What is the value of the "IPO-NFT" launched by Deeper Network, the Web3.0 infrastructure?

Preface

What is IPO-NFT?

The Deeper team's product, Deeper Connect, has also attracted significant attention in the traditional capital sector. The company is making smooth progress in equity financing while its product sales are steadily increasing. To maximize the win-win potential with early equity investors and token investors, and to combine the needs of both types of investors, the Deeper team has launched an NFT that can be exchanged for the company's Pre-IPO shares at the time of its future IPO listing, which we refer to as "IPO-NFT."

It refers to an equity subscription agreement issued before the team goes public, which is issued in the form of an NFT. Once the team confirms the IPO, holders of the IPO-NFT can use this NFT to subscribe for the company's shares at the IPO price during the Pre-IPO phase, allowing early investors to continue to win alongside the company's development, achieving a win-win result for both token rights and equity.

Deeper's IPO-NFT is the first equity subscription NFT in human history, possessing extremely high collectible value. Each IPO-NFT directly corresponds to a $2,000 subscription right for shares before Deeper goes public, thus having direct economic value that other NFT products do not possess. This unique design has attracted significant attention since the launch of IPO-NFT, breaking down the barriers between equity and token rights, and providing endless imagination for the blockchain economy.

Background

In today's world where data privacy is becoming increasingly important, cybersecurity naturally becomes a crucial component of privacy protection. When discussing cybersecurity, we naturally think of hardware protection for networks, which is why firewall devices have become increasingly popular in recent years, especially enterprise gateway devices, which have essentially become essential products for medium and large enterprises.

In terms of scale, the global cybersecurity market reached over $120 billion in 2019. With the advent of the 5G era, the massive amount of data will lead to exponential growth in the scale of data storage, data transmission devices, and the cybersecurity market. According to research and analysis by Founder Securities, the global cybersecurity market is expected to reach around $400 billion by 2024, with future directions in cybersecurity focusing on cloud security, SaaS-based cybersecurity, device integration, and miniaturization.

With the promotion of 5G technology, independent networking has become mainstream, and independent networking requires higher miniaturization and integration of security devices. At the same time, with the development trend of the Internet of Things and smart home networks, data security and network security in private network spaces at the household level will also become mainstream demands. This is also why the independent security device (VPN, Virtual Private Network) market has been so hot this year.

When it comes to projects that have cybersecurity protection and embody the spirit of blockchain, we cannot help but mention the recently popular Deeper Network overseas. As the "decentralized network infrastructure" of the Polkadot ecosystem and even the Web3.0 world, Deeper has attracted significant attention since its inception.

Deeper's vision is to provide the infrastructure for decentralized communication networks and to offer an entry point to Web3.0. It allows users to easily access Dapps of the Web3.0 era through Deeper's device entry, bringing more Web2.0 users into the Web3.0 ecosystem.

The development team behind Deeper is a star team from Silicon Valley, with its founding team being well-known in the field of cybersecurity. Coupled with the addition of outstanding talents from the blockchain industry and participation from executives of traditional companies, the Deeper team has a "luxurious lineup" that most blockchain companies do not possess.

While Deeper's products continue to iterate and update, they have already passed the high-risk phase of the startup period and successfully completed Pre-A equity financing. They are currently conducting A-round equity financing, which is rare in the crypto circle, as most projects aim to list their tokens on exchanges. However, Deeper, due to its excellent hardware products and unique essential characteristics in network transmission and cybersecurity, is also favored in the traditional capital market.

Therefore, to balance the relationship between early equity investors and token investors, and to facilitate mutual communication between the two, the Deeper team has officially launched the equity subscription agreement "IPO-NFT" after repeated deliberation and consideration of traditional investors' needs. This is unprecedented in the industry, and it has attracted significant attention since its launch.

However, after observing the fundamental news, we find that most people still do not fully understand what IPO-NFT is and what value it holds.

IPO-NFT, or equity subscription token, what does it mean? It is similar to an option subscription agreement issued before a company goes public, measured in the form of an NFT. Once the company confirms its IPO, it can use the currently granted IPO-NFT to subscribe for the company's shares at the IPO price.

