• Cross Chain technology has gain significant traction, growing 600%+ YTD and is expected to hit 10B annually

• Chainlink’s CCIP to be instrumental in LINK’s price trajectory by bridging $quadrillions from Web 2.0

• Preliminary estimates that Cross Chain fees alone could inject minimally $6.36 value into LINK’s price

• Partnerships with SWIFT could attribute an additional $21.5 of value into LINK

• Despite LINK’s recent rally, it remains undervalued as we believe growth should persist, estimating LINK to capture an additional 1.4 – 2.3b txns from CCIP

Picolo Research Target a price range of LINK between $74 and $134 by 2025

Chainlink - Pioneering a Voyage in Decentralized Oracle Networks

In the world of blockchain, a missing piece that is critical for its advancement is the seamless integration of external data points. This integration is quintessential for the expansion and efficiency of smart contracts, demanding a solution that is both innovative and robust.

Enter Chainlink 'Oracles,' a powerhouse pioneering an era of decentralized oracle networks. Since its inception in September 2017 and subsequent mainnet launch in May 2019, Chainlink has become a fundamental architectural pillar, underpinning the trustless provision of price and data feeds, verifiable random functions (VRF), automation through its Keeper network, and its latest CCIP (Cross-Chain Interoperability Protocol) among other integral functions.

Now, over 4 years into its journey, Chainlink boasts a network of nearly a thousand decentralized oracles, responsible for over 10.6b on-chain data points and a staggering $8.7T in transacted value. It has glorified its role as the ecosystem's invisible backbone, propelling forward the frontier of being the verifiable web. As it continues to fuel broader adoption and innovation, Chainlink is actively evolving, promising more groundbreaking products on the horizon.

A Microscopic Analysis of Chainlink's Fee

As we dive deeper into Chainlink’s numbers, it is important to first understand its revenue streams and the nuances of fee generation across its diverse product offerings. Despite its broad spectrum of innovative products, Chainlink's strategy in monetization exhibits a slower pace than most protocols in the blockchain.

Their revenue and fees accrued from various segments average $4.6m across a 30 day period, with Price Feeds significantly outperforming the others. Interestingly, CCIP, albeit in its nascent stages and confined to limited Early Access, has been contributing nearly half the average 30-day fees of VRF.

Source: Defillama, *Token Terminal. ** Dune Analytics @ericwallach (updated 27 Oct 2023)

When these figures are projected annually, we observe a total average fee generation of approximately $55 million. This translates into P/E (price-to-earnings) multiples of 74x and 132x for its market capitalization and fully diluted valuation (FDV), respectively. A comparative lens with Ethereum (ETH) — using as a proxy considering the parallels in token utility and structural design — suggests an undervaluation of $LINK.

Source: Defillama, *Token Terminal. ** Dune Analytics @ericwallach (updated 27 Oct 2023)

But what is stopping LINK’s growth? The significant drop in fee generation (since Jul 2022) led us to believe that this could be contributing to the stagnation of LINK's price trajectory for the past 2 years, which has been trading in the $5.50 to $9.50 range. 

However, it's paramount to consider the foundational robustness and growth potential that Chainlink encapsulates. The platform's credibility and stability have generated a reputation, having orchestrated over 10.6 billion data points and facilitated over $8 trillion in transacted value over the years.

With that, our focus shifts next to exploring how CCIP is poised to be a potential game-changer in recalibrating the overall valuation narrative for LINK.

*Note (updated 27 Oct 2023): Included revenue streams for Price feeds, leading to lower multiples and undervauation against ETH

The battle of Cross Chain Technology – Traditional Bridges vs Messaging

The trajectory of blockchain technology has entered a phase of rapid expansion. Recent trends underscore a significant uptick in cross-chain usage, a movement that has gained considerable momentum over the preceding months.

Traditional bridge volumes exemplify this surge, boasting a staggering 600% growth YTD. This remarkable escalation has been spearheaded by platforms like Stargate and the Arbitrum Bridges, with the sector peaking in July 2023 and facilitating over $5 billion in cross-chain transactions.

Parallel to the growth in bridge volumes is the development of cross-chain messaging, a sector that has witnessed an acceleration in activity. Since Q2 this year, there has been a consistent climb, producing a 30d average of nearly 8 million transaction counts across various networks.

A report from Token Terminal accentuates this narrative, highlighting Layerzero's dominance in the sector, connecting 40+ chains and handling the bulk of transactions. It is also worth noting that there has been a consistent month-on-month growth exhibited by contenders like Axelar and Wormhole, each linking 45+ and 30+ chains, respectively.

The implications of cross-chain messaging are profound. The innovation is poised to support enhanced efficiency and security - by significantly reducing gas costs and minimizing attack vectors, it empowers decentralized applications (dApps) to operate natively across diverse networks, thereby broadening their utility and appeal.

The trajectory is clear: cross-chain activity isn't just a temporary phenomenon but an evolving standard as investors and users demand higher throughput and enhanced access to liquidity. This paradigm shift, characterized by a seamless and more integrated blockchain experience, is inherently going to benefit Chainlink.

Chainlink’s Revolutionary Leap in Cross-Chain Interoperability

The space has seen its fair share of turmoil, with poor architectural designs, complex user experiences, and numerous security exploits leading to over $2.6 billion lost in bridge hacks.

The clamour for a robust solution was needed, and CCIP emerged as the much-anticipated answer.

Mid-2023 witnessed a pivotal development - the mainnet launch of Chainlink's Cross-Chain Interoperability Protocol (CCIP). This milestone was not just another technical advancement, but a transformative moment, especially evident as the LINK price surged from $5 to an impressive high of $8.50 within a span of July.

CCIP could be the core of the flow of data and tokens across diverse blockchain networks, a strong capability in an increasingly fragmented ecosystem. What distinguishes CCIP are its innovative features, including a rate limit on token transfers, the implementation of Arbitrary Messaging, and the establishment of a Risk Management Network, all contributing to a streamlined cross-chain interaction.

Similar to TCP/IP, much like the protocol that underpins the internet, CCIP introduces a transformative architectural breakthrough. It is set to redefine the way users and Web3 applications interact, promising seamless connectivity.

This is not just about linking one blockchain to another; it's about bridging entire world. The implications are twofold:

1.       Cross-chain interoperability (Blockchain – Blockchain)

2.       A new frontier of connectivity (Web 2.0 – Blockchain)

So, how does Chainlink harness these ripple effects?

Since the debut of its Cross-Chain Interoperability Protocol (CCIP) in July 2023, Chainlink has seen a modest yet promising increase in activity. The protocol's 30-day average fees hit $23,200, and cross-chain transactions have doubled from 3,200 in Aug 2023 to over 6,100 in Sep 2023.

