What’s the value of ICONbet’s TAP token?
A fun thought experiment and attempt to determine the value of ICONbet’s token, TAP
Disclaimer: This content is for informational purposes only, you should not construe any such information or other material as investment, financial, or other advice.
If you follow the ICON ecosystem, it’s practically inevitable that you’ve heard of ICONbet — a relatively new gambling DApp built on the ICON protocol (and currently the transaction volume leader relative to other DApps in the ICON ecosystem).
On first glance, when I first saw ICONbet, I figured — “great, another blockchain gambling DApp.” It seemed as though each platform had a gambling DApp — I wasn’t sure if it made sense for ICON to have its own.
However, after doing some additional research into their token model, I grew a bit more intrigued. Don’t get me wrong, practically every blockchain gambling platform issues it’s own token as an incentive for participation — but ICONbet’s model came off as unique and worth further investigation.
Typically, these tokens provide their owner with not only governance rights, but also a dividend payment, distributed from the pool of profits that the DApp brings in via gambling losses of its players.
Once I learned more about this — and after doing some additional research — I realized that there’s a decent possibility that blockchain gambling can ultimately entirely take over the existing gambling industry.
First, take the fact that participants have a chance to gain equity in the casino (via token ownership) as described above. Then, consider the following advantages of blockchain platforms over legacy online (as well as brick-and-mortar) gambling platforms:
- The odds are written into the smart contract, meaning you can verify whether or not the odds are as the casino says they are, and they also can’t be adjusted without users seeing the changes. In a traditional casino, it’s easy for the house to adjust the odds on a slot machine without anyone knowing it just got harder to win.
- With everything written into a smart contract, a centralized entity cannot block or restrict funds or withdrawals. There are plenty of instances of online casinos blocking the withdrawal of funds for users, for various reasons. With the right smart contract in place, this can’t happen.
- By allowing payment with cryptocurrency, blockchain gambling reduces the friction that many may encounter as a result of local regulatory or banking issues surrounding online gambling.
Accordingly, it’s reasonable to believe that ICONbet has placed itself in an advantageous position to capture what could be a macro-flow away from legacy platforms to blockchain.
What exactly is TAP?
With that in mind, let’s take a look at the ICONBet’s equity token, TAP.
Here is the ICONBet white paper description of TAP:
“TAP tokens represent ownership of the ICONbet platform. There will be 625,000,000 total TAP minted. During the first 500 days of operation, ICONbet will be releasing 1,000,000 TAP per day. At the end of the 500 days, 80% of tokens will have been distributed to players, while 20% of the tokens will be kept by the founding team. TAP holders will have ownership of revenues generated by the ICONbet DAO.”
(Note: Based on some general research, the 80/20 ratio of distribution between community/founders is relatively generous. TRONBet, for instance, only issued 60% to the community, while EOSBet, issued 70%.)
So just exactly how are those 1,000,000 TAP distributed each day?
“Each day, 1,000,000 TAP tokens will be distributed to individuals that played on ICONbet that day. The formula for calculating an individual’s daily distribution of TAP tokens is below:
Distribution to Individual Player = (Individual Player’s Betting Volume / Total Betting Volume) x 1,000,000”
In other words, let’s assume you’re playing ICONBet. Let’s assume that in a 24-hr period, there are a total of 100,000 ICX bet among ALL players on the platform. Out of that 100,000 ICX, we’ll assume you’ve bet a total of 5,000 ICX. Keep in mind this doesn’t take into account how much you won or lost — only how much you’ve wagered in total.
Your 5,000 ICX accounts for 5% of the total betting volume for that day. Accordingly, you’re entitled to 50,000 TAP (5% of 1,000,000) that day, which is distributed to your ICX wallet automatically.
As alluded to above, one of the benefits of owning the TAP token is the right to participate in governance of the platform.
Just what does this mean?
Already, TAP holders have been able to weigh in on several votes regarding the future of the platform. They’ve included which game(s) to add next, details over a revenue split, and how the dividend distribution would work.
