Secondary Token Analysis on Elrond (ERD) — Target Price $0.00248 (48% Upside)
On 6 January 2020, Picolo Research released an independent review report on Elrond (ERD). View the full report here.
Elrond has created a novel architecture through two key innovations; 1) adaptive state sharding technology and 2) Secure Proof of Stake (PoS) consensus. This protocol will enable a scalable ecosystem embedded with interconnectivity while maintaining the decentralisation, security and fairness features of a public blockchain. Test results have reflected a 1000x increase as compared to existing solutions currently in the market with an average throughput of 30,000 transactions per second (tps), 5 seconds block time and negligible fees.
Since Elrond’s inception, the project has made notable progress both technically and business developments. Currently, the network is in the transition from testnet to mainnet, which will occur across several phases. In this report, we focus on several key updates and highlight price catalyst for Elrond (ERD) tokens.
Picolo Research conducted a fundamental and technical valuation on Elrond previously (Jul 2019), more information can be found in the link here.
In this report, Picolo will highlight several updates and developments of Elrond Network and provide an investment thesis on Elrond (ERD) Tokens. Here are the highlights of the report:
- Target price of $0.00248, representing a 48% upside
- Early staking rewards the key driver
- Significant technology and business developments from IEO to present creates a strong foundation for the platform
Upcoming mainnet launch with staking rewards to create significant tailwinds — Many reports predicting an outlook for 2020 have cited staking / yielding tokens as a thematic proponent going into the new year. Our internal research analysis further substantiates this point as investors are slowly waning away from price volatility, and are seeking to rebalance their portfolio towards passive, stable income tokens.
This trend is becoming popular amongst major exchanges, as they have been rolling out support for more staking tokens, in turn transferring yields back to end clients. Notably, Binance, Coinbase, and OKEX had close to zero staking products at the beginning of 2019 to providing over 20+ options at the end of 2019. More importantly, this benefits the projects in its entirety by keeping value within the network, simultaneously offering users to play their part in the system.
For a start, Elrond has successfully fulfilled its first 3 of 10 waves for pre-staking (~$2.5m USD locked) since the bootstrapping process began on 31 Dec 2019.
Successful Testnet performance to boost confidence for Mainnet launch — Elrond has been consistently working hard in developing and ensuring their protocol is robust. Their Virtual Machine has proven to be the fastest against its competition across different benchmarks.
Aside from benchmarking tests, the team took the testnet to the next level, deploying the “Battle of Nodes” campaign. To put it simply, it was a battle against the blockchain, to emulate real-life conditions, and to solve the imperfections of their protocol. Over the past few months, many participants within the community had participated and contributed to improving the protocol, leading to a huge success of the campaign. Several of the stats can be found below.
The results show the efforts displayed by the team and community is commendable. Our analysis has shown Battle of Nodes to be an accurate indicator for gauging technical readiness, developer competency and community engagement. We believe the team will continue to leverage on this momentum to develop Elrond’s mainnet, eventually enhancing the value of the network.
Partnerships & strategic investors to propel platform adoption — In the previous research report, we listed 7 partnerships formed before Elrond’s IEO. Similarly, this time around, the firm has taken business collaborations up a notch and has formed an additional 16 strategic partnerships in a span of 6 months. The most notable partnership comes with the integration of ERD tokens on Samsung’s blockchain wallet, which will enable a global potential user base access to Elrond’s Network.
We have broken down the partnerships into 5 categories (table below) to improve the clarity of how each partnership attributes value to Elrond. Highlighted in bold showcase the new partnerships formed since our previous report.
Elrond has created a well-balanced partnership ecosystem, emphasising collaborations in various aspects, each creating its value to the different parts of the business. The team’s strategic approach towards this made us believe that Elrond is well-positioned to generate holistic network value going forward.
Further information on partnership details can be found in the Appendix.
Our research analysts incorporated several assumptions and methodologies to analyse the potential returns of ERD token. The valuation thesis is derived from two aspects: 1) returns potential based on early staking rewards, and 2) relative valuation of comparable projects.
For the former, Picolo took a deeper dive into the returns of tokens that have announced staking using Binance exchange as a proxy. T-30d pre-prices were taken to take into consideration the price before news of staking were announced. Return on Investment (ROI) was calculated against the T+30d ATH price to determine the maximum returns observed during this period. Two observations were made:
- A higher staking yield tends to correlate with higher returns
- The higher the proportion of tokens staked in the network will provide greater price appreciation
For a 7% — 14% staking yield, we observe returns between 10–110% within a 60d period. Two projects, in particular, Harmony and Fetch, which also had IEO on Binance launchpad, displayed returns between 40–60%. Given the similarities between Elrond and the aforementioned projects, coupled with their superior early staking yield that is 2–3 times its peers, we believe ERD has the potential to outperform with higher returns between 50–80%.
Our relative valuation (RV) made use of several comparable projects within the sharding sector, using the Volume / Market Value multiple (Vol/MV) to determine where ERD should be trading against its peers. Through the analysis, we derived a relative value of $0.0022 per token, which represent a 31% upside to ERD current price.
Overall, both methods exhibit upside bias towards ERD token price. For the former approach, our analysts also took into consideration that the team has announced its staking intentions on 18 Dec, however, we are convinced that the market has not fully priced in the upside potential. Our relative valuation further justifies the thesis, suggesting that ERD is currently trading at a discount against its peers.
Having said that, we prefer to stride on the conservative front, taking the mid-end (65% potential returns) of the returns range we put forth from early staking rewards, and averaging it against the 31% potential returns derived from relative valuation. A price target of $0.00248 per ERD was obtained for a 48% upside potential.
Given these key drivers, Picolo Research believes that ERD is undervalued and is in a prime position for significant price appreciation, as investors seek to unlock greater value in the token. In light of the preceding, we recommend a ‘Spec Buy’ rating on Elrond.