These initial numbers, while not staggering, indicate significant growth potential. Currently, in its 'Early Access' stage, Chainlink began with support for major chains like Ethereum and Polygon and has since grown to seven chains, with the latest including Base, Arbitrum, and BNB Chain. Its integration into top protocols like Synthetix and AAVE further highlights its expanding influence.

A detailed analysis shows an average transaction fee of approximately $5.87. Interestingly, fees for L2s appear higher compared to those for Ethereum or Polygon, potentially stemming from CCIP's unique billing model that allows users to pay on the source chain while CCIP facilitates execution on the destination chain.

Projecting the financial trajectory and considering LINK's market share of potential transaction counts (specifically those utilizing cross-chain messaging), preliminary estimates suggest that Cross Chain fees could infuse an additional $6.36 into LINK's value.

This assessment is conservative as we primarily focus on the base case (95m txns ann.) and not accounting for the potential market share from traditional bridges, which is estimated at over 10 billion transactions annually.

Expanding these projections dynamically, should LINK capture over 1 billion cross-chain transactions, the additional value of LINK could skyrocket, potentially exceeding $100. Various scenarios are shown in the table below.

However, it's reasonable to anticipate a reduction in costs as Chainlink scales and operational efficiencies take effect. A more nuanced valuation could possibly settle at a more sustainable $28.5 to LINK, based solely on cross-chain fees. This concise outlook underscores Chainlink's strategic positioning in the competitive cross-chain landscape.

SWIFT Alliance: A Core to Chainlink's True Market Potential

We believe Chainlink’s partnership with SWIFT will be a pivotal development that could significantly influence LINK trajectory. This alliance is a potential game-changer, primed to unlock vast capital flows from Web 2.0 markets (including capital markets, real estate, etc) into the blockchain ecosystem. The synergy between Chainlink and SWIFT aims to streamline the transfer of tokenized value globally, enhancing the fluidity and accessibility of cross-border transactions.

Recently, preliminary trials have shown to underscore the partnership's viability, with SWIFT successfully showcasing its secure access points to multiple blockchain networks through Chainlink's CCIP. This feat, achieved without substantial operational hurdles, involved collaborations with major financial institutions like ANZ, BNP, BNY, Citi, and more, solidifying the project's credibility and potential scale.

LINK’s potential value attributed by SWIFT

Considering SWIFT's current average of 16 billion transactions annually, even a modest 0.5% market share captured by Chainlink could translate to a $12.5 billion rise in value. This translates into an additional $21.5 into LINK token price.

This projection becomes even more staggering when expanded: should Chainlink manage to channel 2.5% of SWIFT's transactions (approximately 400 million transactions annually), the value attributed to the LINK token could soar beyond $107, assuming transaction costs remain constant.

Another crucial thing to note is that these estimates focus solely on the SWIFT partnership. Potential collaborations with other major settlement entities like DTCC and Euroclear remain unaccounted for in this valuation, suggesting even greater untapped potential.

The alliance with SWIFT, therefore, is not just a milestone but a significant leap forward in accruing value in this new era of growth for Chainlink.

Potential Risks

Chainlink's trajectory is intricately tied to the success of its Cross-Chain Interoperability Protocol (CCIP), especially given the slower-than-expected revenue streams from its existing data requests and Verifiable Random Functions (VRFs). The anticipated monetization impact previously has not reached its full potential and could underscore CCIP's role in our financial forecasts.

Moreover, the integration process with traditional finance (tradFi) infrastructures is notoriously slow, potentially spanning several years before tangible value from synergistic collaborations is realized. Despite this, early experiments have yielded promising results, demonstrating cost efficiencies and operational improvements that bode well for future endeavors.

In addition, another headwind is the issue of locked tokens. Approximately 556 million LINK tokens have been unlocked, with a substantial reserve of 444 million still pending release. The past year has seen a release rate of around 7%, a figure that remains fluid, subject to considerations of market sustainability and cryptoeconomic security.

Amid these internal challenges, the rise of external competitors, particularly Chronicle Protocol, stands out. Emerging from the roots of MakerDAO, this service presents a challenge, threatening to undercut Chainlink's market share. Nonetheless, we anticipate that Chainlink's strategic agility and innovation will not only endure these market pressures but also fortify its standing, preserving its momentum and market niche in the long run.

Conclusion - Chainlink's Future Landscape

As a pivotal player in this realm, Chainlink is expected to capture substantial value overflow from the increasing cross-chain activity, solidifying its role as a central figure in the future narrative of verifiable web.

It becomes increasingly evident that the Cross-Chain Interoperability Protocol (CCIP), and notably its partnership with SWIFT, will be instrumental in steering LINK's price trajectory. 

CCIP stands as a cornerstone in orchestrating the seamless transfer of data and tokens amidst a spectrum of blockchain networks, an essential competence in a domain riddled with security vulnerabilities that have already exploited over $2.6 billion in losses due to bridge hacks.

Earlier this year, the realm of bridge volumes witnessed an explosive uptick, registering a remarkable 600% growth year-to-date. This could facilitate more than 10 billion transactions annually, a momentum anticipated to surge with escalating user demands for superior throughput and broader access to liquidity.

Last but not least, the successful collaborative efforts between SWIFT and Chainlink spotlight the potential influx of '$quadrillions' from traditional capital markets, which is poised to bolster Chainlink's transaction volumes. In an optimistic scenario, considering a cost remain constant, CCIP could potentially inject an additional $300 or more into LINK's token value in a pronounced bull market.

However, adopting a more conservative lens, the current 10% month-over-month growth rate in transaction counts suggests that Chainlink could feasibly reach 300 million annual transactions in the near term. This suggests a $30+ increase in LINK's potential value, which puts it ~3x its  current price.

On a broader perspective, assessing the factors discussed above, we believe there is potential for LINK to capture between 1.4b and 2.3b CCIP transactions (encompassing Native and SWIFT) annually with a widespread adoption over the coming years. Even with economies of scale potentially lowering transaction costs, our outlook remains bullish.

We forecast a target price range for $LINK between $74 and $134 by 2025.

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• perps v2 has already surpassed $27bn in volume and distributed over $22m in fees to stakers

• based on existing markets only, SNX is trading at a historically low PE multiple of ~19x

• v3 upgrade is a significant catalyst that will increase volume and revenues materially over the coming 12 months

• Hybrid exchange ‘Infinex’ on v3 expected to provide a new standard of user experience to compete with DYDX and major CEXs

• Picolo Research target a price range for SNX between $13.00 and $22.00 by 2025.

• Download the PDF version here

Disclaimer

Picolo Research or/and its team hold positions in SNX, DYDX and GMX. This report is not to be construed as financial advice. While we do our best to ensure that the data within this report is accurate, we cannot guarantee that mistakes are not made either by us or the data providers that we utilize. Please do your own due diligence.

v2 - a battle-tested stepping stone to something bigger

Synthetix, a project that has been through several iterations since mid 2017, is a liquidity layer used for powering decentralized derivatives and finance applications. In the same way in which Ethereum is the foundation for creating smart contracts, Synthetix aims to be the building blocks for DeFi.　

