Who is the MVP for coin valuation evaluation on coin circle platforms, including Coin On, OKEx, HuoCoin, and FTX?

This article is taken from BlockTempo by James ChiuAs a bridge hub for users to enter the market, crypto exchanges have always been an observation indicator for the industry. The old stock exchange Coinbase has announced a direct listing and received a valuation of $90 billion

This article is taken from BlockTempo by James Chiu

As a bridge hub for users to enter the market, crypto exchanges have always been an observation indicator for the industry. The old stock exchange Coinbase has announced a direct listing and received a valuation of $90 billion. The market clearly needs to re value the platform currency and examine the potential of the exchange or platform currency in the future. In the past few weeks, which of the four major platform currencies, BNB, OKB, HT, and FTT, has performed the best? How should we value it?

From a traditional strategic perspective, there are two routes for exchanges: one is the "traditional financial compliance" route, which represents exchanges such as Coinbase and Kraken. This type of exchange will ultimately aim for public listing (IPO); The other is the "innovation expansion" route, such as Coin On, OKEx, HuoCoin, and FTX, which was only founded in 2019.

After announcing its listing, Coinbase's valuation has increased from $70 billion to the current $100 billion. For traditional compliant listed exchanges like this, valuation is the job of investment banks, which raises another issue:

How are other exchanges valued, and how are platform currencies valued?

Market response to Coinbase's listing

After the news that Coinbase's valuation exceeded $70 billion, it was not surprising that all four major platform currencies had risen several times.

The following are the recent increases in the four major platform currencies:

According to statistics, BNB has risen by 436% in the past three months, making it the best performing platform currency among the four major platforms; The FTT also saw a 310% increase, with the second best performance; In comparison, OKB and HT each saw growth rates of 150% and 172%, which are far behind.

Image source: TradeView

Valuation of 'Repurchase Destruction Volume'

Due to the lack of financial reports provided by the four major exchanges, we are unable to accurately estimate the value of platform coins. However, we may be able to roughly estimate the value based on the "number of platform coins destroyed (profit)" by benchmarking Coinbase.

According to information submitted by Coinbase to the United States Securities and Exchange Commission (SEC), Coinbase's annual revenue in 2020 exceeded $1.2 billion.

Under the assumption of a 20% net profit in the repurchase explanation for the old version of Coin An, Larry Cermak, research director of foreign media "The Block", deduced that the net profit of Coin An in 2020 may reach as high as $1.73 billion, based on the value of the platform coins destroyed in 2020, which is $346 million.

Destruction is the permanent removal of a portion of tokens from the market circulation. Assuming that the lockdown of tokens has been fully released, destruction means that the circulation will forever decrease, which will lead to "deflation".

Estimating revenue from the destruction quantity may be a feasible approach.

According to information, in 2020, Coin An destroyed a total of 346 million US dollars in BNB; OKEx destroyed a total of $79.5 million OKB in 2020; In 2020, Huo Coin destroyed a total of 200 million US dollars of HT; The FTX exchange destroyed a total of $42 million in FTTs in 2020.

According to the old version of Coin An, it will repurchase tokens in the market at a net profit of 20% (this statement has been removed in the new version).

If the same standard is applied to other exchanges, the net profit of the four major exchanges in 2020 should be:

[Note]: The platform currency price is the closing price on April 8th; The market value data is CoinMarketCap data as of April 9th

Simply pushing back, it can be found that if Coinbase's 1.2 billion net profit gives it a valuation of $100 billion, then the valuation of Coinbase should even exceed $100 billion (assuming $100 billion). So the question arises, why does Coinbase Exchange only have a total platform currency value of $64 billion?

In fact, it's not just about Coin An. According to this calculation method, the market value of OKEx should be 22.9 billion US dollars and 58.8 billion US dollars, but what is the actual situation

In contrast, BNB's market value is 64% of the estimated market value, while FTT is 37%, far higher than OKB and HT.

The total market value of OKEx platform currency OKB is 1.1 billion US dollars, while the market value of HuoCoin platform currency HT is only 3.21 billion US dollars. Compared to Coin An, the actual market value of OKEx platform currency is only 4.9% of the estimated market value, while HuoCoin platform currency is 5.4%.

