This article is a follow up from my original piece on Wagerr.

In that article I laid out how the tokenomics (business model) of Wagerr works and showed how Wagerr could be valued, using projected betting volume.

Since then, Wagerr has been live for 6 months and utilising the data available on the blockchain we are able to gather real insights into how the Wagerr project is progressing. This culminated in a research report which we have just released.

This article accompanies the research report and provides some commentary around the research framework, valuation models and points that I was trying to make in that report.

If you are unfamiliar with Wagerr it is probably worth spending some time in their whitepaper or Telegram. If you want the TLDR the video below will help.

Investment Thematic

Gambling has been one of the key drivers of crypto utilisation to date, which laughable to some is not surprising to others. The internet progressed in much the same way. In 1994, it was the development of the encrypted communication protocols by Cryptologic, that unlocked the online gambling industry and helped spur the internet frenzy of the late 90's. Gambling websites were some of the first websites to offer a genuinely profitable online business model with these sites increasing in presence more than 10 fold from 1996 to 1997. Despite your ethical views on gambling as a business it is likely that a similar path is unfolding in the crypto space.

Investment Thesis

Understanding a businesses core value to its customers is always the number one starting point. By understanding this it helps us determine the factors that are critical to driving value into the business or in our case the protocol (coin).

Value Proposition

Wagerr is an incredibly interesting project because whilst creating a product that could be very disruptive to traditional sportsbooks it at the same time provides a solution to keep them competitive. Traditional sportsbooks will have the ability to leverage the blockchain as a means to de-risk from positions where their customers bets heavily favour one side and they want a means to offload some of that risk to another entity. i.e. place a bet on the same side using Wagerr. The picture below shows how this would work.

Users could interact directly or through a traditional sportsbook.

The question might be “Why would someone use a traditional sportsbook if it could interact directly with a blockchain?”.

At the end of the day there are pro’s and con’s for both, and both solutions will fill a demand by customers. Traditional sportsbooks for example, will almost always be able to offer more exotic betting functionality than what Wagerr could. i.e. parlay’s (multi’s), bonus bets, more niche markets etc. they also provide convenience in comparison to Wagerr.

On the flip side Wagerr would give customers complete privacy, enable them to interact with the blockchain from anywhere in the world and mitigate 3rd party risks (i.e. refusal of bets or default).

One of the main advantages however is the concept of value coupling, which makes Wagerr’s business model so attractive to both users and investors simultaneously. In my previous article I took some time to explain this, if you are hearing it for the first time a TLDR below.

Economic Moat

Whilst it’s probably laughable to argue that a start-up has an economic moat, the term coined by Warren Buffet provides a great framework to understand what gives Wagerr a competitive advantage over its competitors.

The most powerful of which is Wagerr’s ability to be its own bank, to literally print money to pay out bets. This creates a significant advantage over any traditional company as the capital required to be held for loses falls to zero. In other words Wagerr will have significantly better capital allocation than any traditional business in the same industry. This is a great example of how this technology will start to disrupt incumbent business models.

Further, as a decentralised project Wagerr inherently has the ability to scale globally instantly. All it requires is someone to download and run the software, this puts Wagerr in a distinct regulatory advantage over legacy businesses.

Investability

In traditional financial markets what we are buying is clear most of the time as the markets have developed over such a long period of time and people have become familiar with the various types of equity or debt people issue. However, in the Crypto market this can be blurred and therefore confusing.

The best example of this I can think of is the Sia.tech project (a cloud storage business utilising blockchain). Most “investors” were investing in Siacoin ($SC) in 2017, not realising that Sia funds sit within that network clipping a small amount of $SC on every contract. It’s not to say $SC can’t increase in value it’s more the fact that given the choice of the two most people that invested in $SC over the last year or so would likely choose not to now. (Research)….

Wagerr offers 3 different investments all which utilise the $WGR coin but provide investors different risk/reward appetites.

Holding the $WGR coin ‘Staking’ 25,000 WGR for a Masternode (MN) ‘Staking’ 25,000 WGR for an Oracle Masternode’s (OMN)*

*2000 limit on OMN. OMN’s are not yet implemented and all MN holders currently receive all of the betting rewards.

In summary,

Option 1 has little capital requirement but has a roof as the ‘rate of betting volume’ will slow causing the price to stabilise.

Option 2 offers consistent returns but little upside with increased betting volume.

Option 3 will have much higher costs but offers significant upside as betting volumes increase.

Tokenomics

Utility tokens

Before getting into this I want to first address the concept of utility tokens. There has been so much commentary around utility tokens during and particularly since the crypto crash of 2018. With many claiming the death of utility tokens as a concept and deeming them worthless.

The reality is utility tokens were never the problem, it was the ill designed economics of the token by the team which was deeming them worthless. With majority of the teams setting themselves up for failure prior to even starting in 2017. Read any whitepaper and it is blatantly clear the teams that have given no thought to their tokenomics (Red flag).

Interestingly though, what we are starting to see is how flexible these coins can be, take the recent changes of Binance coin ($BNB) where CZ is changing the rules of the game to successfully drive value into the $BNB coin.

There is still much more development to be had around utility token designs and we are only in the early stages. What excites me though is what I like to call “Hybrid tokens”, where due to the programmable nature of these digital assets businesses are able to offer real value to both investors and consumers at the same time.

Possibly, a way to describe these is “programmable equity”, where value can be captured only once you fulfil certain requirements i.e. providing certain services to the network/staking for a period of time etc. This is a distinct shift from traditional equity which often only requires capital as an entry requirement to capture value.

Ultimately, this is how I view Wagerr, it offers benefits to investors and customers simultaneously and offers essentially equity in the network if you meet certain requirements (Oracle Masternode requirements).

Valuation Model

Attacking Wagerr’s valuation I have had to make some assumptions and as more information comes to light I continue to adjust so consider this a point in time valuation.

The Key assumptions in this model are the ‘betting volume growth rates’ and the % of tokens that are not considered apart of floating supply (appropriately called ‘HODL factor’) i.e. people that are investors but don’t run a Masternode, people who maintain some amount of coins in their wallet, lost coins etc. etc. if you want to analyse the model you can see it here. Keep in mind it may change.

I have conservatively kept the HODL factor at 12.5% and below you can see the estimated growth rates starting at 100% in 2020 and tapering off to 5% perpetually.