Synthetix v2 has proven to be battle-tested infrastructure for a handful of perpetual futures and derivatives markets. Several front-ends (markets) including Kwenta, Polynomial, Lyra Finance and Thales have processed billions of dollars in derivatives transactions using Synthetix liquidity, while simultaneously rewarding stakers through the distribution of trading fee revenues.ﾠ

Since the downfall of FTX, competition in the perpetual dex arena has been aggressive. Hybrid solutions such as DYDX continue to dominate the user acquisition and volume game, however, order books and the matching system remain centralized, skewing the data for the purpose of this analysis.

On the more ‘pure-dex' side, GMX, Gains Network and Synthetix powered Kwenta are currently the top three contenders pushing the most volume, and as a result, the highest distribution of revenue to stakers. 

The fee-sharing narrative is alive gaining traction

Despite the drop-off in perp dex volumes since the end of Q1, Synthetix has continually gained a larger slice of the fee revenue, currently second in place to GMX.

Annualizing SNX average fees over the last month equates to around $39m which will be distributed to stakers over a year. This brings the current PE ratio based on a circulating supply of 323m tokens and a price of $2.05 to ~19x multiple.

It’s worth noting that Synthetix v2 has operated as a product, plugging into select front-ends to provide a simple liquidity service. The launch of the much anticipated v3 however, transforms Synthetix into a platform, providing the infrastructure for significantly more than just pure liquidity, and as a result, much higher revenues. 

More on this later in the research.

The launch of v3 and the race to the ‘End Game’

Synthetix v3 will operate as the base layer of future defi applications through the integration and availability of Markets and Pools.

Markets are the ‘front-ends’ that launch on top of the Synthetix infrastructure layer, while ‘pools’ are the source of decentralized liquidity provided by LP’s seeking yield. The availability of these two components opens the door to endless possibilities of DeFi applications.

Consider the following as an example:  

A founder wants to launch a platform for Binary Options trading. 

As of right now, the founder would need to:

> Build a front end

> Create decentralized options and derivatives contracts for each instrument

> Integrate with oracles for pricing and data feeds

> Create vaults to collateralize the derivatives

> Sufficiently price the vault yield to match the corresponding risk

> Market the vaults to bring in capital so the options trades are sufficiently collateralized

If the founder was to use Synthetix v3 as the base liquidity layer, the process of building this Market would be the following:

> Build front end (Market)

> Setup required Oracle via Chainlink or Pyth

> Propose Pool to Synthetix Spartan Council (Pool)

> Once approved, tap liquidity from SNX

The v3 journey significantly cuts down build time and operational output by streamlining the highly complicated issues of creating such derivatives from scratch, pricing and attracting the necessary LP capital to operate them. 

In traditional markets this type of relationship is commonly referred to as ‘whitelabel’, an arrangement in which most of the infrastructure and demanding operational work is provided by one company, and subsequently licensed to unlimited third parties that seek to build a front-end and market it for a slice of the revenue. 

Other than the fact that it is decentralized, a considerable difference between traditional whitelabelling and Synthetix v3 is the sheer amount of flexibility available in creating new verticals of markets that may not yet even exist.

Over the last few years, traders and market participants have become accustomed to certain features in centralized exchanges and marketplaces that until now have been unable to move over to the realm of decentralized offerings. Synthetix v3 encompasses numerous upgrades that give the platform a real shot at being a contender versus its centralized counterparts.

• Multi collateral trading; essentially using any liquid assets that can be sufficiently priced by an oracle as collateral for trading in perps

• Cross margin trading; allowing traders to take multi-legged long/short trades in a margin efficient manner and without requiring extra collateral

• The ability to trade on any EVM; v3 can be deployed on any compatible EVM

• Efficient Cross-Chain liquidity - Utilizing cross-chain teleporters to speed up and simplify the process of rotating capital to different chains

• Permissionless listing of tradable instruments;  though at first anticipated to be approved by Synthetix Council, listing of new assets may be permissionless

Enter Infinex, Synthetix answer to an exchange for the masses

The team at Synthetix have openly talked about the friction in onboarding new users to decentralized exchanges. The handling of private keys, bridging to various layer-2’s and the endless signing of transactions on-chain provides enough barriers to deter any prospect that is unfamiliar with self custody.

Infinex, a front-end perp market built on Synthetix v3, is anticipated to launch in late 2023 as a ‘hybrid’ solution to meet the needs of the average retail trader. Though at its core it is decentralized, various technological compromises are to be made to give the platform the ‘feel’ of it being centralized and in the same league as CEX market leaders Binance and OKX. 

Some of these hybrid features include:

• Signup/login using traditional methods (email, 2FA etc)

• Multichain deposits

• Withdrawal passwords and whitelists

• Account recovery/ exchange MFA key backups

• KYC only for users seeking to onramp fiat

• No requirement for signing of transactions/ instant interactions

Essentially, the goal of Infinex is to streamline the onboarding and user experience to a point in which the user is almost unaware that they are trading on a decentralized exchange.

Comparing apples and oranges

This report has largely omitted data from DYDX thus far for two reasons being 1) its current iteration (v3), does not implement any fee sharing to its token holders and 2) DYDX handles a core part of the protocol in a completely centralized way through its implementation of an off-chain orderbook. While these components may be modified in the future (v4), the details are currently lacking.ﾠ

For the purpose of illustrating valuation of SNX, we will look towards how the network brings in revenue, as well as where this ranks in comparison to its peers. For this exercise, we will assume that DYDX give 100% of fees to stakers.

*As of 25 Sep 2023, Source: Coingecko, Token Terminal

Even in its current iteration of v2, Synthetix fee revenue has picked up substantially in the second half of this year. 90-day fees are 30% below DYDX, but well ahead of GMX for the same period.

Risk management leads to superior profitability

Synthetix distinguishes itself from other platforms not merely by its fee structure but primarily through its innovative product design that promotes superior risk management and market neutrality. This is achieved through two distinct mechanisms: the Dynamic Funding Rate and the Price Impact Function.

The Dynamic Funding Rate ensures delta neutrality by incorporating velocity of skew in addition to the conventional market skew. This counteracts any sustained long skew by progressively increasing the funding rate, thereby prompting traders to counterbalance the market and swiftly restore equilibrium.

Conversely, the Price Impact Function considers the depth of the order book to modify the execution price based on trade size and the prevailing market skew, thereby incentivizing traders to position themselves in a manner that reduces the skew.

Collectively, these functions are pivotal for robust risk management, as they work cohesively to diminish LP (stakers) risks, curtail prolonged skew, and ensure market neutrality. In short, this concept is akin to lowering the max drawdowns of one’s investment portfolio, which is a measure of downside volatility.

SNX trades at a PE of ~19x

When comparing Fees as a percentage of Fully Diluted Valuation (FDV), Synthetix has a PE Ratio of ~19.35, considerably better than its peers.

