Gordon Growth Model Application

The Gordon Growth Model is a specific formula used to determine the intrinsic value of an asset that pays dividends or generates cash flows growing at a constant rate. In the context of digital assets, it is applied to protocols that distribute protocol revenue or yield to token holders.

The model uses the formula of expected next year's dividend divided by the difference between the discount rate and the growth rate. Its application in crypto is challenging because growth rates and discount rates are notoriously volatile and difficult to estimate.

It serves as a theoretical benchmark rather than a precise prediction tool. Practitioners must be cautious when applying this to high-growth, early-stage protocols where cash flows are not yet stable or predictable.