Extended Rally by BTC Could Push LooksRare to New ATHLooksRare may be the first token to introduce a business model that distributes 100% of its primary revenue source, a 2% market fee, to the token holders that participate in their staking program. Accordingly, we need to adjust the methodology used to determine its value. But how?
First, look at the expected returns that attract investors to the staking mechanism deployed on Ethereum 2.0. Annual rates vary so I will use a standardized rate of 6%. ETH 2.0 attracts token holders to their staking program by returning 6% of the quantity of ETH staked. ETH is a low-risk project in the crypto space and investors expect the value of ETH to rise during the staking period. LooksRare has a similar mechanism which also distributes ETH (WETH). However, the LooksRare project has a higher risk profile due to the infancy of the project. Competition will be vigorous for the NFT resale marketplace going forward. The development team will have to take advantage of this short-term competitive advantage to expand the capabilities of the platform and reach new ecosystems. Implementing a layer-2 solution on MATIC or Arbitrum to address gas fees may be critical to their long-term success. Considering this uncertainty, 18% would be a reasonable rate to expect from a project with a higher risk profile.
Now that we have a reasonable rate of return, how do we value this project? Simple, we estimate the revenue range generated from market fees, divide this by the total token supply, and calculate the value of each token given an expected return of 18%. Excluding the first 15 days of sales, the lowest 30-day amount was 18,600 WETH. The highest 30-day amount was 79,000 WETH. This calculates to a conservative valuation between $4.19 to $17.80 per token and an average of $13.09 per token. The valuations assume that all tokens will receive WETH. This will never be the case and will increase the return for those that do. Either way, this token is highly undervalued and may see a significant increase in price as more investors become familiar with this intriguing project.
Be cautious of price movements for Bitcoin. If this current BTC rally reverses direction, LooksRare will lose value at a higher rate than BTC according to my comparison of their respective RSI values. A lower price is a great opportunity to pick up more tokens while you can.
Feel free to leave any comments or questions.