We all know that the IPO price of a company is often underestimated (the reasons for this underestimation can vary; one is the objectivity of regulation, and the other is market demand. The IPO price is lower than the normal market price, which attracts market enthusiasm. A good increase is more likely to elicit a positive market response than a stock that breaks on listing). For example, in the U.S. stock market, most companies' closing prices on the first day of trading are generally 60%-100% higher than the IPO price. Therefore, we optimistically deduce that Deeper's IPO-NFT model may become a new innovative model for blockchain companies in the capital market, representing a bold innovation for blockchain companies.

Why We Are Optimistic About Deeper's IPO-NFT

1. The Necessity of the Deeper Project

The network we are in has developed over the years from the earliest read-only Web1.0 (meaning we could only read the content provided by the network, such as search engines) to the interactive Web2.0 (where users can upload their content and interact with others, such as Weibo), and now to the Web3.0 that is currently being explored. Web3.0 is the new generation of the internet, characterized by decentralization, where everyone can control their own (digital) identity, assets, and data. Therefore, blockchain will be an important infrastructure for Web3.0.

For blockchain to achieve decentralization, it must ensure that the resources supporting its network, such as storage, computing, and network transmission, are not controlled by certain centralized entities. The decentralized privacy network (DPN) that Deeper can provide is a decentralized communication infrastructure completely controlled and operated by users.

As we know, the basic communication protocol of traditional centralized networks is TCP/IP, and countless internet applications have been developed on top of TCP/IP, creating the prosperous centralized internet ecosystem we see today. However, for the next generation of the internet, Web3.0, if all its applications are still built on centralized communication protocols and infrastructures controlled by operators and internet giants, it would be like building a skyscraper on sand; its foundation is evidently unstable.

Deeper Network's decentralized privacy network DPN can prevent data from being choked by centralized entities during transmission. It is the next-generation TCP/IP in the Web3.0 ecosystem, and its necessity is unquestionable. Based on the DPN decentralized communication infrastructure, developers can easily reimplement existing traditional internet applications within the DPN network, such as decentralized video-sharing platforms, decentralized social media, decentralized communication software, and so on. Only with a solid foundation of decentralized communication infrastructure can the skyscraper of Web3.0 be built steadily and high.

2. The Product Has Strong Competitiveness

What sets Deeper Network apart from 99% of blockchain projects is that they have their own star product, Deeper Connect. On Indiegogo, the largest crowdfunding platform for cutting-edge technology products overseas, Deeper launched the next-generation product Deeper Connect Mini, achieving sales that placed it among the top 100 in Indiegogo's history (with over a million projects launched on the platform historically). Deeper Connect is the only blockchain project among these top 100 projects.

Moreover, traditional platforms like Indiegogo do not allow features related to mining profits to be used as selling points. The success of Deeper Connect on Indiegogo came entirely from its practical functionality and strong performance. One might ask, if other mining products on the market have their mined tokens' value drop to zero, would anyone still spend money, even a lot, to buy them?

Thus, Deeper's products not only possess unique value within the Web3.0 ecosystem but also have strong capabilities to break out of the circle. With its powerful functionality and performance, it can attract a large number of traditional Web2.0 users and seamlessly guide them into Web3.0.

So how can Deeper Connect, as a Web3.0 product, attract traditional Web2.0 users?

This has been a question the Deeper team has been contemplating, and they ultimately found the answer. The Deeper team believes that 99% of Web2.0 users are still unaware of Web3.0, but all traditional internet users share a common pursuit of security, privacy, and fairness.

The Deeper team combines network security technology, network sharing technology, and blockchain technology to significantly enhance users' Web2.0 access experience. After users genuinely experience the powerful decentralized technology of Deeper Connect, it then opens the door to Web3.0 for them, allowing them to step into a whole new world.

Deeper Connect enhances user experience through the following core technologies:

(1) AtomOS Network Security Operating System. AtomOS is the world's first unlocked multi-core network operating system, capable of achieving enterprise-level hardware network security functions and performance on civilian processors. With AtomOS, all devices in a user's home are comprehensively protected at all times, while phishing, third-party cookies, malicious websites, and internet ads are filtered and eliminated.

(2) Plug and Play, Zero Configuration. This is another highlight of Deeper's products; all deployment can be completed in just one minute. Deeper has innovated IP reuse technology, meaning Deeper Connect does not need to configure any IPs itself; it can communicate with the outside world by reusing the IPs of other devices in the network. The benefit of this approach is that installation and use are extremely simple, and it does not alter the user's network topology.

