Putting the store of value argument and participation/governance rewards (~17% right now from reserves) aside and just focusing on the network utility we can calculate the investment return using the following parameters and a basic simplified model:
- N: number of transactions per second
- F: transaction fee
- P: profit margin (net profit percentage to the network revenue after deducting costs like running relay/archival nodes)
Investment Return Ratio: N360024365F*P/10B
- N: 18, F: .001, P: .1 → IRR = 0.0000056 (now)
- N: 1000, F: .001, P: .1 → IRR = 0.00032
- N: 10000, F: .001, P: .5 → IRR = 0.016 (reasonable return)
- N: 46000, F: .001, P: .5 → IRR = 0.07
A 7% return given other factors such as scarcity makes Algo a significantly better investment than most other available options.
Let’s say the Algo’s price increases to $100 and therefore the transaction fee is reduced (by governors) to .0003:
- N: 46000, F: .0003, P: .5 → IRR = 0.02
A 2% return is still very good for a long-term value preserving asset.
WDYT?
