The Cryptoasset Store of Value Thesis

Introduction

One way of thinking about cryptoasset valuation says that only assets that can become a store of value (SoV) are deserving of high network value. This is a mental model that has been around for a while, and one that we largely hold when making investment decisions. So let’s unpack it.

You might think that high usage leads to high network value, i.e., if millions of people use a coin as cross-border payment or as gas for dapps, it must be valuable, right?

Generally, this can only be true if users want to hold the coin for a while, in addition to actually using it. If you want to use a coin that you don’t already own, but everyone who has the coin today just wants to hang on to it, you have to offer people a high enough price for it that they’ll let go. Conversely, if users are willing to get rid of the coin right after they’re done using it, there’s almost always more than enough to go around and no one has to bid up the price in order to use the network.

So whether or not a cryptoasset will become a SoV boils down to the following question: why would people want to hold an asset for a long time versus a short time?

First-order properties

We believe that a cryptoasset must satisfy three properties in order to become a SoV that people are willing to hang on to.