In the below video Andrew Forson, Empowa’s Head of Quantitative Analytics and Risk, explains how the housing ratio index of 1 EMP = $100 worth of housing was determined and how this differs from the current market value of EMP.
Below the video, you’ll find a written summary of the explanation.
The Empowa Housing Index is a crucial metric used in determining the collateral required for each unit of housing within a project. But how was the ratio for the Empowa Housing Index determined? The answer may surprise you — it was arbitrary.
Every index needs a baseline number that is relatively easy to calculate. These numbers often have a specific mathematical reason behind them, such as Pi (3.14) or e (2.72). In the case of the Empowa Housing Index, the ratio of 1 EMP equaling $100 equivalent of house unit was defined to solve a problem and has zero impact on the market price.
While the ratio is arbitrary, it was not simply pulled out of thin air. The Empowa Housing Index was created to address the problem of collateralizing affordable housing financing through the issuance of NFTs. The 1 EMP to $100 metric was chosen as a measurement unit due to its ease of use and potential for convergence with the lower market price.
The genesis project for the Empowa Housing Index was based on houses developed in Mozambique, with an average cost of $10,000 per unit. The fixed supply of EMP tokens is set at a maximum circulation of 200 million. With a forward-looking approach, the Empowa team estimated that the amount of homes potentially deployable across the Empowa platform throughout the continent would exceed 5 million.
To arrive at the 1 EMP to $100 ratio, the team multiplied each of the 200 million EMP tokens by 100, resulting in a figure of approximately 20 billion. Dividing the 20 billion by the average cost of a home in the genesis project, $10,000, resulted in a figure of 2 million homes at the 1 to 100 collateralization ratio. This figure was determined to be a digestible market number for the capacity of housing for the continent over a 10-year period.
While the 1 EMP to $100 ratio is arbitrary, it was chosen to ensure room for growth and stability. If the ratio were too volatile, it would not help in measuring the Empowa Housing Index. The ratio also needed to be easy to use and converge with the lower market price as the utilization of the index increased over time.
While the Empowa Housing Index ratio may seem arbitrary, it was carefully chosen to address the problem of collateralizing affordable housing financing through the issuance of NFTs. The 1 EMP to $100 ratio was selected as a measurement unit based on its ease of use, potential for convergence with the lower market price, and ability to provide stability and growth over time.