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Cardano Forum / How does the ADA coin have value?
« on: December 03, 2020, 08:59:28 AM »
Where drives the value of the coin?
If we put the day trading to one side, what forces dictate the value of ADA?
If we look at regular principles of supply and demand, I make the following observations:
Supply
- Max supply at 45 BN (for now, can this be changed by popular vote in governance cycle?)
Compared to other coins, this is on the higher end, increasing supply
- Reduced by staking pressure - holders want to stake as it earns them coin, locking up supply from the market
- Increased adoption will lead to reduced supply
Demand
- Interesting use case that spans multiple blockchains and use cases
- Staking rewards increase demand
- Low transaction fees
So as we know, when Supply is greater than Demand, the price trends down, and vice versa.
My evaluation is that the whole business case for using the Cardano platform relies on low transaction fees and interoperability.
Low fees
Low transaction fees should increase demand and reduce supply, since more people will want to get hold of ADA to use it in their opertions, with the fees being skimmed through to stakers to lock up in stake pools.
Interoperability
Likewise, the more uses that ADA has, the more people will want to hold it to use it, resulting in the same flow of supply as above.
So as a non-business holder, should my strategy be to amass ADA and sell to those who need to use it for critical business functions?
Some issues I have with my above reasoning:
- Low transaction fees would surely reduce the risk/reward ratio for stakers, reducing demand from the blockchain validator side
- A maximum supply is a risk to businesses who choose to operate on Cradano. As adoption increases, supply decreases and it becomes more expensive to operate using Cardano. Business that are highly susceptible to unit economics will run away from that. Compare that to fiat currencies, they have significantly less risk here.
What are your thoughts on the underlying value of holding ADA? Do you agree with my reasoning above?
I'd like to hear from you all, I think these considerations are important for long-term holders and believers of DLT as, when the market becomes more widely adopted by the business world and markets become less volatile, this will ultimately drive the value of any coin.
If we put the day trading to one side, what forces dictate the value of ADA?
If we look at regular principles of supply and demand, I make the following observations:
Supply
- Max supply at 45 BN (for now, can this be changed by popular vote in governance cycle?)
Compared to other coins, this is on the higher end, increasing supply
- Reduced by staking pressure - holders want to stake as it earns them coin, locking up supply from the market
- Increased adoption will lead to reduced supply
Demand
- Interesting use case that spans multiple blockchains and use cases
- Staking rewards increase demand
- Low transaction fees
So as we know, when Supply is greater than Demand, the price trends down, and vice versa.
My evaluation is that the whole business case for using the Cardano platform relies on low transaction fees and interoperability.
Low fees
Low transaction fees should increase demand and reduce supply, since more people will want to get hold of ADA to use it in their opertions, with the fees being skimmed through to stakers to lock up in stake pools.
Interoperability
Likewise, the more uses that ADA has, the more people will want to hold it to use it, resulting in the same flow of supply as above.
So as a non-business holder, should my strategy be to amass ADA and sell to those who need to use it for critical business functions?
Some issues I have with my above reasoning:
- Low transaction fees would surely reduce the risk/reward ratio for stakers, reducing demand from the blockchain validator side
- A maximum supply is a risk to businesses who choose to operate on Cradano. As adoption increases, supply decreases and it becomes more expensive to operate using Cardano. Business that are highly susceptible to unit economics will run away from that. Compare that to fiat currencies, they have significantly less risk here.
What are your thoughts on the underlying value of holding ADA? Do you agree with my reasoning above?
I'd like to hear from you all, I think these considerations are important for long-term holders and believers of DLT as, when the market becomes more widely adopted by the business world and markets become less volatile, this will ultimately drive the value of any coin.