Locked Value

Today I want to share with you a video about how to estimate the actual value of cryptocurrencies. This is a difficult thing to do in general, but even harder in a young market like the one we're talking about here, with hundreds, even thousands of alt-coins that haven't even reached the maturity needed to be able to speak of any kind of price-discovery.

The first hurdle we encounter when trying to estimate the true value of any alt-coin with the exception of Ethereum, is that, if we're honest about it, this market is driven almost entirely by hype and speculation. Now don't get me wrong: that's not to say that there aren't a lot of coins with real use value and coins that will have real use value in the future. Still, in a market where meme-coins like dogecoin and shiba inu can literally make millionaires, it's hard to argue that the alt-coin market isn't driven by hype and speculation. But fear not: there are actually ways to see if a coin has value and potential for that value to go up.

The first thing to do when comparing coins is to forget about the price; the price of a coin isn't important at all. To make a judgement about the potential of the value going up or down, we look at the market-cap. So when you see articles about the next "ethereum killer," you have to ask the question if that coin's market-cap has the potential to rise above ethereum's market-cap. And believe me, that would be a humongous feat. Another way to see if a coin has future potential is to look at how the coin's being treated. Do must people hold the coin? Do they buy and sell to make a quick profit? Generally speaking, coins that are held will outlast coins that are only of interest to day-traders looking for a quick profit. The question then becomes: which coins are locked in place?

This brings us to the next indicator of a coin's value, and the main topic of the video; the Total Value Locked or TVL. According to Coinmarketcap.com:

To put it simply, total value locked represents the number of assets that are currently being staked in a specific protocol: this value is not meant to represent the number of outstanding loans, but rather the total amount of underlying supply that is being secured by a specific application by DeFi completely.
_{source: Coinmarketcap}

This is not simply the total amount staked; you can stake Cardano, but those ADA coins aren't locked in a DeFi protocol because Cardano doesn't have a thriving DeFi ecosystem yet. That's why Cardano is, for now, not present in the TVL listings. DeFiLlama has a listing right here. And if you look at it, you'll see in the last column the market-cap / TVL ratio, which indicates which portion of the coin's total market-cap is locked in DeFi protocols; it's a nice indicator to see if the coin is actually used, and therefore a nice metric for its use value. It's nice to see that LUNA is well inside the top 5 of this listing, especially if we consider that there aren't a lot of protocols active yet on the Terra blockchain; all together this would indicate that there's a lot of potential for LUNA's value to go up.

Anyhow, there are of course more factors to consider when trying to estimate a coin's value, but I think the below linked video contains some very sensible advice, some of which I've tried to convey here. But please, watch the video as well, even though its title is guilty of the hype and speculation I've mentioned before; the creator is honest enough and identifies as a speculator himself.

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