Introduction

We will analyse the BAT from many perspectives. Among the most interesting not questionable results we will show how the BAT ETH exchange rate is often far better in decentralized exchanges than centralized ones. We will work around the price equilibrium theory proposed by bat project in its whitepaper and study the possible flow of bat in an equilibrium market with implications on wallets, decentralized exchanges and liquidity pools.

What we will do is:

Focus on the blockchain of the ICO (ethereum in this case) and list the main consequences of this.

Define the token type: utility, payment, asset or hybrid. The first step is to clarify its nature and this is often not written anywhere therefore the investor judgement plays a role.

Clarify the market cap and the monetary supply policy (capped, with inflation, with mining or minting). Use etherscan to proof all the assertions https://www.reddit.com/r/BATProject/comments/7maakq/will_the_total_supply_always_be_15_billion_tokens/?utm_source=share&utm_medium=ios_app&utm_name=iossmf

Some meaningful observations from etherscan

Study the white paper with an eye on the price equilibrium.

Demonstrate the growth

Observe that the stability could be very far to be reached: price up! Go through the implications in next points.

Here starts an original approach to focus on microfinance:

The flow of bats (VISUAL).

Micropayment to brave users, publish0X, content creators

The concept of research of optimal liquidity PATH by user need.

The need of studying liquidity pools, (S)DEX, wallets services.

Implication of running in ethereum

BAT is an ERC-20 token issued on the ethereum blockchain

The following schema is valid for each ERC-20 token:

Ethereum is a very well known blockchain.

The vast majority of ICOs has been performed on ethereum.

There are qualified auditors for assessing the smart contracts which are backing the icos. Auditing is necessary because ethereum VM runs the contracts in a Turing complete language. This means that they can reach a certain degree of complexity and, being online on the ledger forever, are exposed to hackers which are looking for bugs (so called honeypots)

The distributed ledger is easily accessible without the need of running a node. It is possible to use third party services like etherscan https://etherscan.io . This allows everybody to verify the data provided by the company behind the ICO

. This allows everybody to verify the data provided by the company behind the ICO The tokens issued on ethereum can be traded at cost of gas

It is possible to trade in chain without the usage of an exchange using typically decentralized exchanges at the cost of gas plus bid ask spread. Changes among cryptos on different chains can be less frictionless but this is not a rule in case they are liquid enough; I mention here uniswap (link) as an example, ...provide others as changelly, shapeshift

Token type

From the website and technical paper we can say the following about BAT:

it is not mined but minted in a predefined quantity

it is an utility token which is distributed to users to reward their attention.

Being a contract on ehtereum can be audited and from this we can come to not opinable statements about market cap and monetary supply.

Market cap and monetary supply

The main data:

Market cap: 1.5 billion tokens

BAT team cannot create more tokens out of thin air

Market cap can be verified checking the contract:

https://etherscan.io/token/0x0d8775f648430679a709e98d2b0cb6250d2887ef

Below I show the meaningful part of it (see field total Total Supply)

This proofs that the total supply is limited.

Now let’s read the contract:

https://etherscan.io/address/0x0d8775f648430679a709e98d2b0cb6250d2887ef#code

Other information from the ledger (DEX can be far cheaper than centralized exchanges!!!!)

We can see the biggest holders

And a very interesting statistic about exchange prices in exchanges and decentralized exchanges (IMPORTANT: I took the data at the same time for the two graphics alone. Everybody can recheck periodically):

Exchanges

Decentralized exchanges

The symbol are idex, kyber and uniswap (the unicorn).

In the centralized exchanges bat/eth is 0.0012790 in the most liquid (Latoken) and more or less always around (0.00127-0.00128 or worse with one exception of Coinone).

In the DEX (so exchanges not centralized and run using the blockchain) 0.0012303 of IDEX, 0.0012780-1 of uniswap and kyber. I have not checked the bid ask spreads but it looks evident that the centralized exchanges are more expensive (boasting a 3% premium).

This proofs for the BAT-ETH that DEX can be far cheaper than centralized exchanges!!!

This has a strong implicaiton of on what could become the routes of the flow of BATs in the future.

White paper (price stability)

As with all ico or token emissions the official site includes many information ans, extremely important, a whitepaper. Nobody should ever invest in a cryptocurrency whitout ever having read the whitepaper. The steps in order are: checking if coin amount is capped, read the whitepaper, understand business model (the usual question is where is growth) . So I suggest to read the full paper here:

In this article we are interested in a specific part of the whitepaper. Don’t be too scared by formulas (I will just write down in extreme synthesis the main take)

