Messaging app Telegram is finishing up the biggest digital token sale in history, hoping to raise $2.55 billion. Valuing it requires unusual computational gymnastics like pondering illegal weapons sales.

That’s according to Aaron Brown, a former managing director at renowned quantitative investment firm AQR Capital Management LLC. He owns Bitcoin, so digital currencies don’t scare him, but he’s passing on the Telegram deal, in part because it’s overvalued. But his thought process — which involves everything from internet companies to Silk Road, the website that peddled guns and drugs for Bitcoins before being shut down — is instructive.

Traditional valuation tools like discounted cash flows don’t work for a company that exists on donations and whose token — like most others — doesn’t buy any equity in the business. Brown, who writes for Bloomberg Prophets, thinks Telegram is likely worth only $1 billion today. But he sees a path to something far higher.

“When I adjust for the other plausible cases and general crypto valuations, I came up with numbers like $1 billion, and declined to participate (I had reasons other than the price),” he wrote in an email. But $200 billion is “entirely possible in five years or so,” he added.

The Math

Here’s Brown’s math: Looking at the growth of the internet, email and texting, he figured that, globally, around 300 million people will use digital coins to pay for goods and services on platforms like Telegram. Based on the number of active gig-economy participants and adoption of other technologies, he thought the service could grab about 4 percent of those users, or about 12 million.

Brown said Gram, the Telegram token, will derive its value from the transaction balances users hold — in other words, the amount of Gram they leave in their accounts. He next looked at the ratio of transaction balances to annual revenue at Silk Road: It was one-sixth. Applying the same ratio to Gram, and assuming these people do about $100,000 of annual value exchange per year, he came up with $200 billion.

“Again, that is not what any sane person would pay today, but the best I think a rational person can plausibly hope for,” Brown said.

At $200 billion, Telegram will have captured about 4 percent of total value of crypto coins, which Brown puts at $5 trillion.

“This would make it roughly one-third the size of giant internet companies, which is consistent with my estimate that crypto will be one-third the value of internet businesses,” he said. “But that is the good case, and there are a lot of uncertainties about reaching it.” For example, other companies may do a better job of offering appealing services and attracting users. Telegram competes with the likes of WhatsApp and Messenger, both of which are owned by tech giant Facebook Inc.

Telegram offers an encrypted-messaging service that’s long been popular with people trading cryptocurrencies and investing in ICOs. In December it said it had 180 million monthly users. It’s one of a handful of services that have a product and actual users to try to raise funds through initial coin offerings, which have raised nearly $4 billion last year, according to CoinSchedule.

Brown said he may yet jump into owning Telegram tokens.

“If Telegram falls out of favor but I think its business prospects are unimpaired, I could be a buyer at a lower price,” he said. “And if I get some Grams and the price soars to levels I think are unjustified, I would sell.”