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The initial coin offering (ICO) world is growing up. Gone are the days when investors would throw money at any project with a clever idea and a half-baked whitepaper. I wouldn’t go so far to say the bubble has burst, but it is a different world already than 2017. Investors in the space are looking closely now at valuations, some even requesting peer-reviews of whitepapers and tokenomics. Still there is much uncertainty as to how to value companies, and within the industry many opinions differ as to what holds value.
Yes, the ICO world shifts quickly. Everyone keeps nudging forward to the next conference, living out of suitcases, and reminiscing life two months prior when the champagne flowed and Bitcoin was nearing $10,000. How fickle this industry can be, especially when it comes to projects that are trying to romance smaller investors.
It seems clear now that the shift is towards fundraising from VC funds, investment pools and other traditional investors. These investors want in on the best projects only, so require substantial due diligence. One of the first questions they’ll ask if the valuation is fair. This is challenging because there is no standard in the crypto world for what should constitute a company’s tokenomics. And showing value runs the slippery slope of being considered a security. But we will go into some of the details here of what can be considered the main elements of valuing tokenized projects.
What are distributed applications? / YouTube / Complexity LabsDapp or Protocol
One of the first elements to understand about valuation depends on whether or not company is classified a ‘Dapp’ — short for distributed application, or a protocol token with an open network for other developers to further build solutions on top of your platform in the form of Dapps. Protocol tokens are not just platforms like Ethereum or EOS, this can also refer to other companies that are opening up to development in more specific areas. For example, our revolutionary new payroll system using the PEA token is a protocol token as we will allow developers to create enterprise or industry-specific applications based on our IP.
Many investors I’ve met recently have told me they prefer investing in protocol tokens, because even if the company fails, if others are brought in to build out on the network, then the token still can have value. It also gives more value in spending funds to build a community when this includes developers building to increase token value. But there can only be so many protocol networks, and someday consolidation will wreak havoc in this area as the fate of token holders is uncertain when a company is acquired for the value of their IP.
Many companies developing Dapps will become of tremendous value in the future even though the protocol layer apps have been the primary driver of value up until now. This is because with a Dapp you can have significant value without mass adoption.
For protocol tokens the value lies in building mass adoption through a large community of developers. In most cases this is easier to accomplish with fully open-source community-driven development schemes. But some companies have managed to build this with a proprietary system.
Valuation
Many people say there are no fundamentals in the cryptocurrency world. But this is simply not true. Sure, some companies have not reached a development stage yet where they may have a fundamental value, and values may be more difficult to understand, but they are still present. Valuation of stocks and other equity investments is easier for most people to understand than utility token valuations. For equities, most valuations are based on income, growth or assets. Security Token Offerings marry this equity model with the liquidity of tokenized investments, and they can be treated as equities for valuation.
For utility tokens that are protocols the value is in the usefulness of the system and the growth of the user base. This can be very challenging to quantify because the potential markets of protocol tokens often have worldwide impact, including emerging markets, and the market size data is not available in many of these regions.
Dapps are a little easier to value because they can be quantified as the value of the good or service then multiplied by the projected user base to show growth. Companies who operate as a pre-sale of goods or services can apply this method. Customer acquisition cost then becomes the limiting factor, but rarely have I seen projects calculate this.
“It is very difficult to change consumers behavior. If you do you become the next Steve Jobs or Jeff Bezos,” said, CEO Intrinsic Value Investment Partners, when I interviewed him at the in Atlantic City.
It is important that a company can demonstrate that it is able to actually achieve what it sets out to do. And some of the challenges of adoption of blockchain technology with management of key codes and access of services has not been addressed by many companies commencing token sales.
Image By ShutterstockReserves
As companies are finding it more challenging to raise funds now, many are reducing what they are raising at the current stage and retaining more tokens for future sales. This can be a challenging area when it comes to valuation as too much reserves can create unreasonable valuations, while too little reserves will leave the company with little or no runway.
Similar to traditional angel and venture funds, many of the more prominent token sale investors now look for companies to seek out seed funding then prove each step of the valuation as they search for additional funding.
Babay added: “With tokenization you need to prove your value will be sustained for multiple stages. You need to quickly validate your business model”
This has traditionally been phrased by the investment world by: “are you fundable to the next level?” And leaves many questioning the future of blockchain companies that have raised millions on just a concept and when they run out of the $10–50mm initially raised, will they have spent those funds wisely enough to warrant a traditional Series A round?
Crystal Stranger, EA, author of, has more than 14 years of tax experience, with a focus in international tax. She has been writing about cryptocurrency tax and regulatory issues since 2019.