7.3 An Analysis of the Stability of the BAT A model for virtual currency exchange rates was postulated by Dutch economists von Oordt and Bolt in 2016[27]. The model postulates that the value of virtual currencies consists of three major factors; the utility of the virtual currency to make payments, the decision of forward-looking speculators to regulate the supply of virtual currency, and the elements that drive user adoption and merchant acceptance of a virtual currency. The argument originates with Fisher’s 1911 observation that speculators may effectively limit the money supply by withdrawing money from circulation in anticipation of higher future utility. Since this dynamic particularly applies to limited issuance currencies such as bitcoin or BAT, it can be an important factor in the pricing for token sales and stability analysis of virtual currencies. For a simple economic system with fixed quantity of currency tokens MBAT, we can write down a transaction quantity relationship: P BAT t T BAT t = MBATV BAT t Where V BAT t is velocity of BAT, the average number of times each unit of BAT is used to purchase services within the defined period of time t. T BAT t is the quantity of 32 services purchased with BAT over the period of time t and P BAT t is the weighted price of the services. Inserting the exchange rate in terms of $ P BAT t P $ t T BAT t = MBATV BAT t Since we can assume the legacy fiat currency is the accounting unit for all parties involved, we define the exchange rate S $ BAT t , and substitute in the above equation to give S $ BAT t = T BAT t MBATV BAT t If we consider the fraction of currency which is not used in transfer of services, we can postulate a velocity of the fraction of currency which is actually used for settlement VdBAT t . Defining Z BAT t to be the number of BAT units not used in transactions. Since the entire velocity of money in our economy V BAT t is an average between the currency units used and the units unused for transfer of services, V BAT t = MBAT − Z BAT t MBAT VdBAT t Combining these into the exchange rate S $ BAT t = TdBAT t (MBAT − Z BAT t )VdBAT t (1) The exchange rate for BAT tokens is therefore proportional to the volume of services purchased and inversely proportional to the currency not used in transactions for the time period t. This equation encapsulates the insight that a lack of money in circulation will raise the exchange rate. We now turn our attention to the fraction of BAT which is not used for exchange. Some of the Z BAT t tokens may be the result of users forgetting about the small number of tokens they hold. Some may be due to exchange delays in settlement for legacy currencies. Overall though, the holders of inactive tokens have standard ways of evaluating future utility of the tokens in terms of modern risk management theory. Since tokens do not bear interest, there is a discounted term associated with holding a position of size z BAT t in them. −RS $ BAT z BAT t where R is the interest rate discounting in the legacy currency. If we consider the future expected value of the BAT holdings as the sum of the future expected value of the position in BAT ||S $ BAT t + 1||z BAT t 33 with this discounted interest rate term (where R is the discounting operator), and the volatility of the future position in BAT scaled by a risk aversion term γ, we reach the efficient frontier from modern portfolio theory. ||S $ BAT t+1 ||z BAT t − R(S $ BAT t )z BAT t + γσ2 (||S $ BAT t+1 ||)z BAT t = 0 Using this standard result, we can solve for the optimal number of tokens held by an individual during a given time period. z BAT t = ||S $ BAT t+1 || − R(S $ BAT t ) γσ2(||S $ BAT t+1 ||) If we consider all of the people holding BAT at a given time interval t we get the economically efficient number of BAT held for later use. Z BAT t = Ntz BAT t = ||S $ BAT t+1 ||z BAT t − R(S $ BAT t ) γ Nt σ 2(||S $ BAT t+1 ||) Since this value can’t be negative, we assume that people who hold BAT have the position that ||S $ BAT t+1 || ≥ R(S $ BAT t ) hence, using our above relationship, we get the relationship between the expected future value of the BAT, the interest rate and the velocity of transfers in the BAT economy: R −1 (||S $ BAT t+1 ||) ≥ T BAT t MBATV BAT t So, people hold BAT if the discounted expected value exceeds the hypothetical value of the current exchange rate. So, the exchange rate as a function of future expected value of BAT is S $ BAT t = R −1 (||S $ BAT t+1 || − γ Nt Z BAT t σ 2 (||S $ BAT t+1 ||)) (2) Thus, the BAT holdings are the discounted expected future exchange rate minus the risk premium for the uncertainty in future value of the BAT. If the model holds, 1 and 2 can be used to define supply and demand for BAT. Since MBAT is not time dependent in the case of BAT, the time varying exchange rate can be readily understood in terms of BAT transactions and opinions on future utility of BAT transactions. As BAT transactions increase, the exchange rate becomes dominated by the transactions rather than future expectations of utility. This dynamic has been observed in maturing virtual currencies as well as various other in-house token systems. While models are imprecise, this model argues for long term price stability in a token mediated economy.

The main take is that the BAT should reach a price stability and fluctuate around that value without the high standard deviation we are experiencing now.

The theory is a model and models are questionable: I anyway agree on the stability on long term.

Where are we now?

We will show that we are in a high expansion phase (growth)

We will discuss about a stability moving up for many years with some swings

We will speak about the token price possible evolution

Demonstrate growth

A nice work has been done by the website https://batgrowth.com/ which running robots against BAT API and in twitter, youtube and other social can keep trace with regularity of user adoption.

