011: Valuing Creator Coins

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1. NFTs – the first mechanism for providing coin holders “cash flows”
Cash flows is in qotations because the NFT CC holder royalty does not get paid out in CLOUT but instead burns some of the creator coin. This is the first automatic mechanism to reward CC holders. This is a big deal as investors can move beyond speculation and begin to model a return on investment and can bring new money and stability to the platform.

2. Coin holder benefits are becoming expected for CC investments

This was inevitable now that there is a way to value some creator coins – NFT royalties. Keep in mind that we are only discussing the value of the creator coins and not the creators themselves. CC benefits can come in many flavors and may not just be monetary. We will discuss the possibilities in the sections below.

Let's Go Deeper

NFTs are bringing back inactive users and will likely drive new user growth too

It is just so easy to mint on BitClout vs. other platforms. Well done team. We have even seen @georgeblue94 resurface. 

Technology Adoption Curve

But you have already been reading enough about minting and buying NFTs lately, we’re here to discuss how NFTs help value Creator Coins(CC).

CC royalties provide a percentage of the sales of an NFT to the coin holders. It is “sales” plural because it occurs not only on the initial sale but on all future resales of that NFT. The number of resales will likely be a variable with high variance but we can keep things simple and look at the data for average resales.

Let’s lists the variables to consider when using NFTs to value a CC. 

1) Average CC Royalty(ACCR)

2) Average Quantity of Resales(AQR) per year(note this is across all pieces and how we account for number of outstanding NFTs) 

3) Average Selling Price(ASP) per year

4) Terminal growth of ASP

Then we can just use a present value function(want discounted cashflows) to value the creator coin.  

Substituting in our variables each cashflow is CF = ASP*ACCR*AQR

Fixed Number of Periods: PV[Fixed] = Sum(0 -> N) of CF/(1+r)^n where r is our discount rate and N is the number of periods before terminal growth 

Perpetuity once terminal growth rate hit: PV[Terminal] = CF(N) /(r-g)(1+r)^N where r is again the discount rate and g is the terminal growth rate of ASP (and thus cashflows).

Then the combined present value of the CC is PV[Fixed] + PV[Terminal] 

It would be nice to use actual royalties for specific pieces(rather than ASP and average CC royalty / also have payouts on actual sale date rather than year intervals) but until more data exists – this is likely the best approach for now until the market is more predictable and the NFT producer can lock a consistent royalty across all NFTs.

It is worth noting that variables 2 & 3 are series/artist/issuer dependent but because there is such limited data at this time it is worth sampling a similar grouping to determine the averages.

Finally - it is also difficult to determine when terminal growth will set in. The easiest choice is something short like 3-5 years since cashflows beyond that are more heavily discounted and thus worth less at the present day. The other choice is to be conservative and start with terminal growth and then you just have the very simple PV[Terminal] equation to calculate. 

Is valuing creator coins with NFT cashflows flawless? Of course not. Many things can change about the variables of the equation and furthermore the price can be irrational in the short-run or vary based on buyers/sellers using alternative methods to value the CC.

There is also a “catch” with NFT royalties. Some creators are making new accounts for their NFT projects and thus there are no royalties going to their personal CC holders. So you may believe in a creator and invest heavily in their CC but if you don’t pay attention to new project launches may miss out. It would be great if they could give all current coin holders a portion of the project’s CC but that would mean buying them first to distribute which might be asking a little much. Maybe a trade of personal coins for the project coins?

Here is seems to be the launch of a new project specifically for current CC holders:

Teen Social Media Preferences

Another solution would be for creators with projects to offer other benefits to their personal CC holders. We’ll discuss these possibilities below.

CC benefits can come in all flavors and you don’t have to mint NFTs

CC benefits are becoming very important because they offer tangible value in exchange for CC investments. This has become more pressing now that NFT artists and innovators are providing tangible cashflows. 

CC benefits do not have to be monetary but money tends to have the broadest appeal. Here are some benefits that we’ve seen being discussed:

  • Personal calls weekly or flexible but with fixed time limit. This is interesting but what is offered on the call – is it just social?
  • Advice on a subject in which the creator is an expert
  • Reinvestment of FR into the CC
  • Repurchase of CC on a regular cadence(must provide amount)
  • Percentage of creators total earnings(on and off BitClout) paid in CLOUT

This last option might be best for creators that have created separate NFT projects. In that instance the holders of the personal CC would be receiving a portion of the Creator Royalty rather than the Coin Holder Royalty.

The other important thing to consider is how the benefits are distributed. Just to the top X holders or to all the holders proportional to the ownership? The latter definitely is harder to manage but may be a fairer approach. We think there will be some automation tools similar to @GemPay that help automatically distribute benefits to CC holders. 

The top X coin holders is a method that works at lower coin prices and encourages additional investment but once your coin price gets high do you really want someone to have to invest $5k to get your CC benefits. Are they worth the $5k or at least the FR paid? 

These are all questions that need to be discussed among the community and may be the topic of our next video interview.

That’s it folks.

Potential topics for next week:

  • Reconciling CC cap table with Startup Equity
  • Unconventional NFT use cases

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