Establishing KIN’s monetary value (USD)
Several models have been used to justify the value for different cryptocurrencies such as Bitcoin and Ethereum. Chris Burniske wrote a post on Cryptoasset Valuations, where he explains the equation of exchange, and its application to valuing crypto.
The equation showcases the relationship between money supply, the velocity of money, the price level and an index of expenditures.
For a given period: MV = PQ — where:
- M = circulating money supply
- V = velocity (how often each coin changes hands)
- P = average price of goods in the crypto economy
- Q = quantity of goods in the crypto economy
How does this relate to Kin’s value (and price)?
Kin have taken this equation further, and referenced a paper by the Bank of Canada, that uses the equation of exchange, to derive an equation for the exchange rate (S) of a crypto-asset in a growing economy.
For a given period (t):
- M = total money supply (Kin)
- V = velocity (how often each coin changes hands in the ecosystem)
- T = USD volume of trade in the economy (Kin’s GDP)
- Z = money held in exchanges by investors (Kin)
As we build our model, we can start to see how the exchange rate (S) is affected by different components of the ecosystem. For example, increasing (T), the GDP of the economy, or (Z), money being held by investors, causes an increase in the exchange rate. Increasing the total money supply (M) with the KRE, without a significant increase in (T) leads to a drop in the exchange rate.
Why is this important?
To become truly valuable, Kin needs to increase the size of its GDP (T) as much as possible. To illustrate:
As Kin’s GDP grows, it causes the users in the ecosystem to need to have Kin so they can participate in premium content in the ecosystem. (Games, Apps, Gambling, Social Media, etc.). They can either buy Kin directly, or work for it by interacting with brands such as swelly, who buy Kin from the exchanges, using Kin’s atomic swap.
In other words, the bigger Kin’s GDP becomes, the bigger the demand for Kin from users becomes, and the bigger the volume purchased from exchanges daily.
This buying pressure drives the price up to an equilibrium, determined by:
- Kin’s Ecosystem size, and current “pegged” value. (GDP)
- Speculators’ perception of Kin’s future price.
Eventually, the price should stabilise somewhere between the Kin’s pegged value, and speculators’ perception of its future value. At this point, Kin attains a fairly stable price, that is not as volatile as traditional crypto.
Kin’s pegged value?
Contrary to popular belief, Kin’s value is not pegged to anything. However, Kin has a Schelling point, or taste-maker (levers), currently set at $0.01. Simply put, Kin is signalling that it’s value in the ecosystem should be at around $0.01. Up until Kin’s price in exchanges rises to this point, brands buying Kin to pay users for valuable work benefit from the arbitrage. This is an incentive for brands that decide to adopt Kin early.
However, Kinit, which allows users to convert their Kin to gift cards, has to temporarily subsidise the USD value for this work properly.
Before equilibrium, Kin may either open up the atomic swap to investors and brands alike, or only allow brands to use the swap. Initially limiting the swap to brands would be an incentive for more brands to drive value, with each arbitraged swap being used to pay a user who has ‘worked’ in the ecosystem and grown the GDP.
How is Kin growing its GDP?
To increase Kin’s demand, Kin needs to use the Kin Rewards Engine and User Rewards to incentivize economic activity. (Creating apps, building services, Buying/ Selling/ Working, etc.). The more interesting things there are to do in the ecosystem, and the more active users there are in the ecosystem, the higher Kin’s GDP becomes. Higher GDP means a bigger demand and valuation for Kin.
To do this, Kin needs to:
- Complete integration of Kin into Kik and create an economy beyond themes. This must be done slowly to ensure the existing user-base is happy.
- Ensure the success of the 40 ecosystem apps launching in October. Each additional app is an additional spike in the GDP.
- Move Kinit from beta (add backup, identity, invites, other countries, etc)
- Opt in the bigger partners (IMVU, Unity, and other partners) they have secretly been working on.
- Market to more developers and partners,(not users) — who will then pull users into the ecosystem.
In Summary
In order to succeed, Kin needs to flesh out (T) by increasing the size of its ecosystem (GDP).
This economy will create demand, which will in turn drive the value of Kin. At the same time. Also, Kin needs to manage its investors (Z) whose confidence in Kin’s future is also important, for the project to succeed.
