Evaluating BALN: How the Balanced token stacks up to other DeFi

Now that we’re about two weeks past the launch of Balanced, we’re able to digest the initial wave of data that the platform has generated.

While I’d argue that we’re still in the very early stages and that this data should be taken with a grain of salt, I do think we’re far along enough to begin making some comparisons for the sake of curiosity and/or entertainment.

Governance Tokens

Before we dig into the data, let’s establish an understanding of what governance tokens are.

In most cases, governance tokens provide a slice of ownership in the protocol itself. Now, this isn’t a legal form of ownership like owning shares in a company would be, but it does provide the holder rights to decision making about the protocol and a say in the future direction of the protocol. In that sense, it mirrors ownership in the traditional sense. Just like so much of DeFi has an analog in traditional finance, “ownership” is no exception.

In many cases, people are often confused about why these tokens are worth so much. Even I fell trap to this thinking in the early days of DeFi. “Why is a token that only provides a say in governance worth so much?”

But then you realize that these protocols currently generate millions, if not tens of millions, of dollars in revenue per year.

If you were offered a slice of ownership in an entity that generated that much in revenue per year, you’d probably put a decent value on that slice. The slice, in this case, is the token.

Some of these tokens, such as COMP (Compound), don’t even offer a dividend or payout of the fees generated. Yet. But the fact that token holders could some day vote to do just that creates intrinsic value.

How Balanced Stacks Up

Below is a list of some of the more popular (based on either total value locked or market cap) DeFi tokens and protocols. All these figures are collected from CoinGecko.

The marketcap is calculated by multiplying the price by the circulating supply.

Total value locked is the amount of capital deposited into the platform in the form of loan collateral or liquidity trading pool.

Now, not all of these tokens work the same and some offer greater benefits than others. In addition, their distribution process is different as well, which may create some discrepencies in the way we’d compare them. (For instance, 400 UNI was distributed to any wallet that had ever used the platform, which has probably inflated the marketcap a bit more than others.)

I think the most interesting figure in this list is the ratio of marketcap / total value locked. There seems to be a general market consensus that this ratio should land somewhere around 0.4–0.5, meaning that the marketcap is around half as big as the total value locked.

Now, whether the market is “correct” or not at this point is hard to gauge. There are obviously outliers in this as well (such as UNI, which I referenced above, as well as CRV).

However, if you hold BALN, it’s the clear outlier at only about 0.05 of marketcap compared to its total value locked. In black and white terms, this would indicate the marketcap should be larger than it is now. The quickest way for that to happen is for price to go up.

But there’s also a chance that the market is already pricing in the fact that the supply will continue to increase at 100,000 BALN per day for the next ~45 days or so. However, many of the tokens listed above still have a large proportion of their supply set for distribution, a fact that hasn’t seemed to impact their own ratios too much.

Price Patterns

As an additional metric for comparison, below are the price patterns for each of these tokens.

In a couple instances, the market timing may have played a larger role than anything in how these tokens were priced. For instance, BNT was launched during the 2017 bull market, and MKR just afterward.

In addition, CRV was launched immediately prior to the DeFi crash that happened in the late summer / early Fall, which may have altered that token’s trajectory as well.

But aside from certain exceptions, the pattern has been a spike upon launch, followed by a crash, followed by an upward trend over time, indicating that as the revenue grew in terms of TVL, so did the token price. This would make sense, as a growing platform means growing revenues, which would mean the rights to governance would be valued more highly.

Take a moment to look through these charts:

Price history of MKR
Price history of COMP
Price history of AAVE
Price history of UNI
Price history of CRV
Price history of SUSHI
Price history of YFI
Price history of BNT

It should be pointed out that only a handful of projects were included here, meaning it’s a relatively small sample size.

Similar to the patterns above, BALN saw a spike to around ~$80 upon launch, followed by a general trend downward, just as many other governance tokens have seen.

The question for BALN holders or prospective BALN holders then becomes: will the token price start to see an uptrend as more and more value is added to the platform?

What’s encouraging is that the trend is moving upward when it comes to total value locked. Take a look at the charts below, created by ICONNation member Sp3len:

As you can see, the various pools continue to see an upward rise in the amount of value locked. That’s an encouraging trend.

Whether or not you believe BALN is currently undervalued is up to you to decide, but hopefully the numbers collected and presented here are enough to help you make a confident assesment. Again, this is a small sample size and the market as a whole also comes into play, so be sure to do further research into more DeFi protocols if you’d like to bolster your confidence in your assessment.

If you haven’t already done so, be sure to read my ICON DeFi Guide, which provides a beginner’s level overview to various DeFi concepts and how they’re going to be implemented into the ICON ecosystem.




ICON contributor and analyst, ready to hyperconnect the world. Twitter: @iconographerICX

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ICON contributor and analyst, ready to hyperconnect the world. Twitter: @iconographerICX

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