Thanks to https://batgrowth.com/ for the following table:

Above is reported a twitter from Brendan Eich…

Thanks (again) to https://batgrowth.com/ for the following three tables:

All the information displayed are the proof of a string growth which is still accelerating. Now the question becomes: if BAT is modeled as a token whose valuation tend toreach stability in the long run: where is the stability? It is legit to expect that the stability will be reached after stabilization of growth. Till then, with the swings typical of cryptos there will be a growing trend in the BAT price

Investing in token

The horizon looks very positive to, at least, hold the token gained online. Actually we have seen that there are all the preconditions for a growth in value and a relative stability which will be reached when BAT will, if it is the case, become a kind of well accepted mean of payment and the growth narrative wil have slowed down.

Second part

We start now discussing the flow of the BAT (this model is particularly true for the BAT token because of its circular economy) and its implications.

The flow

The reader can skip the citation below if desires. I will summarize the part we need to develop now. I have found this beautiful reddit post so informative that I have decided to add it in all completeness into the article: https://www.reddit.com/r/BATProject/comments/7cr7yc/new_to_bat_read_this_introduction_to_basic/)

The main take for us here is: there is a circular BAT economy with micropayments to normal users, which triggers different behaviors. This is my starting point: such behaviors can be categorized leading to a diagram of the flow of BAT.

Accumulating BAT can make sense because of the tendency to equilibrium which we have reasonable expectations to be higher than the current one. Long term hold is normally represented by BTC at the current stage of cryptospace.

Conversion to other cryptos can happen to hold long term, go to a stable coin related, for example, to USD or to speculate on exchanges.

Another option are payments which can be done in bat in the circular ecosystem or in the normal world through services converting crypto to cash or as deposits in liquidity pools where, counterparty risk is balanced by interest rates on a hold position (note that pools conditions must be carefully studied: they could also liquidate positions and depositors could incur in losses).

Liquidity pools are an interesting phenomenon. They are pool of various cryptos, which, provided the liquidity is enough, can be exchanged at minimal spreads. We have seen at the beginning that centralized exchanges, which are often liquid, are usually able to apply higher spreads than decentralized.

Micropayments. Liquidity paths (beginner and expert mode).

Among the 250k BAT addresses and growing of the graphic showed above there are plenty of little ones, which staying in a temporary HOLD can become around 100-1000 USD depending also from currency exchange. We can think statistically and we can easily convince ourselves that thousands of these accounts could decide to follow the path convert to other crypto (stable, BTC, ETH, OXT) the type depending from the need. This situation creates some micropayment liquidity paths:

Uphold BAT account from brave rewards -> switch in uphold -> use uphold services (easy path till brave will not have its integrated wallet; it is a primitive user not looking at the high charge of the service) Uphold BAT account from brave rewards-> move out to other bat account (free of charge because of conventions brave - uphold) -> swap in the new wallet (user a bit more evoluted who has researched an eventual wallet offering better conditions. Normally the bid ask spread hidden in these conversions are high) Uphold BAT account from brave rewards->liquidity pool for deposit or swaps (user careful about slippage or similar) (user more sophisticated) Uphold BAT account from brave rewards->other wallet connected with SDEX and other liquidity pools -> this solution which would be very interesting is prevented by the lack of a liquid BAT anchor in stellar. other wallet as target from applications like publish0X -> all possible variants

The best liquidity path looks to accumulate in a known wallet as BAT will not fall to deep, according to the expansion combined with the stability model described and collect informations about the best liquidity pools. Once liquidity pools are better known the BAT holder can deposit BAT in a pool where capital is insured and interest accrued (compound seems to be suited but research has to be done) or exchange in uniswap (just to mention a liquidity pool) being careful about slippage if he wants to HODL e.g. BTC. The last could be a good liquidity path BAT to BTC. For a trader moving fo the SDEX (stellar decentralized exchange) would be nice but the absence of a liquid BAT XLM anchor forces to an unneeded haircut in a liquidity pool or in a trusted wallet for the swap bat to xml.

I leave open the topic: calculation of the best liquidity path by user need as it is clear that the pre requisite is study deeply:

liquidity pools offer (uniswap, changelly, compound)

Wallets wallet swap service (more expensive but simple: check many wallets), stellar hybrid wallets to move to SDEX trading using the liquid anchors only (necessary to study wallets like lobstr, litemint at least to see the full proposal)

Conclusion

We have developed many topics trying not to repeat the usual known things about brave and BAT. At first we have classified the token and applied the usual blueprint to evaluate the BAT token. Then we have focused on the micropayments flow introducing the role of wallets, liquidity pools and DEX/SDEX in the growing microfinance which is taking shape in this ecosystem.

NEXT STEPS

A continuation of the best liquidity path by user need could require to dig deeper in: