How Does Regulatory Uncertainty Affect the Risk Premium Used in Token Valuation Models? ▴ Learn

How Does Regulatory Uncertainty Affect the Risk Premium Used in Token Valuation Models?

Regulatory uncertainty increases the overall risk premium in valuation models because potential adverse rulings can drastically impact a token's utility, market access, or even legality. The risk premium must be adjusted upward to account for the possibility of a regulatory event causing a severe price drop.

This premium is subjective but necessary to compensate investors for the unknown legal future. Tokens operating in less regulated or more crypto-friendly jurisdictions may command a lower risk premium.

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