Some may argue that the PE/Ratio should be based on circulating supply/market cap given that only unlocked tokens are able to receive such fee sharing. In this instance, DYDX comes in with an extremely low and attractive PE of 6.28, however this doesn’t take into account the hefty amount of token emissions on the horizon.

As of today there are around 180m DYDX tokens in circulation. In six months time, this number is going to quickly grow to 545m, significantly inflating the supply and corresponding market cap.

Even on a PE basis with the additional forecasted token emissions, DYDX has a healthy financial profile for investment, however the impending distribution the future tokens to seed investors is cause for concern given where we are at in the current market cycle. We would anticipate that there will be large liquidations by some investors, further dampening the price.

Synthetix (SNX) on the other hand, has a total supply of 324m tokens and a circulating supply of the same. Outside of token inflation that occurs (which 100% is distributed directly to stakers), there are no further unlocks to be had. 

Can SNX take a meaningful slice of the market?

It’s no secret that trading volumes are vastly down from their heights in 2021 and 2022, so it makes sense that token prices, as a reflection of this activity, are also trading down 70-90% from their highs.

Where things get interesting is predicting where such token prices will be once perp and trading volumes begin to recover given that real fee-sharing mechanics are now in force.

We can extrapolate the potential of volumes and therefore corresponding token valuations by two methods, neither of which is perfect, but it gives a solid foundation for where things are and where they could be.

SNX Market Share of Total Centralized Derivatives Market 

We are optimistic that decentralized derivatives exchanges will continue to eat into the marketshare of CEX’s as UI and onboarding becomes more streamlined for the masses. 

Looking back since the start of the bull market, we observe that derivatives volume averaged ~$85b per day, and since then, has dropped about 18% through 2023. 

If we are to look at what level SNX is currently operating at as a percentage of total CEX volume, it barely registers a blip at ~0.21%. While this currently looks good from a fee-sharing point of view, for SNX to be a real competitor in the global derivatives space, maintaining their current position in the race and relying on a ‘rising tides lifts all boats’ scenario is not an option. 

The ultimate goal should be to further penetrate the existing/total derivatives market at all costs, with hopefully v3 being the catalyst to do so.

SNX Market Share of DEX Derivatives

Perhaps more appropriate in forecasting potential valuation is looking at where SNX sits in relation to its competitors and the growing decentralized sector itself. Current DEX derivatives volumes are around ~$45b per month across the top exchanges mentioned in this report. At a ~10% marketshare through the current front-ends of Kwenta, Polynomial, Lyra etc, Synthetix trades at a price of around $2.00.

We expect that by 2025, total DEX derivatives will exceed 150b per month, with SNX related markets conservatively commanding a 20% marketshare based on a surge of v3 integrations in derivatives and gamblefi markets. This is our bear case.

SNX stakers remain loyal throughout the bear

The bear market has culled most traders and transferred ownership to those looking longer term. As of writing, approximately 84% ($560m) of all SNX is currently staked between L1 and L2. 

This makes for an interesting scenario in terms token supply dynamics for when demand for SNX is high. With little circulating tokens available (16%) and perceived strong demand for income producing tokens at launch of v3, it is likely that even moderate amounts of buy pressure will lead to a significant move to the upside.

Potential risks in SNX growth

There’s a few aspects that are worth noting that can impact the success of SNX over the short term.

DYDX is an excellent competitor with strong leadership that will likely do very well over the coming years. Despite its shortcomings mentioned previously relating to upcoming token emissions, there is no doubt that their volume has been impressive and is a considerable goal for SNX to aspire to with its release of v3. 

While DYDX may maintain a market lead for the foreseeable future, we believe the DEX market to be large enough to have several robust players tackling different aspects of the ecosystem. 

The launch of Infinex, whilst being a huge milestone for SNX, may pose some regulatory risk, albeit its very unclear at this point. Hybrid exchanges generally have corporate structures that deal with KYC, fiat onramps and other centralized services which expose them to market oversight by global regulators. While Infinex is entirely separate to Synthetix, we would still likely see some indirect negative effects on the price of SNX should regulatory issues arise. A more accurate assessment can be made on this risk closer to launch.

Beyond its primary Ethereum-based operations, another significant challenge confronting the SNX platform is the limited activity of users on its secondary chains, Optimism. While GMX has witnessed substantial user engagement on Arbitrum, Optimism has recorded only half the daily active users (DAU) in comparison over the past six months. Such disparities in user activity could decelerate SNX's adoption rate in the short term, or until cross-chain activities bear fruits. SNX founder Kain has recently shared his vision on cross-chain liquidity, a huge step in the right direction that will likely begin with deploying on Base.

Lastly, there are various technical risks associated with such a major upgrade to v3. This report does not make an analysis of such risks, however we expect that third-party audits will be made available prior to launch.

The fastest horse in the race

We believe that several new major narratives are currently in the making, and SNX is a top contender to benefit from them over the next cycle.

Rising from the carnage of 2022, decentralized trading experiences will continue to gain popularity. The only thing that has more upside than a world-class trading product is a complete liquidity network that powers an ecosystem of its own. As speculators increasingly shift away from centralized  venues, demand for decentralized derivatives markets will reach new highs. The ‘plug and play’ building experience on SNX v3 has the ability to power an array of different markets and instruments while feeding all the benefits and value accrual back to the token holder. The DEX narrative is still in its infancy and will likely grow with the release of more hybrid solutions such as Infinex.

For the first time in crypto, we are also finally witnessing the rise of tokens that provide yield, dividends or some type of value back to tokenholders. Ironically, the best of these tokens have existed for some time, and we believe SNX to be one of the most attractive. Trading under a PE of 20, its current valuation is more reasonably priced than most speculative tech companies on the NYSE. Of course, there are inherent risks associated with crypto that are not to be understated, however in the allocation of capital to the sector, we find such income bearing assets to be particularly attractive in the current environment.

Lastly, this report so far has omitted a review of the SNX team given that it has changed considerably over time and become more decentralized and distributed in its decision making. Despite this, it’s worth noting that the leadership behind SNX has a track-record of experimentation and execution that leads to results. Equally as impressive is their timing on implementations of their solutions within market cycles. Synthetix was one of the earliest tokens that propelled the 2020 DeFi bull market into existence. With the data we have at hand and the activity levels we have observed of the team and network over the past six months, we foresee Synthetix once again climbing the ranks of the top 100 in 2024.

Our target range for SNX is between $13 and $22 by 2025.

Read the full report in PDF format here

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Polkastarter is a hybrid of Uniswap, Primablock and Bounce build on Polkadot ecosystem. A permission-less DEX with interoperable token pools and simple KYC features, enabling cheap and fast token swaps and fundraising for new projects. Polkastarter aims to tackle the problems of high ETH network fees and slow platform performances present in current DEXes.

