Fundamentals

Regulatory “Winter Coming?”

Throughout 2018 it seems global governments and regulatory bodies have been flexing their muscles upon centralized exchanges operating within their jurisdiction. However, the blockchain communities’ response has been the rise of decentralized exchanges (DEXs). Thus, protocols that enable DEX creation have become quite popular and valuable to the community as of late.

“Building block” protocols for DEXs

The protocols and native assets we will briefly speak about are the 0x project (ZRX) and Raiden Network (RDN). If you really wanna go down the rabbit hole, please feel free to read:

In our opinion, 0x outperforms Raiden in critical areas like user adoption, team, and business model. Furthermore, 0x’s future decentralized governance will increase ZRX’s probability of long term price appreciation.

Data Science

Predicting Future Value of ZRX

We fit a Gradient Boosted Forecasting Model to ZRX’s data using the highest coefficient determinants (at time of writing) for price. Note: this model is fluid and ever-changing, so we expect the model’s predictions to change continuously.

Model Accuracy

Model Predictions

We will forecast the potential intrinsic value of 1 ZRX for 6 months. We will offer the reader two predictions — 1) normal and 2) aggressive.

Trade Execution

Signals for Entry

Forecasts and predictions always come with some error and are seldom fully accurate. Investors can minimize this error by waiting until there is a sufficient margin of safety (a la Ben Graham) before they buy.

Present Value of our Model’s Prediction

We discount the predictions back to the present using a 70% discount rate. As of March 9, 2018, the price of 1 ZRX is equal to $0.60.

Conclusion

This illustrative example shows how combining fundamentals, data science, and margin of safety may guide better investing decisions around DEX protocols and native assets. Furthermore, Pugilist Ventures is a quantitative investment firm rooted in statistics and data science, so we hope to use these techniques to advance new methodologies for cryptoasset valuation.

Disclaimer

Neither the author of this article, nor Pugilist Ventures, provide investment, financial, or legal advice. This cannot substitute for professional advice and independent factual verification. The content provided on this site is for informational purposes only and should not be construed as any kind of solicitation for investment in any investment opportunity.