Basically, all token pitches include a line that goes something like this: "There is a fixed supply of tokens. As demand for the token increases, so must the price." This logic fails to take into account the velocity problem

The first practical problem with velocity is that it’s frequently employed as a catch-all to make the two sides of the equation of exchange balance. It often simply captures the error in our estimation of the other variables in the model.

The core thesis of current valuation frameworks is that utility value can be derived by (a) forecasting demand for the underlying resource that a network provisions (the network’s ‘GDP’) and (b) dividing this figure by the monetary base available for its fulfillment to obtain per-unit utility value. Present values can be derived from future expected utility values using conventional discounting. The theoretical framework that nearly all these valuation models employ is the equation of exchange, MV=PQ.

Crypto provides a new mechanism for organizing human activity on a global basis usingprogrammable financial incentives. It’s an opportunity to design information networks which canachieve unprecedented levels of scale by decentralizing the infrastructure, open sourcing thedata, and distributing value more broadly. What we’ve discovered is the native business model ofnetworks – which, as it turns out, encompass the entire economy.

Most of the use cases today involve compensating machine work (transaction processing, filestorage, etc.) with tokens: the building blocks of decentralized applications. But the greatestlong-term opportunity is in networks where tokens are earned by end-users themselves.

We’ve also realized how inefficient the joint-stock equity industry model is at accounting for anddistributing the real value created by online networks. The value of a share of stock is necessarilya function of profits; the price of Twitter’s stock only reflects Twitter Inc’s ability to monetizethe data – and not the actual worth of the service. Tokens solve this inefficiency by derivingfinancial value directly from user demand as opposed to “taxing” by extracting profits.