She’s the founder and CEO of, a blockchain payroll technology company. This new, transparent payroll will promote fair wages and eliminate the need for black market labor.
Yes, the ICO world shifts quickly. Everyone keeps nudging forward to the next conference, living out of suitcases, and reminiscing life two months prior when the champagne flowed and Bitcoin was nearing $10,000. How fickle this industry can be, especially when it comes to projects that are trying to romance smaller investors.
It seems clear now that the shift is towards fundraising from VC funds, investment pools and other traditional investors. These investors want in on the best projects only, so require substantial due diligence. One of the first questions they’ll ask if the valuation is fair. This is challenging because there is no standard in the crypto world for what should constitute a company’s tokenomics. And showing value runs the slippery slope of being considered a security. But we will go into some of the details here of what can be considered the main elements of valuing tokenized projects.
What are distributed applications? / YouTube / Complexity LabsDapp or Protocol
One of the first elements to understand about valuation depends on whether or not company is classified a ‘Dapp’ — short for distributed application, or a protocol token with an open network for other developers to further build solutions on top of your platform in the form of Dapps. Protocol tokens are not just platforms like Ethereum or EOS, this can also refer to other companies that are opening up to development in more specific areas. For example, our revolutionary new payroll system using the PEA token is a protocol token as we will allow developers to create enterprise or industry-specific applications based on our IP.
Many investors I’ve met recently have told me they prefer investing in protocol tokens, because even if the company fails, if others are brought in to build out on the network, then the token still can have value. It also gives more value in spending funds to build a community when this includes developers building to increase token value. But there can only be so many protocol networks, and someday consolidation will wreak havoc in this area as the fate of token holders is uncertain when a company is acquired for the value of their IP.
Many companies developing Dapps will become of tremendous value in the future even though the protocol layer apps have been the primary driver of value up until now. This is because with a Dapp you can have significant value without mass adoption.
For protocol tokens the value lies in building mass adoption through a large community of developers. In most cases this is easier to accomplish with fully open-source community-driven development schemes. But some companies have managed to build this with a proprietary system.
Valuation
Many people say there are no fundamentals in the cryptocurrency world. But this is simply not true. Sure, some companies have not reached a development stage yet where they may have a fundamental value, and values may be more difficult to understand, but they are still present. Valuation of stocks and other equity investments is easier for most people to understand than utility token valuations. For equities, most valuations are based on income, growth or assets. Security Token Offerings marry this equity model with the liquidity of tokenized investments, and they can be treated as equities for valuation.
For utility tokens that are protocols the value is in the usefulness of the system and the growth of the user base. This can be very challenging to quantify because the potential markets of protocol tokens often have worldwide impact, including emerging markets, and the market size data is not available in many of these regions.
Dapps are a little easier to value because they can be quantified as the value of the good or service then multiplied by the projected user base to show growth. Companies who operate as a pre-sale of goods or services can apply this method. Customer acquisition cost then becomes the limiting factor, but rarely have I seen projects calculate this.
“It is very difficult to change consumers behavior. If you do you become the next Steve Jobs or Jeff Bezos,” said, CEO Intrinsic Value Investment Partners, when I interviewed him at the in Atlantic City.
It is important that a company can demonstrate that it is able to actually achieve what it sets out to do. And some of the challenges of adoption of blockchain technology with management of key codes and access of services has not been addressed by many companies commencing token sales.
Image By ShutterstockReserves
As companies are finding it more challenging to raise funds now, many are reducing what they are raising at the current stage and retaining more tokens for future sales. This can be a challenging area when it comes to valuation as too much reserves can create unreasonable valuations, while too little reserves will leave the company with little or no runway.
Similar to traditional angel and venture funds, many of the more prominent token sale investors now look for companies to seek out seed funding then prove each step of the valuation as they search for additional funding.
Babay added: “With tokenization you need to prove your value will be sustained for multiple stages. You need to quickly validate your business model”
This has traditionally been phrased by the investment world by: “are you fundable to the next level?” And leaves many questioning the future of blockchain companies that have raised millions on just a concept and when they run out of the $10–50mm initially raised, will they have spent those funds wisely enough to warrant a traditional Series A round?
Crystal Stranger, EA, author of, has more than 14 years of tax experience, with a focus in international tax. She has been writing about cryptocurrency tax and regulatory issues since 2019.
She’s the founder and CEO of, a blockchain payroll technology company. This new, transparent payroll will promote fair wages and eliminate the need for black market labor.