(3) Trident Protocol. The Trident Protocol is a communication protocol specifically developed for decentralized communication networks. Many decentralized communication projects reuse traditional internet communication protocols, often using WebSocket, OpenVPN, WebRTC, etc., which are centralized protocols. However, Deeper believes that decentralized communication protocols must meet the needs of decentralized communication networks. The requirements for network protocols in decentralized communication networks are very strict because internet infrastructure varies globally, with public IP availability and network service quality being inconsistent. Traditional internet protocols are ineffective in addressing these issues. To solve these tricky problems, Deeper designed the Trident Protocol from scratch. The Trident Protocol features strong penetration, high performance, and high availability, connecting every Deeper Connect device worldwide. Each Deeper Connect device can act as both a client and a server, with each node being a cornerstone of the DPN network, firmly held in the hands of users.

(4) Deeper SoC. In addition to actively innovating in software, Deeper has invested heavily in its hardware research and development. By developing its own SoC processor, it can significantly improve the speed of network security and sharing processing while greatly reducing the production costs of Deeper Connect, paving the way for Deeper Connect to reach billions of internet users worldwide.

All of the above technologies are the result of decades of accumulation by Deeper's technical team and are all original technologies. This is definitely not something that can be achieved simply by modifying an open-source project. Such core competitiveness will allow Deeper to stand out in both the Web2.0 and Web3.0 worlds.

3. Excellent Market and Operational Situation

(1) Company Profitability

Since its establishment three years ago, the company has gradually developed into a full-time team of 40-50 people. In the past year, the company has achieved sales of over 10,000 nodes and devices. In 2021, the company received orders for 100,000 units in the first two quarters and plans to achieve a global layout of 1 million nodes within the next three years.

(2) Deeper's Sound and Standardized Operational Status

As an important part of its network ecosystem, Deeper's hardware products, after more than two years of effort, not only shone at the 2020 CES conference but also launched its fourth-generation hardware products on Indiegogo, the most well-known crowdfunding platform for tech hardware in the U.S. In this crowdfunding campaign, Deeper Connect did not promote its investment value in the blockchain field but still received enthusiastic support from U.S. users, ultimately exceeding its crowdfunding goal by 2500%. The crowdfunding users came from over 120 countries and regions, and Deeper Connect has consistently ranked among the top 100 in sales among nearly a million products on the platform.

(3) IPO Preparation is Thorough

For a blockchain application company to go public is a novel thing in the entire blockchain industry. The truly listed blockchain companies we know include the recently listed Coinbase, a blockchain exchange, and previous companies like Canaan Creative, which produces and operates mining machines, as well as The9, which also ventured into blockchain mining, but The9 was already listed before entering the mining machine business.

Strictly speaking, companies that can start from blockchain and eventually go public are very rare. However, we believe that with the large-scale application of blockchain, more truly breakout blockchain application companies will take the path to going public.

From the beginning of the project, Deeper has already formulated a strategic path for capital market listing. Let's analyze how Deeper's path in the capital market looks based on its current situation.

(1) Fully Meets Listing Requirements

The Nasdaq stock market is divided into three tiers, from high to low: The Nasdaq Global Select Market (NASDAQ-GS), The Nasdaq Global Market (NASDAQ-GM), and The Nasdaq Capital Market (NASDAQ-CM). Each tier corresponds to different listing conditions, and each tier's listing conditions have 3 to 4 sets of standards, meeting any one of which is sufficient.

From the company's latest financial data, it has already met the listing conditions for Nasdaq. The company aims to meet the highest standard conditions for listing in the future. According to the company's 2020 financial report, it sold 12,000 Deeper Connect devices, achieving sales revenue of nearly $3 million.

According to the company's current plan, the sales volume for 2021 is expected to be 100,000 units, which, based on current market prices, would generate sales revenue of around $30 million. By 2023, with total sales reaching 1 million units, there would be $300 million in sales revenue. This fully meets the Nasdaq (CM-GM) listing standards. Whether it meets and achieves the highest GS listing standards will depend on the company's actual operational situation, meaning the likelihood of the company going public is very high, and the conditions for successful listing are essentially certain.