The increasing trend in monthly volumes for DEXes also comes with its shortcomings with high network fees and slow platform performances, particularly on the Ethereum network. Polkastarter aims to tackle these problems by utilizing the Polkadot ecosystem to enable higher throughput and cheaper transactions while at the same time still being connected to other blockchains for liquidity.

Polkastarter’s vision is to create an interoperable DEX for users to participate in a decentralised yet secure and compliant environment. The liquidity pools will include a variety of swap mechanics (such as fixed ratio swaps, dynamic ratio swap) and fundraising auctions (dutch and sealed-bid auctions). It will also enable permission-less listings, token swaps with smart contracts, private pools with password-protected function, whitelisting and high slippage price alerts –  resulting in additional use cases that include cross-chain swaps, OTC trades, and crowdfunding with whitelisted addresses.

Theres still alot more to this report…

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PowerTrade is a crypto options and structured products trading platform set to launch in Q3 2020. The platform enables the trading of Bitcoin in a quick, intuitive and seamless manner on all mobile devices. It also has added capabilities of helping investors easily analyse the market, manage risk and seize profitable trading opportunities.

PowerTrades vision is to create easy access for retail to trade crypto options through a designed driven, product focus approach offering a deep user experience. The team goal is to attract more retail investors into the crypto options market by simplifying the trading process, providing options trading education and through their affiliate program.

Team

Mario Gomez Lozada (Co-Founder & CEO) – Mario has got over 20 years of experience in Finance with over 6 years of blockchain-related experience.

Jon Myers (Co-Founder, Design & Marketing) – Jon comes with a track record of founding and advising many companies. He has over 20 years of experience working in user interface and user experience design.

Richard Hodges (Trading & Risk) – Richard has worked for multiple global investment banks and financial exchanges such as JP Morgan, Morgan Stanley, Barclays and Citi and has 20 years of options trading experience.

Tom Howard (Business Development & Growth) – Tom has 7 years of experience in investing in cryptocurrencies and is a founder at DeFi Nation & Co-Founder of Mosendo.

Konstantin Holoborodko (Software Engineer) – Konstantin has 20 years of software engineering experience with past experience in Bloomberg

Read the full PDF report here

Read the full report here

Company Overview

Elrond has created a novel architecture through two key innovations; 1) adaptive state sharding technology and 2) Secure Proof of Stake (PoS) consensus. This protocol will enable a scalable ecosystem embedded with interconnectivity while maintaining  the  decentralisation,  security  and  fairness  features  of  a  public blockchain.  Test  results  have  reflected  a  1000x  increase  as  compared  to existing solutions currently in the market with an average throughput of 30,000 transactions per second (tps), 5 seconds block time and negligible fees.

Since Elrond’s inception, the project has made notable progress both technically and business developments. Currently, the network is in the transition from testnet to mainnet, which will occur across several phases. In this report, we focus on several key updates and highlight price catalyst for Elrond (ERD) tokens.

Report Highlights

In this report, Picolo will highlight several updates and developments of Elrond Network and provide an investment thesis on Elrond (ERD) Tokens. Here are the highlights of the report:

•Target price of $0.00248, representing a 48% upside

•Early staking rewards the key driver

•Significant  technology  and  business  developments  from  IEO  to  present creates a strong foundation for the platform

Thematic Views

Upcoming  mainnet  launch  with  staking  rewards  to  create  significant tailwinds – Many reports predicting an outlook for 2020 have cited staking / yielding tokens as a thematic proponent going into the new year. Our internal research analysis further substantiates this point as investors are slowly waning away from price volatility, and are seeking to rebalance their portfolio towards passive, stable income tokens.

This trend is becoming popular amongst major exchanges, as they have been rolling out support for more staking tokens, in turn transferring yields back to end clients. Notably, Binance, Coinbase, and OKEX had close to zero staking products at the beginning of 2019 to providing over 20+ options at the end of 2019. More importantly, this benefits the projects in its entirety by keeping value within the network, simultaneously offering users to play their part in the system.

For a start, Elrond has successfully fulfilled its first 3 of 10 waves for pre-staking (~$2.5m USD locked) since the bootstrapping process began on 31 Dec 2019.

Elrond Bootstrapping Phase 1 - staking yields

Successful Testnet performance to boost confidence for Mainnet launch – Elrond has been consistently working hard in developing and ensuring their protocol is robust. Their Virtual Machine has proven to be the fastest against its competition across different benchmarks.

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Summary

WINk is creating a premier gaming platform facilitated by TRON’s blockchain for users to game, gamble and socialize. Through its innovative token design and incentive mechanisms, developers will be able to focus on creating their dApps without worrying about operations, maintenance and user adoption. Rebranded from TRONbet, WINk is a live platform with thousands of daily active users (DAUs), ranking them one of the top dApps in the market.

Company Overview

Incorporated in 2018, TRONbet was the first dApp to be launched on TRON. Given its growth in the past year, the project took a strategic move to rebrand TRONbet as WINk. Leveraging TRON network, WINk will be able to provide scalability, minimal transaction costs, liquidity and adoption, all across a truly decentralized nature.

Here are several issues the project seeks to resolve:

•Inefficiencies with centralized gaming platforms, such as trust, transparency and custody of funds

•Gaming platform with integration across multiple blockchain ecosystems

•Insufficient development tools for the creation of gaming dApps

•Limited content discovery of individual gaming dApps

•Regulatory compliance

•User adoption and community growth of dApps

Commercial & Technical Strategy

WINk seeks to provide a premium gaming experience for both developers and users. In comparison to a traditional gaming platform, WINk utilises blockchain technology to create a trustless environment, with an aim to be a leader in the blockchain gaming sector. Tapping on both TRON and TRONbet communities, the project also has access to existing players and new users, which will enable WINk to drive adoption of their platform.

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Company Overview

UNUS SED LEO (LEO) is a utility token that will benefit its users across all iFinex platforms. The company, iFinex Inc. (iFinex) started operations in 2012, and till date hosts a portfolio of blockchain and crypto products such as Bitfinex, Ethfinex, Nectar (NEC), and upcoming products Bitfinex Derivatives, eosfinex, iFinex IEO platform, a security token exchange, and more.

The token, LEO, is designed to empower their community of traders seeking to maximise their potential output on iFinex trading platforms. Bitfinex, one of the firm’s largest exchanges, and home to over 120 tokens pairs will contribute to LEO’s token utility immensely.

Valuation

Picolo analysts incorporated several parameters and assumptions to analyse the fundamental and relative value of LEO token. We adopted a three-prong approach to the fundamental valuation of LEO to determine the intrinsic value of the token. Those three parameters include:

1.Value derived from the token discount, assuming tier 1 discount of 15%

2.Value derived from trading fees for token repurchases and burn

3.The expected value of recoverable assets from Bitfinex Hack and Crypto Capital funds

Several assumptions made by our analysts include an implied monthly growth rate  of  7.5%,  and  a  monthly  discount  factor  of  2.8%  (40%  annualised).  In addition, we further assume a recovery rate of 4.5% of distressed assets to derive an intrinsic value of $2.34.