The reason why OKEx and HuoCoin lag far behind Coin An and FTX may be due to "excessive user concentration" and "regulatory uncertainty".

OKEx and Huocoin, although registered offshore, are one of the most important cryptocurrency exchanges in China, with most of their users being Chinese.

According to Similarweb data, 20.47% of the traffic of OKEX website comes from China, followed by Russia and Trkiye; The traffic of Huocoin website is 29.33% from China, followed by Ukraine and Vietnam, respectively.

The excessive concentration of users in the single market is not a single issue, which has also deeply influenced the two exchanges by Chinese regulations. As is well known, the Chinese government has strict regulation in this field, while regulations are also relatively opaque, making the fluctuation risk of platform currency even greater.

For example, last year, OKEx founder Xu Mingxing was taken away by the police without warning to assist in the investigation. Interestingly, Xu Mingxing was the "only" private key manager, so OKEx closed its coin withdrawal service, resulting in a 31% drop in OKB over the past two days.

Overall, although the two exchanges are actively targeting the global market, due to regulatory uncertainty caused by user concentration, OKEx and HuoCoin are unlikely to raise funds through compliant listings in the United States like Coinbase; Due to regulatory issues, the launch speed of encrypted derivative products on both exchanges has lagged behind that of Coin An and FTX, reflected in the market value of platform currency, which is only 4.9% and 5.4% of the estimated market value.

Coin security also needs to face regulation

Not only OKEx and Huo Coin Exchange, but also Qian An is facing regulatory issues, just switching to US regulatory agencies.

After experiencing rapid growth in 2017 and 2018, Coin An began to worry about diversion issues and avoid being sued by regulatory agencies in various countries for "concern". Therefore, in 2019, Coin An and its US partner BAMTradingService collaborated to establish BinanceUS, while refusing to serve US users again.

It is evident that in 2019, Coin Security has already begun to face regulation.

Last month (March), Bloomberg cited sources familiar with the matter, pointing out that Coin An is being investigated by the US Commodity Futures Commission (CFTF) and is providing derivative trading for US users without permission. It seems that the diversion from 2019 cannot avoid subsequent accountability.

The Backward Advantage of FTX

The FTX exchange was established in May 2019, when Coin On was already in the process of establishing BinanceUS. The advantage of backwardness has enabled FTX to introduce stricter compliance processes from the first day of operation. According to FTX's KYC regulations, users must provide their legal name, passport, or proof of identity from the governing government when registering, and registration cannot be done in areas prohibited by law.

In this way, FTX addresses the current concern of CFTC in the United States regarding Coin Security: providing services to American users.

Image source: FTX Exchange

In terms of innovation, FTX is more like the Coin Safety in 2017. It actively creates more new products and provides them to users in the way of "villages surrounding cities". It is like a contract "Move Contract" to predict price fluctuations, or a "forecast contract" launched according to current events, such as the Trump contract and the Olympic 2021 forecast contract.

In addition to crypto derivatives, FTX has also brought traditional financial thinking into the crypto market, creating 'diversified commodities', including equity tokens and Pre IPO contracts. According to FTX founder Sam Bankman Fried, the reason for launching such products is that the market for these products is larger than expected, and traditional investors in the non crypto industry will also be attracted by them.

The market for these products is larger than expected, and in addition to FTX users wanting to trade, traditional investors in the non crypto industry will also be attracted by them; More importantly, no one in the market provides this service, we are the only one.

Compared to the three major exchanges, FTX's recent products are not limited to crypto derivatives, and their diversified products have gradually blurred the boundary between traditional finance and crypto finance. This is related to the founder's background in Wall Street's quantitative funds.

Not only product thinking, but FTX also brings into traditional finance the "trading thinking". The sub account system makes it easier for users to control fund risks. Last October, the "spot leverage service" was launched, allowing users to mortgage spot (cryptocurrency) and borrow other assets. In addition, the original "mixed margin system" maximizes the efficiency of funds in a single sub account.

On the other hand, the absorption of many traditional investors or traders increases the demand for funds. FTX also provides P2P lending services, providing extremely low risk "passive returns" for users who only need stable returns.

