Can we have a low-volatile non-pegged token? And can we simplify security token valuations by separating token cash flow valuations from token exchange rate valuations?

The white paper of Nakamoto (2008) is surprisingly comprehensive and provides many interesting predictions for the emergence of Bitcoin. However, it is based on a very strong and naïve assumption that Bitcoin can put an end to fiat currencies and thus Bitcoin can be the only currency in the economy. In other words, there is no fiat currency and thus no exchange rate in the Nakamoto’s economy. As a result, Nakamoto failed to realize that the volatility of Bitcoin can be extremely high in an economy, where Bitcoin and fiat currencies coexist. The high volatility of Bitcoin makes holding and spending it more difficult than fiat currencies and it is the main weakness of Bitcoin (and the majority of extant payment tokens).

Meanwhile, Bitcoin and other payment tokens are cheaper (in terms of transaction fees) and faster for international payments and investments. In addition, tokens, whose value is not pegged to fiat currencies, are free of government monetary policies and impacts. “Hub” payment tokens, a type of payment tokens, have good characteristics of non-pegged tokens and some competitive advantage to coexist with fiat currencies. In particular, Aloosh (2018) suggests a pricing relation for tokens and shows that hub payment tokens are even less volatile than fiat currencies. This means that hub payment tokens are easier to hold and spend than extant tokens. The exchange rates of hub payment tokens are endogenously determined by the exchange rate of fiat currencies to have zero correlations with them. This simplifies security token valuations by focusing on their cash flow valuation rather than their exchange rate valuations.


Assistant Professor of Finance at NEOMA BS

Sources: Nakamoto, Satoshi. Bitcoin: A Peer-to-Peer Electronic Cash System. 2008.

Aloosh, Arash. The Price of a Digital Currency. 2018. Available at