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SBF
@SBF_FTX
Replying to
@SBF_FTX
13) Or, to take this further: the exchange fees were $0, because there is no exchange. But it started the year with 2k BTC, and those 2k BTC were worth $100m more than at the start of the year ($10m --> $110m). What's _that_ company worth?
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SBF
@SBF_FTX
14) Well, there is no company, really, other than BTC. It's just a company that owns 2k BTC. And that 2k BTC is worth $110m--you could replicate it on FTX if you wanted! So the company is worth $110m. This gets to an odd question: what makes revenue "recurring" vs "one-off"?
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SBF
@SBF_FTX
15) Revenue that's expected to recur should get a large mult (20x?); revenue that doesn't should just count towards the existing balance sheet. So you have Weird Trick #2: find some way to make one-off revenue but make it look recurring, and sell the company for 20x it!
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SBF
@SBF_FTX
16) And this gets to a weird question: Who made more this year: Coinbase, or Avalanche? Well, on the one hand, Coinbase made ~$6B or so, and the AVAX token made ~$12B (more fully diluted). But on the other hand, maybe that's not comparing apples to apples.
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SBF
@SBF_FTX
17) See, Coinbase made $6B in "recurring" revenue. AVAX's market cap went up $12B. But Coinbase's market cap went up ~$50B! So what's the right comparison? Well, one key thing: That $6B is Coinbase's and has been fully made.
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SBF
@SBF_FTX
18) The $12B from AVAX is only sustained if AVAX continues to perform well. Kinda like Coinbase's market cap. So I think that it should be compared to $50B, not $6B.
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SBF
@SBF_FTX
19) But, responds Avalanche, what if we kept doing what we did last year -- kept minting tokens? And the problem is: doing that would devalue AVAX and those future tokens.
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SBF
@SBF_FTX
20) And, Weird Trick #3: Projections. If a company is new, its revenue probably isn't mature. So how do you value it, if you expect growth? Well, you project out its future revenue, of course!
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SBF
@SBF_FTX
21) Where, here, "you" means "the company", and "project" means "create an excel spreadsheet with large growing numbers". You'd be surprised how many companies are already valued off of their 2025 revenue!
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SBF
@SBF_FTX
1) BAKKT is about to go public. There are a number of "interesting" things in their deck. sec.gov/Archives/edgar
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SBF
@SBF_FTX
22) Alright, so back to the original question: How are raise valuations _actually_ determined? In some sense, you take 20 * (projected annual revenue - projected annual expenses). But there's as much art as science in determining those.
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SBF
@SBF_FTX
Replying to
@SBF_FTX
24) They have to disguise it, because they're supposed to be aligned. But they often do what they can: making unreasonably conservative assumptions, highlighting flaws, making isolated demands for rigor (slatestarcodex.com/2014/08/14/bew), and negging.
slatestarcodex.com
Beware Isolated Demands For Rigor
I. From Identity, Personal Identity, and the Self by John Perry:”There is something about practical things that knocks us off our philosophical high horses. Perhaps Heraclitus really thought …
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SBF
@SBF_FTX
25) Of course, as soon as the investment closes, their tune changes, and your company is grossly undervalued according to them; they're now _actually_ on your side! Or maybe, none of this matters. Maybe each VC firm *has* to invest in at least one crypto company this year.
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SBF
@SBF_FTX
26) If they don't, their investors complain. If the company's valuation is less than $1b, they can't invest $100m. If the company's valuatoin is more than $10b, they have to justify it to their investors. Alright, fine, $4b valuation for everyone!
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