Our relative valuation (RV) using comparable exchanges based on industry Market Value/Volume multiple (MV/Vol), provided a value of $1.94 per token.

Overall,  a weightage  approach  with  75%  weight  on  fundamental,  and  25% weight on relative valuation was taken to reduce the sensitivity of exchange volume data on the RV model. An intrinsic value of $2.24 per LEO was derived, representing a 50% upside based on the current price.

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Summary

Harmony is an open infrastructure adopting sharding technology to scale trust for billions of people worldwide. The platform is designed to power high volume decentralised economies, at the same time addressing several problems that are prevalent in existing projects. Harmony will be the first sharding-based PoS blockchain to launch soon.

Company Overview

Incorporated in 2018, with its core team in California, Harmony has the vision to create an open consensus for 10b people globally and create a radically fair economy. Utilising a sharding model, the project seeks to create a scalable blockchain that is energy efficient, powering decentralised economies of the future.

Here are several issues that the project seeks to resolve:

•Full scalability using sharding technology not just on network communication and transaction validation, but sharding the blockchain state as well

•True randomness for secured sharding

•Energy efficiency as most sharding-based blockchain utilise PoW

•Adaptive threshold PoS model to deter malicious stakers

•Fast propagation of blocks across shards

•Consistency of cross-shards transactions

Commercial & Technical Strategy

Harmony’s key innovations lie on both the protocol and network layers on the blockchain, which includes an in-state sharding model and peer-to-peer (P2P) networking features. Harmony will enable high transactional volume projects to build dApps and marketplaces for gaming, exchanges, AI sectors, etc., on their platform.  They  will  also  preserve  consumer’s  privacy  using  zero-knowledge proofs for data sharing.

Several core features of the platform include:

•In Sep 2018, Internal testnet results recorded speeds of 118,357 TPS on 41k machines across Amazon, Google and Microsoft Cloud servers.

•Efficient  broadcasting  with  Kademlia-based  routing  and  Erasure  Code  to achieve a Block-sync time of 1.36s

•Fast Byzantine Fault Tolerance (FBFT) consensus protocol improved from PBFT using BLS (Boneh-Lynn-Shacham) multi-signature.

•PoS-based full sharding scheme

•Unbiased and unpredictable node selection using Distributed Randomness Generation  (DRG)  coupled  with  Verifiable  Delay  Function  (VDF)  and Adaptive-Threshold staking system

•Shard  Chain  and  Beacon  Chain  infrastructure  to  validate  and  process transactions

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Company Overview

Binance started in Jul 2017 and is an exchange platform for crypto to crypto transactions. It is one of the largest exchanges by trading volume, serving over 450 token pairs for trading.

The exchange boasts a matching engine that can perform 1.4m transactions per second  (TPS)  and  is  known  for  its  high  liquidity.  Behind  the  platform  is  a professional team of 800+ employees with an influential CEO Zhao Changpeng at its helm.

Updates from the previous report (Jan 2019)

Picolo Research has updated our valuation on Binance taking into account the firm’s last quarter developments and current market conditions. Having seen a significant rise in BNB price since Jan 2019, our analysts revisited the valuation and highlighted several changes from the previous report.

Valuation

Picolo adjusted several parameters and adopted the sum of the parts valuation to  reflect  Binance  additional  service  offerings.  We  adopted  a  three-prong approach to the fundamental valuation of BNB to determine the intrinsic value of the token. The three parameters include:

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Summary

Matic Network is a Layer 2 scaling solution that seeks to solve scalability issues while  maintaining  the  network’s  true  decentralised  nature.  The  underlying framework is an adaption of the Plasma technology, and Matic seeks to address several limitations of Plasma. Their value proposition also includes providing better user experiences through smooth UX and a suite of support tools.

Company Overview

Incorporated in 2017, with its core team in India, Matic Network has the vision to provide   off/side   chain   scaling   solutions   without   compromising   on decentralisation. Adapted from the Plasma technology, Ethereum will be the first platform that Matic will implement its scalability integrations on.

Commercial & Technical Strategy

Matic Network utilises a two-prong approach to achieve high transaction speeds and decentralisation; 1) PoS (Proof of Stake) at the checkpoint level, 2) Block Producers at the block producing level. The team will deploy an enhanced version  of  the  Plasma  structure  that  will  allow  seamless,  low-cost  and  fast transactions on the mainchain. Aside from Matic protocol, the team will also provide support by developing tools to help the ecosystem. The product is currently in testnet with the Alpha version of the mainnet launching soon.

Several core components of the product include:

•Checkpoints using PoS mechanism to provide finality on the mainchain

•Blocks are generated at ~1s intervals at negligible transaction fees

•65k tps in a single sidechain

•Multi Chain support via horizontal scaling with side chains

•Interoperability across different blockchains, providing support for large DEX

•Support tools include:

o Wallet – utilising WalletConnect Protocol, users can manage accounts easily with user-friendly interfaces

o Dagger – real-time updates and notifications from Ethereum blockchain

o Browser extensions

Roadmap

Matic  Network  has  tracked  their  roadmap  very  closely,  delivering  all  their milestones on time with some earlier than stipulated. Although most deliverables are on the technical front, they have also been active on the business front working closely with their partners and attending community meet-ups, summits and hackathons.

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Summary

MultiVAC is creating a public blockchain for industrial-grade dApps. The project adopts  a  sharding  mechanism  utilising  probabilistic  models  to  achieve consensus. MultiVAC also introduces proprietary technologies that provide high flexibility for developers to dynamically adjust several parameters according to the complexities of their business needs. In short, the team seeks to build a blockchain that is extremely fast, scalable and robust.

Company overview

Incorporated in Singapore, MultiVAC has an objective of developing a high- performance public blockchain. The platform will provide flexibility for users to resolve the blockchain trilemma, allowing them to balance the factors between security,  decentralisation  and  scalability.  MultiVAC  utilises  a  probabilistic sharding model combined with a uniquely designed MultiVAC Virtual Machine (MVM)  to  create  a  trusted  and  flexible  execution  environment.  Some fundamental issues the team would like to solve includes:

•The enhancement of security and issues in typical sharding networks without compromising the scalability factor

•To improve the fair and efficient mechanism of node selection by adding an unpredictability layer to enhance the selection process

•To verify the honest execution of computational tasks

Commercial & Technical Strategy

MultiVAC utilises a random sharding technique to achieve higher efficiency and fairness in node selection. This is done without compromising the security and scalability needed for blockchains to achieve industry scale. Furthermore, the MultiVAC  Virtual  Machine  (MVM)  is  equipped  with  a  proprietary  designed blockchain instruction set (BISC) and Proof of Instruction Execution (PoIE) that allow users to decide on the parameters tradeoff between security, scalability and decentralisation. Several noteworthy features include:

•Sharding with Verifiable Random Functions (VRF) – A probability model that is applied to the sharding mechanism, ensuring true randomness, lower cost and higher efficiency in node selection. This function is further enhanced with an unpredictability layer under Verifiable Unpredictable Functions (VUF) to increase the robustness of randomness.

