NAV: How the value of HOM governance token can be readily measured
NAV: How the value of HOM token can readily be measured.
Each HOM token is backed by real estate and at least 1 USDC or HOM-IOU, which are valued at $1 USD. The result is a Net Asset Value (NAV) that can be shown in real time on the treasury status graphic on https://homdao.finanace web-app The difference between the NAV and the trading price of the HOM token on decentralized exchanges represents a positive delta or market premium. NAV can be an important feature when determining the valuation basis for a token.
Positive delta also has a quantifiable basis in that the token price may contemplate the concept of a trading multiple. Since HOM DAO realizes revenue from HOM-NFT minting, software licensing, loan fees, and interest, and staking of treasury reserves to generate additional yield, a multiple of value above NAV may be incorporated to the token price to reflect revenue growth in addition to passive assets.
When referring to how the Protocol determines the staking awards, instead of using the term NAV, the term is Protocol Controlled Value (PCV), which is the amount of real estate, real estate loans, and other assets that the treasury owns and controls. This goes hand in hand with the NAV.
PCV is a term used in the description of protocol-based activities and balancing algorithms. You can think of this as HOM DAO’s balance sheet of assets and liabilities. The greater the PCV, the better it is for the protocol and its users. This means more revenue for the Protocol treasury,which provides more security that the long-term staking yields can be sustained for existing and prospective HOM token owners that stake their HOM tokens.
HOM treasury rebasing will be conducted on a quarterly basis. In general terms, treasury rebasing adjusts the total supply of a token based on market demand. If the demand for a token is greater, the rebase will increase the supply. If the total demand for a token is lower, the rebase will decrease the supply.
In the case of HOM token, as a safeguard, the HOM protocol is designed such that the ratio of real estate treasury assets to stablecoins is set at no less than 25% of the HOM NAV, based on the token’s quarterly average trading price.
If the NAV for HOM drops below the minimum stablecoin plus real estate asset value, the treasury will issue a buy order for tokens on DEX, and then burn those tokens to constrict supply and rebuild pricing demand. Initially, this buy-burn feature is done via DAO vote (as the treasury reserves may be too small to buy back all the tokens needed to immediately stabilize price). Over time, as more stablecoins are bonded to the treasury, this feature will take place via algorithm.
This ensures an absolute floor on HOM token’s price, therefore, the rebase of the HOM token value will not go down if the HOM token price goes down. Further, because the HOM DAO treasury is holding real estate assets and terms for bonding real estate properties are long-term contracts, short-term, volatile pricing fluctuations are less likely than in other staking protocols.
The protocol for the HOM token will also take in the concept of lag, which is necessary in real estate due to the time it takes to underwrite, create an HOM-NFT, bond, or for the HOM DAO treasury to acquire properties, and issue property loans. So when rebasing the treasury to token price ratio, there may be a large share of stablecoins held in reserve to either buy properties directly, or serve as a buffer until enough third-party HOM-NFT properties have been bonded into the treasury. The typical lag period assigned to close the purchase of a real estate asset in the protocol algorithm is 180 days.
This is a key difference between HOM and many other yield generating protocols, which is the nature of treasury-based assets. Since real estate tends to grow in value over the long-\ term, and there is a finite supply of real estate, the value of these underlying assets, which is supporting the value of the HOM token, is expected to grow. Stablecoins, on the other hand, are essentially a reflection of US Federal Reserve monetary policy. When the dollar depreciates, so does the purchasing power of nearly all stablecoins, regardless of whether they are backed up by real dollars or synthetic/digital currency (e.g., nothing).