(2) Strong Strength of the Sponsoring Institution

The Deeper team has already engaged with well-known Wall Street investment banks, including JPMorgan Chase, regarding the company's equity financing and listing, and related capital market service cooperation plans are underway.

(3) Current Preparation is Thorough

According to the company's currently disclosed announcements, the preparations for the public offering and listing are very detailed, and a comprehensive capital market listing plan has been formulated. Specific internal indicators and guidelines have been established for the listing timeline, including technical indicators, market indicators, financial indicators, and the introduction of well-known investors.

What Could the Valuation of IPO-NFT Reach?

After analyzing Deeper's potential for going public, let's analyze the value of Deeper's IPO-NFT. Deeper's products have both functional roles (firewall, DPN, DWeb, DCDN) and future network infrastructure roles (infrastructure mining machines), so the assessment of IPO-NFT should combine both values.

1. Deeper's Future Capital Value

To analyze Deeper's future capital market value, there are two analysis methods that are widely recognized as effective: one is the Price-to-Sales (PS) valuation method; the other is the industry comparison method. The reason we did not use the normal Price-to-Earnings (PE) valuation method is that we are unclear about Deeper's actual profit situation, and we cannot guarantee that the company will not embellish its financial statements for the sake of going public. Therefore, we adopt a more reliable and transparent valuation method to conduct a relatively reliable analysis of its future valuation.

According to Deeper's current development plan, the company is expected to achieve sales and deployment of 1 million devices by 2023. Based on the current market price of $299 per unit, the company is expected to achieve sales revenue of around $300 million in 2023. If the company successfully goes public, its PS multiple will benchmark against Fortinet Inc's 33.5 (corresponding to sales revenue of $2.46) and Zscaler Inc's 45.92 (corresponding to sales revenue of $431 million). Therefore, we conservatively estimate the market situation to take a PS multiple of 15-20, leading to a company valuation of approximately $4.5 billion to $6 billion.

The $4.5 billion to $6 billion valuation is based solely on the performance of hardware devices. However, we know that Deeper's core value is not the market value of the devices but the Web3.0 network platform built around the devices. We have yet to find a reliable market comparable company for such market prospects. However, we are all aware that the value of C-end products and internet platform companies is generally higher than that of ordinary B/G-end companies because the network effects they generate will far exceed those of B/G-type companies. Therefore, the capital market will assign a higher valuation.

If, according to Deeper's plan, it achieves the deployment of 100 million network devices after going public in the next 5-10 years, the network effects generated by these devices will give rise to an immensely large network ecosystem platform. We can imagine that with 100 million devices, even if each device sells for only $50, that would still generate $5 billion in revenue. Based on the valuation of a network ecosystem platform, a PS multiple of 30 is a completely conservative valuation approach. Thus, the company is likely to join the ranks of the billion-dollar market cap club.

This is the core reason we are optimistic about Deeper's future value. It is based on our estimation of Deeper's future value that we are so optimistic about the IPO-NFT launched by Deeper and look forward to the substantial capital returns it may bring us in the future.

2. From the Perspective of Future Network Infrastructure, What is the Value of IPO-NFT?

(1) Basic Situation of Future Network Infrastructure

Since the 2013 Prism incident, we have become increasingly aware of the importance of network decentralization. The concept of Web3.0 was born against this backdrop, and blockchain, with its decentralized characteristics, will inevitably be an important infrastructure for Web3.0. Now, after more than a decade of development, blockchain technology has gradually allowed more people to understand and participate in it. We can look back at the current development of blockchain to envision the future.

Currently, the two most prominent cryptocurrencies are Bitcoin and Ethereum. Bitcoin represents the largest consensus accounting network, while Ethereum represents the largest computing network, both of which are currently indispensable infrastructures. However, from a technical perspective, they rely more on massive consensus as their core.

For the future of Web3.0, Bitcoin and Ethereum will find it difficult to provide sufficient assistance in functionality. What is more important for Web3.0 is decentralized network infrastructure at the hardware level, mainly involving data storage, network transmission, and data computation. Filecoin, as a distributed storage solution, is meeting the demand for decentralized storage in Web3.0, while Deeper Network serves as a dedicated decentralized network to meet the demand for decentralized network transmission in Web3.0.

