartcoins wherever possible.

Call to action/engagement: what do you think of this model? Are there components you disagree with or believe I missed?