•UTXO  (Unspent  Transaction  Output)  and  Byzantine  Fault  Tolerance Mechanism – This methodology combined with dynamic shard adjustment achieves  the  in-shard  consensus  of  the  network,  solving  the  issue  of expensive synchronisation costs that exist in current sharding technologies.

•MultiVAC Virtual Machine (MVM) – The platform that supports the flexible execution environment. Two main features are embedded within:

a)Proprietary BISC (Blockchain Instruction Set Computer) model, which is a set of instructions bridging the connectivity between the hardware and software.

b)PoIE  (Proof  of  Instruction  Execution)  consensus  algorithm  uses  the Merkle Tree data structure to verify honest execution within the network

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Summary

Celer Network is a layer-2 scalable solution that operates on top of existing blockchains.  The  technology  uses  off-chain  scaling  techniques  to  achieve billions of TPS (transaction per second) in a trusted and secured environment. Its ability to provide immense performance and flexibility allows users to easily build, operate and use highly scalable dApps (decentralised applications).

Updates from the previous report (11 Jul 2018)

•Upgraded our rating for Celer Network from 4 stars to 4.5 stars

•Specified token sale details on Binance Launchpad

•Updated roadmap and milestones achieved

•CelerX (known as cWallet) Beta launched in Feb 2019 on IOS and Andriod, which was only an MVP previously

•Achieved 20,000X reduction on transaction latency

•Celer had established a business operations team and extensive partnerships since the previous report

Company overview

Celer Network is based in the US with an objective of bringing internet scalability to all blockchains. By resolving issues related to the value of transfer and the limitations  of  on-chain  consensus  such  as  bottlenecks  and  privacy,  Celer’s platform  will  help  to  achieve  the  much-needed  scalability  for  blockchain technology.  The  system  can  be  easily  integrated  into  existing  or  future blockchain, allowing them to achieve higher throughput and privacy.

Commercial & Technical Strategy

Celer uses an off-chain technique, allowing parties to execute contracts in a trustless environment. The team is a strong advocate of this methodology as they believe it is more efficient in supporting the scalability of dApps. Celer Network encompasses a full-stack architecture, named cStack, which is broken down into 4 distinct modules. Each module fulfils a typical function and has the flexibility to adopt new implementations or changes when necessary.

cChannel – The foundation layer that interacts with the blockchain and upper layers. Uses both state channel and sidechain techniques, which are important for off-chain scaling.

cRoute – Utilizing Distributed Balanced Routing (DBR) to distribute payment traffic, achieving 15x higher throughput as compared to existing solutions. DBR mediates the mediocre performance of “shortest path routing” algorithms and improves channel balancing, decentralisation, resilience and privacy.

cOS  –  The  off-chain  dApp  operating  system  that  runs  on  development framework (SDK) and runtime system, allowing developers to build and operate off-chain dApps easily.

cEconomy – An economic model to balance the tradeoffs between off-chain scalability against liquidity and availability. The goal is to create network effect and provide stable liquidity throughout the system using 3 crucial components:

•Proof of Liquidity Commitment (PoLC)

•Liquidity Backing Auction (LiBA)

•State Guardian Network (SGN)

Roadmap

The  project  team  has  been  focusing  on  developing  the  technology,  and establishing partnerships for the past 7 months. On the whole, the team has met their roadmap deliverables on time and were ahead of schedule in several of their intended milestones. Also, the team has been busy attending meetups, events and developer conferences in the prior months.

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Summary

Fetch AI is seeking to combine machine learning (ML), artificial intelligence (AI), autonomous  agent  systems  and  a  distributed  ledger  network  to  create  an economy where data could be exchanged seamlessly. Machines integrated with Fetch AI’s protocol would be able to communicate and solve complex problems in  our  daily  lives,  eventually  increasing  efficiency  that  is  beyond  human capabilities.

Company overview

Fetch AI is incorporated in the UK with an aim to create a digital economy where autonomous agents can interact with one another without human intervention. The  environment  will  create  a  decentralised  digital  world  to  perform  useful economic work where information trades effortlessly. There is a plethora of applications that can be adopted, but the overall bottom line is to bring data to life.

Here are several issues that Fetch AI seeks to resolve:

•Creating economic efficiencies by providing market intelligence to prevent issues such as shipping empty containers and energy waste by power grids

•The  “disconnect”  between  centralised  systems  as  they  cannot  effectively communicate with one another

•Scalability of distributed ledger technology

Commercial & Technical Strategy

Fetch AI is building a product that facilities execution of tasks, delivering data, providing  services  and  getting  rewarded  for  the  efforts  displayed.  The technology  encompasses  a  3-layer  architecture;  1)  Autonomous  Economic Agents (AEAs), 2) Open Economic Framework (OEF), 3) Smart Ledger. ML and AI are integrated across all layers to incorporate an intelligence element into the system.

Several significant features include:

•OEF – The digital world where AEAs operate in, allowing them to access services and connect with other peers. In addition, high-level commands (transfer, explore, search and discover) and low-level commands (reaching consensus, peer trust, transactions and protocol control) can be executed

•AEA – A digital entity that acts on its behalf. They are paired with existing hardware and can exchange data with other agents to fulfil requirements of the owner

•Smart  Ledger  –  A  unique  blend  of  blockchain  and  DAG  with  two  main components; 1) smart contract on the ledger and 2) data stored on the DAG

•uPoW - Useful proof-of-work consensus that builds market intelligence and trust over time

•Machine learning intelligence that increases efficiency using past, present and future elements employed by AEAs

•A synchronisation of 40k tps between nodes and 30k tps for mining blocks

Token Sale

Fetch AI raised $2.06m in seed funding and $0.975m & 24,597 ETH in private sale.  Total  tokens  supply  will  be  fixed  with  17.6%  allocated  for  token  sale (including seed and private rounds) and 15% for mining. Investors, advisors, foundation and team will have a lockup and vesting periods.

Fetch AI has a planned expenditure for its first three years namely on working capital, operation cost, and academic partnerships. The greatest costs incurred would be salaries and working capital associated with the development of the technology.

