The strange case of monetary policy in Grin
I am a crypto-finance enthusiast and though I am strongly skewed toward Bitcoin maximalism, I still try to follow the space looking for promising technologies and ecosystems.
One of the coins that really caught my interest was Grin
- It has no fishy business (pre-mine, dev-taxes),
- is written in #Rust (which, I think, is a perfect language for #cryptofin),
- it is based on MimbleWimble which is a very promising tech improving blockchain scalability.
It ticks all the boxes to be a reasonable altcoin.
The only problem with it is it's controversial monetary policy. Basically: one coin, every second, forever. While I don't mind the “forever” part, the problem with Grin's monetary policy is the steady and long initial inflation rate.
Bullish (“moon”) estimates
Let's try to put some initial estimation on the value/price of a Grin Coin.
Let's go super bullish first. Let's say that in 20 years Grin becomes “a digital gold” and will reach a market cap of gold, despite numerous more established coins competing for that position.
From a randomly googled article:
According to a 2013 report from Thompson Reuters GFMS, it was believed that 171,300 tons of gold had either been mined or was still in the ground. Since there are 32,000 ounces per ton, we're talking about 5.482 billion ounces of gold in the entire world, based on this report. If each ounce was worth about \$1,290, the world's gold supply would have an implied market cap of $7.07 trillion dollars.
As around 1 Grin Coin is mined every second, in 20 years we will have:
60 * 60 * 24 * 365 * 20 = 630720000
Grin Coin issued. 630 million. Which, assuming \$7T market cap, gives is a rough price of $11k.
For comparison, a comparable price for BTC would be, something around \$300k.
Now let's calculate the same for 40 years in the future.
60 * 60 * 24 * 365 * 40 = 1261440000
1.2 billion Grin Coins, at an estimated price of \$5k.
For comparison, a similarly estimated price for BTC would still be something around \$300k, because with each passing year less and less of Bitcoin is being issued.
You see the problem? With Grin you expect the value to keep being eroded , unless the total market increase offsets it.
That is putting a strong upper floor on the valuations that Grin could reach.
Down to earth estimation
Let's base the valuation on a coin with somewhat similar properties: Monero. I think it's a good coin to compare with. Monero does use a continuous monetary supply, after reaching 18 million of XMR issued, but the first 18 million is issued with a decreasing supply rate. Both Grin and Monero are privacy focused and while Grin might be considered a “better tech”, it will also have to compete with more and more established coins, and its issuance schedule will not be as inviting for the speculators as other coins.
After around 2 years of existence, the market cap of XMR was $7M.
In 2 years Grin will issue:
60 * 60 * 24 * 365 * 2 = 63072000
Price estimate: \$7M / 63072000 = \$0.1 per Coin.
After around 5 years of existence, the market cap of XMR is \$757M.
In 5 years Grin will issue:
60 * 60 * 24 * 365 * 5 = 157680000
Price estimate: \$757M / 157680000 = \$4.8 per Coin.
Given this back on the napkin calculations, I would expect the price of Grin coin to initially hover in the sub-\$0.1 area, and if it reaches enough traction and even starts stealing users from other coins, maybe it could raise to around $10 in a few years. However, it seems to me that this is a rather optimistic scenario.
In the pessimistic scenario, people will just not put any value into Grin, preferring either existing tech (like XMR for anonymity, or BTC for “digital gold with big upside potential”), Lightning Network and other techniques will solve both scalability and fungibility shortcommings in Bitcoin, or even a Bitcoin-native MimbleWimble sidechain will be created making Grin obsolete.
The risk-to-reward ratio here is just simply not great. I like the fact that it's at least realistic to have Grin maintain a relatively stable price of let's say $0.1/Grin, which is making it a practical coin for keeping some small “digital cash” spending money, for privacy purposes.
Though the risk of \$0.1/Grin price is: 51% attacks on Grin will cost \$100-\$1000 per hour. Which reinforces the coin to be destined to serve mostly low-value privacy-focused cash spending. Which, I guess, is perfectly OK. As long as you don't plan to get rich on speculating Grin.
As for what will really happen – only time will tell. A lot of it depends on psychology and public perception.