The founder of Coin Security, CZ, has stated that there are currently no plans to go public. However, as cryptocurrencies become mainstream, Coin Security's scale is not comparable to 2017. "Seeking stability" is a relatively wise choice, but it has also led to Coin Security losing its original advantage: product iteration speed.

Compared to Coin An, FTX is much like a technology or growth stock, with fast product iteration speed and the advantage of being a laggard, which allows it to better understand regulatory trends and establish stricter compliance processes.

And this advantage is reflected in the growth rate of trading volume.

Both transaction volume and destruction volume exceed Coin An

According to CoinGecko data, the FTX exchange's 24-hour contract holdings are the third largest in the world, reaching $5.2 billion; At the same time, the 24-hour position of Coin An was $9.14 billion.

It is worth noting that the trading volume of the Coin On Exchange is the world's largest, but in the past year, the trading growth of FTX has surpassed that of Coin On.

Last April, the daily trading volume of crypto derivatives on the FTX exchange was $550 million, while at its peak this year, the daily trading volume of FTX reached $17.6 billion, with an annual growth rate of 3200%; Compared to the same period, the growth rate of Coin An was 2800%.

Image source: CoinGecko

The rapid growth of FTX is also reflected in the destruction of platform coins.

The FTX exchange's FTT destruction volume in Q4 of 2020 increased by 257% compared to Q1, from $2.8 million to $10.02 million in Q4. The destruction volume of Coin An BNB increased from $52.34 million in Q1 to $165 million in Q4, with a growth rate of 210%; The HT destruction volume of HuoCoin increased by 45%, while OKEx increased by 26%, which is the smallest increase among the four major exchanges.

The "percentage" of the destruction volume of the four major platform coins Q1 to Q2-

Weekly price changes and total destruction of FTT

Is it possible for FTX to go public?

At present, in addition to the Coinbase exchange, Bakkt, the "first compliant" physical delivery crypto exchange, will also be publicly listed through a merger with SPAC company VPC ImpactAcquisition Holdings; A spokesperson for Kraken, an established exchange, also confirmed that it will consider a direct listing in 2022.

Bakkt is expected to list on the New York Stock Exchange (NYSE) in Q2 this year, with an estimated market value of $2.1 billion, while Kraken is valued at over $20 billion.

Although Sam Bankman Fried (SBF) has never mentioned going public as his goal, it's hard to imagine that he from Wall Street did not consider going public. In theory, it is still too early to talk about a public listing at this stage, but we do see that FTX is strongly moving towards the public eye.

At the end of last month, under the leadership of Miami Dade County Mayor Daniela Levine Cava, FTX signed a contract with the NBA Heat for $135 million, of which $90 million was allocated to local government governance. Additionally, FTX pays $2 million annually to the Heat.

On April 7th, the Heat announced that starting from the 2021-2022 season, their venue will be officially renamed as FTXArena (FTX Stadium). The Heat has become the official exclusive cryptocurrency trading partner of FTX, and in addition to making appearances at home, they will also assist the Heat in holding cryptocurrency competitions or other cryptocurrency promotion activities.

Bitcoin has entered Wall Street, and the popularity of NBA TopShot suggests that the public is recognizing cryptocurrencies. The Heat attracts 2 million tourists every year, and reaching such an agreement is not only a key element of FTX expansion, but also a symbol of entering the mainstream.

Image source: Boardroom

Overall, Coin An has entered a stable period and FTX is in a high-speed expansion stage. Coin security is now a leading industry leader, and every move has attracted the attention of the market or regulatory authorities; That is to say, regulatory issues must be considered before launching products or services. In addition, Coin An is already a company with a thousand employees, which also means that innovation may slow down.

In contrast, FTX is in a stage of rapid expansion, more like a growth stock. On the one hand, according to the needs of the community, create new types of encrypted derivatives, while introducing derivatives with traditional financial thinking to attract traditional investors; On the other hand, it has also brought into the trading mindset of Wall Street, such as "spot leveraged trading" and "mixed margin system" to strengthen risk control and fund efficiency.

Finally, the advantage of latecomers allows them to understand regulatory risks, coupled with the background of traditional Wall Street, as well as starting to interact with the government and reach the general public, it is not difficult to imagine the possibility of FTX targeting a public listing in the future.