(2) What Benefits Will These Infrastructures Bring?

As the largest consensus accounting network, Bitcoin's immense value has given rise to numerous listed companies and giant enterprises, primarily falling into two categories: mining machine manufacturers and mining participants.

Companies like Bitmain, Canaan Creative, and Ebang International focus on mining machine production, while there are many giants participating in mining, such as the Canadian listed mining company Hive Blockchain, the global mining giant Core Scientific in the U.S., the UK-listed mining company Argo Blockchain, the Nasdaq-listed mining company Riot Blockchain, and the German listed mining company Northern Data, all of which have entered the cryptocurrency mining industry at different times. It is evident that behind the virtual decentralized network, there will inevitably emerge large enterprises in reality that profit from hardware.

Similarly, as an important decentralized network infrastructure comparable to Filecoin, Deeper Network not only has its own tokens that can generate immense value but will also empower the companies that produce Deeper hardware.

Thanks to its unique operating mechanism, Deeper's hardware may be scarcer than expected. Deeper's hardware can break out of its niche; in addition to mining functions, it also serves as enterprise-level firewall hardware and hardware wallets. This means that even without mining, these functions are highly competitive in the market.

Therefore, products like Deeper hardware, which are both useful and capable of mining, will undoubtedly become bestsellers both within and outside the cryptocurrency circle, rapidly constructing a dedicated decentralized network and generating network effects that will further empower the hardware companies behind Deeper Network.

3. Calculating Warrant Prices Using Black Scholes Pricing (B-S Model)

Given that Deeper is expected to become a great company on par with Google, Tesla, and Apple, we specifically selected comparable listed companies such as Tencent, Tesla, Bilibili, and Hikvision based on the company's innovation, cybersecurity, and decentralized computing power characteristics to compare their IPO market values with their current market values.

According to statistics: Tencent and Tesla have seen significant increases, with an average ratio of IPO market value to current market value of 1:678; Bilibili and Hikvision have an average ratio of 1:13.66.

Assuming the holder of the company's warrants exercises them on the day of the IPO, with the current market price of the stock hypothetically matching the market value of the aforementioned reference companies, and the exercise price being the IPO price, the market price of the warrants can be calculated using the following formula for holding periods of 3 years and 5 years.

Using the Black Scholes Option Pricing (B-S Model) to calculate the warrant price:

If it matches Tencent and Tesla, each warrant (which can subscribe for $2,000) would be valued at approximately $12,762,352.00.

If it matches Bilibili and Hikvision, each warrant (which can subscribe for $2,000) would be valued at approximately $257,669.00.

Recent Developments and Future Outlook for Deeper

1. The Development of Deeper SoC is Progressing Smoothly, with Plans for Tape-Out by Year-End and Mass Production Early Next Year

Deeper SoC, designed specifically for Web3.0 decentralized infrastructure, boasts high performance, low power consumption, and low cost advantages. Deeper's future goal is to deploy billions of nodes globally, providing a sufficient quantity and powerful performance of infrastructure for Web3.0. Deeper SoC is a key component of this grand goal.

2. The Development of the Deeper Connect WiFi Prototype is Progressing Smoothly, with All Development Work Expected to be Completed by the Third Quarter.

The initial design of Deeper Connect was a wired model, connecting to users' networks via wired connections to home routers. With the introduction of wireless functionality, the upgraded product, Deeper Connect WiFi, represents a significant milestone:

(1) The introduction of WiFi functionality greatly enriches the application scenarios of Deeper Connect; users can now use Deeper Connect for internet surfing and remote work anywhere with WiFi.

(2) The introduction of WiFi functionality adds the capabilities of a home router to Deeper Connect's original network security, DPN, and mining functions, allowing Deeper Connect to directly challenge the home router market. This is akin to how Apple released the iPod Touch before launching the iPhone, and once the iPod Touch matured, it simply added 3G functionality, transforming it into the iPhone and subsequently disrupting the smartphone market.

In summary, the "first equity subscription IPO-NFT product in the blockchain industry" launched by Deeper Network is worth our attention. Furthermore, as a product occupying the crucial entry point of cybersecurity and Web3.0, the development of Deeper Network itself is also worthy of our focus.