A blockchain with a native token? Try blockchain with two native tokens. BlockStreetJournal Follow Mar 31 · 16 min read

March 31, 2020 | Valuing a two-token blockchain with NEO & GAS.

Neo artwork. Please message us if you know the artist behind this so we can properly give credit!

(In this series’ BSJ token valuation, we take a look at Neo, the smart contract protocol dubbed “the Chinese Ethereum”. What’s interesting with this blockchain project unlike others is that it has 2 native tokens circulating on its protocol. In respect of your time and the realization of how long these Medium articles can be, I will do my utmost duty in keeping this article within 10–15 minutes, skewed towards the 10 minute mark hopefully. If it goes over 15 minutes, we apologize. But hey, who’s really in a rush these days anyways. And as a disclaimer, this article was by no means a paid article by the Neo Foundation, Neo Global Development, nor the Neo Global Capital teams. The motivation for this article was purely for the crypto enthusiasm, mass adoption education, and the intrigue of the unproven methodologies of crypto valuation frameworks.)

Prelude

As Neo, along with a host of other smart contract platforms, gears up for the upgrade of their mainnet, specifically Neo 3.0, it’s astonishing to see how far this project has gone and with a deep understatement, needs to further go in order to realize its goals it was set out for in its original whitepaper under the moniker, Antshares. Being situated in Shanghai specifically, although their core developer team and global team are scattered throughout the world, Neo is one of the top blockchain projects based in the Orient of the Pearl having already a reputable name and ecosystem that has boasts their native token, NEO, number 22 on CMC’s ranking list by market cap and have forced its name into the themed “smart contract wars”, which is heavily dominated by Ehereum’s prowess. As steep the mountain may seem, Neo probably will never be able to catch up with Ethereum’s market share of dApps and that would be fine. Neo has other intentions for its blockchain that it could leverage that would still sustain its momentum going into Neo 3.0.

Introduction

I will try to give a quick intro of the project for those who are not familiar with some more of BSJ’s own analysis on this project at the end. The meat of this article will be in the middle consisting of all the high flying calculations and preposterous assumptions we used to formulate a projected token valuation. I stress preposterous because do take this with a grain of salt as we collectively continue to progress crypto token valuation methodologies forward.

To keep it short, Neo, formerly known as Antshares, is a non-profit blockchain protocol designed to be the basis for the smart contract infrastructure in leveraging its vision of becoming the platform for the “smart economy”. The Neo protocol’s key feature is being able to solidify that bond through a regulatory friendly digital identify apparatus. The same manner how our information is already digitized and stored through many different central entities, the Neo protocol will do the same in a decentralized, trustless, and interoperable fashion capable of seamless usage through the myriad of blockchain protocols.

Neo founders, Da Hongfei and Erik Zhang, have propelled Neo in reaching its 3 year anniversary of its mainnet launch and have been the catalyst for other side projects such as Ontology, OnChain, Chromoway, Oasis Labs, and others. A unique selling feature of the Neo protocol is its self developed consensus mechanism, Delegated Byzantine Fault Tolerant system (dBFT), which is an adaptation to the Practical Byzantine Fault Tolerant system. Although most, if not all, consensus mechanism do possess its shortcomings, Neo’s dBFT has been criticized for being too centralized but have been praised for being able to resist blockchain forks through one block finality, which therefore can increase TPS on a much higher scale being suitable for enterprise usage.

Although there are a lot of use cases for smart contract protocols, there are 3 in particular that I think Neo will most likely, not dominate, but have a higher chance of exploiting and gaining market share from others. This leads us into performing a Sum-of-the-parts (SOTP) valuation, or break-up analysis, a method of valuation of a multi-divisional conglomerate in a hypothetical scenario of determining what divisions would be worth if the conglomerate is broken up and spun off.

And it is in these three that I will use as a basis for the valuation: 1. NeoFS: Decentralized cloud storage 2. NeoID: Decentralized Identification system 3. DeFi: Decentralized Finance

These three market segments will be first valued individually based on what the Neo protocol can achieve. These three separate values will then be summed on a subjectively chosen weighted average. I will be using concepts and methodologies proposed from others in a hybrid-like way with the intent of using many assumptions. Also, take note that I initially value each segment based on the Neo blockchain’s GAS token, as this is used as the work token versus the NEO token acting more so of a governance token. More will be explained later for this intuition. As you read through this, feel free to critique and correct any misguided train of thoughts I may have slipped into.

Let’s start!

GAS Token Valuation