Much like the ICON network, voting power is determined by the amount of TAP each individual holds, adding additional incentive to own the token.
Now that you have your 50,000 TAP, what will that allow you to earn?
Your earnings each day will be distributed from the ICONbet treasury, which is stocked with the overall profits that the ICONbet platform makes that day as a result of losses from players. (As they say, when it comes to gambling, “the house always wins” over the course of many bets.)
Let’s pretend there are 10,000 ICX in the ICONbet treasury for that day. The formula for calculating your dividend is:
( 0.7 ) x Treasury Excess x (My TAP / Mined TAP)
(The reason only 70% of the excess is currently allocated is due to the 20% the team retains, plus 10% that has been set aside for the “Wager war” side game currently in operation).
As of the writing of this article, there are 132 million TAP that have been mined already (out of an eventual 500 million). In this case, if you held 50,000 TAP, your formula would be:
(0.7) x 10,000 x (50,000 / 132,000,000) = 2.65 ICX dividend (for that day)
So what is that TAP really worth?
How exactly do we attempt to value the TAP token?
First and foremost, let’s establish there is an intrinsic value of the TAP token. Holding the TAP token provides you dividends of ICX, each and every day. That, on its own, proves it value.
For the purposes of making this calculation, let’s use ICONbet’s dividend distribution formula for when all TAP has been mined (the formula used above assumes not all TAP has been mined). Not only will this represent conditions over the long-term (since TAP mining will expire in about a year), but it will also represent the fact that there will be no way to acquire TAP tokens other than by purchasing on the market.
When all TAP has been mined, the dividend formula is as follows:
Treasury Excess x (My TAP / 625M Total TAP tokens)
That means in one day, assuming a treasury excess of 10,000, a single TAP token will earn you 0.000016 ICX.
That’s…not much. But that’s just a single day. And it’s just one token. Let’s extrapolate this over the whole year and multiply this figure by 365. The result is 0.00584.
In other words, over the course of a year, a single TAP will earn you 0.00584 ICX (assuming the treasury is 10,000 per day).
Now, there is no existing model for valuing this type of asset. So let’s borrow from traditional models for the sake of this thought experiment and utilize the Gordon Growth Model, which is used to value the intrinsic value of a stock based on dividends. Here is how the growth model works:
So, in our case, D(1) is 0.00584.
In terms of the other two values, we have to make some assumptions. Let’s be conservative and assume dividends will grow at 10% per year. This would be a high rate for traditional stocks, but it’s likely very conservative in crypto.
For required rate of return — which is a complex and imprecise mechanism for determining risk — let’s roughly estimate 20% (my underlying basis for risk comparison in this case is other cryptocurrencies, not traditional investments).
Accordingly, our formula reads as: 0.00584 / (20% — 10%).
Based on this, the determined price of one TAP is 0.0584 ICX. That means, if you hold 1,000,000, they’d be worth 58,400 ICX.
However, what if ICONbet attracts more users over time? The result would likely be a higher excess treasury, as more players play. Currently, the excess treasury typically falls somewhere between 3,000–7,000 ICX per day (this is just based on my general observation, so it’s not an exact figure).
What if ICONbet eventually gains enough momentum to have an excess pool of, say, 50,000 ICX?
In that case, one TAP would bring in 0.00008 ICX per day, or 0.0292 ICX per year. Under those conditions, our pricing model would indicate that each TAP is worth .29 ICX per TAP.
All of this is, of course, a best guess based on hypothetical figures and conditions. However, based on the fact that TAP guarantees ICX dividends each and every day for perpetuity (as long as the excess treasury is in the black and ICONbet still exists), it’s not unreasonable that people may be willing to surrender some ICX today for returns over the long term (especially if they believe the price of ICX will increase!).
Additionally, as of this writing, there is no exchange that has listed TAP — so even if these figures are perceived as accurate, it would be difficult to buy or sell based on that price. One day, the team does hope to get listed on an exchange, as many other gambling tokens have.
Regardless of how it all turns out, watching the evolution of the TAP economy within the ICON community will be interesting to watch!