TVEV Ratio Definition

A possible and practical way to value such crypto exchanges is via this methodology named Token Value to Exchange Volume (TVEV) ratio.

For people who will like to find out more about TVEV ratio; it is adapted from Network Value to Transactions (NVT) ratio first formulated by Willy Woo.

Definition

Token Value to Exchange Volume (TVEV) ratio serves as a simple model to compare the prices of an exchange token to the traded volume on the underlying exchange. TVEV ratio is adapted from Network Value to Transactions (NVT) ratio first created by Willy Woo.

In conventional stock markets, the Price to Earnings (PE) ratio has been a long-standing tool for valuing companies. PE ratio compares the company’s total market capitalization to its total earnings. This is a measure of the fundamental value for stock and shares since earnings are the main indicator most investors are concerned with.

In the same way a share investor wants a company with healthy earnings, an exchange token holder wants the exchange to facilitate a healthy amount of transaction activity. TVEV ratio can be viewed in a similar fashion as that of the PE ratio in valuing equities.

The TVEV ratio is calculated using the following formula:

TVEV Ratio = (TokenPriceInBTC * TotalTokenSupply) / (24hrExchangeVolumeInBTC)

While NVT ratio takes into account only data from on-chain transactions, all the transaction volume that happens on the exchanges and is, for the most part, speculative in nature and is not included.

TVEV ratio disregards all on-chain transactions while factoring transactional volumes (off-chain transactions) denoted in bitcoin as facilitated through the buying and selling of cryptocurrencies via exchanges.

There are certainly people who believe that these exchange trading volume could be fake by the exchange themselves, resulting in the reported trading volume to be way higher than the actual figures. These reported numbers provide starting figures for analysis and valuation to take place.

Due to its unregulated nature for most of these crypto exchanges to date, we should not view these numbers in absolute terms but analyze them in relative terms and attempt to extrapolate trend analysis with data points aggregated over time. The volume data will get accurate as initiatives in the space are making the reporting more transparent each passing day. Moving forward, the data is expected to get accurate as the crypto economy matures and progresses through time.

Example of the TVEV Ratio Calculation

As an example, let us calculate the TVEV ratio of an exchange coin on a particular day which the:

Token price in BTC is 0.00220000

The total token supply is 100,000,000

The 24-hour Exchange Volume In BTC for the day is 2,500

Therefore based on the TVEV ratio formula: (0.00220000 * 100,000,000) / 2,500 = 88

Simple Interpretation of TVEV Ratio

A high TVEV ratio relative to its typical normal range of the token, may mean that the future growth of the token is bright and investors are expecting high transactional growth, or it can mean overvaluation.

A low TVEV ratio relative to its typical normal range of the token, may mean that crypto investors and traders are expecting limited growth prospects and having low expectations on its transactional activity, or it can mean that they might have overlooked this token resulting in the token being undervalued.

This is a simple explanation of what TVEV ratio is about.