The main token functionalities are 5 folds:

Currency  for  transactions  –  FET  tokens  act  as  the  medium  of  exchange between agents

Staking/ Mining – Users will be able to earn FET tokens by providing value to the network

Connect to the digital world – FET is required as a deposit to access the network to encourage appropriate behaviour

Access to services in the digital world – Allowing AEAs to view, explore and search the digital economy and interact with other nodes to negotiate services

Access to ML/AI algorithms – Access to a range of intelligence tasks that are available on the smart ledger

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Company Overview

Binance started in Jul 2017 and is an exchange platform for crypto to crypto transactions. It is one of the largest exchanges by trading volume, serving over 350 token pairs for trading. The exchange boasts a matching engine that can perform 1.4m transactions per second (TPS) and is known for its high liquidity. Behind the platform is a professional team of 400+ employees with an influential CEO Zhao Changpeng at its helm.

Binance is primarily an altcoin focused exchange, differentiating itself from Coinbase, BitMEX and Bitforex. The platform averages $1b trading volume per day, has over 9m userbase worldwide, and recently surpass Deutsche bank profits in Q1. The platform also announced a $1b social impact fund to foster the growth of blockchain industry and is continually innovating together with its community.

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Updates from the previous report (Sep 2018)

Picolo Research reviewed our valuation on Binance and had adjusted several parameters to reflect current market conditions. The adjustments caused a change in our target price, however, upside potential persist. Here are the significant changes from the previous report.

•The revival of Binance Launchpad providing additional utility value to BNB tokens, resulting in greater adoption and demand

•Overall trading volumes have dropped significantly (~50%) since prior report, hence growth rate of volumes have been adjusted

•Adjusted discount factor to reflect Binance as a stage 3 growth startup

•An increase of MV/Vol multiple across major exchanges from 3.28 to 3.67, increasing relative valuation in this sector

Thematic Views

Greater adoption of BNB tokens spearhead by Launchpad traction. Binance has gained a significant foothold in the digital asset exchange sector since its inception. The platform has developed itself as one of the major players in the crypto to crypto exchange sector and has built a strong brand name in both the demand and supply side, naming it as one of the most sought-after exchanges for listing. One of its affiliated platforms, Launchpad (a token issuance platform), was highly underutilised for the entire 2018, with the last token issuance (BRD) happening on 26 Dec 2017. However, this had since changed when Binance began 2019 with a promise to launch a new token every month starting with BitTorrent and Fetch.AI. The former, BitTorrent Token (BTT) issuance was scheduled on 28 Jan 2019 where participants were able to purchase BTT with both BNB and TRX. This project was a huge success as it was sold out in minutes. BNB tokens also gained 17% in value over this period when Binance announced BTT’s sale. Therefore, Launchpad exhibits the potential to drive additional demand for BNB tokens as it creates additional utility value to BNB for its 10 million users worldwide.

Binance market share of BTC trading volume stabilises. Even though total market cap and trading volume dropped significantly in 2018, Binance has been consistently retaining the top 3 positions as an exchange with the most traded volume globally. Its market share of trading volume for BTC has increased from 25% to 32% with a peak of 47% in June 2018. We see Binance’s market share stabilising in the range of 30-40% despite an increasing number of exchanges being launched monthly.

Innovative drive to improve exchange features and product offerings. Binance has consistently been at the forefront of providing better user experience of their services. In 2018, the exchange revealed an MVP of its decentralised exchange (DEX) platform, which is a core component of their business strategy to provide a hybrid exchange ecosystem in 2019. In addition, the firm made its first acquisition in Trust Wallet to support its DEX platform. There are several other features that Binance had rolled out, which includes Binance Labs, Binance Info and Binance Academy, with the latest being a crypto-to-crypto over-the-counter (OTC) trading desk launched in Jan 2019.

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Summary

RSK is seeking to integrate the smart contract element onto the bitcoin network. It  is  a  fully  open  source  project  utilising  merge  mining  and  a  2-way  peg mechanism with bitcoin. It aims to add value by lowering block intervals from 10 mins (bitcoin) to 10 seconds, faster confirmation times, providing scalability and sustainability to the bitcoin ecosystem.

RSK (also known as Rootstock) is incorporated in Argentina with an aim to introduce smart contracts to the legacy bitcoin blockchain. The primary goal is to reduce stakeholders’ conflict by integrating a governance model with a 2-way peg to BTC prices. Here are several issues that RSK seeks to resolve within the Bitcoin ecosystem:

•A  fair  governance  system  that  represents  all  stakeholders  of  the  Bitcoin community

•Sustainability of Bitcoin mining network through merge mining utility

•Lowering Bitcoin transaction fees, and reducing price volatility

•Faster confirmation times

Commercial & Technical Strategy

The platform seeks to drive scalability in the bitcoin network by integrating smart contracts, lowering transaction fees, maintaining current hash rate to ensure tighter security and increasing processing time, at the same time upholding the rigidity  of  bitcoin’s  security.  RSK  is  indeed  creating  a  protocol  to  solve  a prevailing issue within the bitcoin network. By introducing RSK Virtual Machine, smart  contracts  can  be  executed.  They  provide  an  alternative  to  existing solutions  such  as  competition  free  infrastructure  projects  (Hyperledger  and Ripple), and other scaling solutions (Lightning Network). RSK had mined its genesis block in early 2018 and will continue to open the mainnet up on a stage- by-stage basis.

Token Sale

RSK raised $1m in seed funding and $3.5m for pre-series A funding in mid- 2017. The latest round comes from a long list of investors with more information provided in the next segment. The project might have plans to conduct an ICO in the near future for their payment platform, and any updates will be posted on their official channels.

Investors

Several prominent investors have backed the project, including:

Bitmain - Bitmain is one of the world’s largest manufacturers of mining rigs with profits  of  $4b  last  year.  They  have  stepped  into  venture  capital  and  have invested in projects such as Circle, Path Network, BitKan, RSK labs, ChainLab.

Digital Currency Group (DCG) - DCG aims to build and support bitcoin and blockchain  related  companies.  Past  projects  include  Civic,  Blockstack, Decentraland, Filecoin, Hedera Hashgraph.

Competitor Analysis

RSK has entered a space to build a platform that competes against the major cryptocurrencies.  However,  several  features  embedded  within  the  platform steers  them  away  from  being  a  direct  competitor  towards  a  more complementary nature. We have identified two projects that portray similarities in comparison to RSK.

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Company Overview

MakerDAO (Decentralized Autonomous Organization) is headquartered in California and was established in 2015. The main vision is to minimise asset volatility through the creation of its stable coin, DAI, allowing anyone equal access to financial services that includes loan offerings. DAI can only be issued through a Collateralised Debt Position (CDP), where ETH is locked up as collateral via a smart contract, in return for a stability fee. In short, a user could collateralise an asset to borrow in DAI.

MakerDAO’s (Maker) token, MKR, on the other hand, is both a utility and governance token, where the former is required to pay fees for using the platform, and the latter entitles holders to vote on certain changes to the system such as stability fees, the debt ceiling, etc. Maker’s structure is touted as one of the most well-thought concepts backed by sound game theory dynamics, which result in DAI being distinctly different from other stable coins as it is truly decentralised and not backed by physical USD stored in a bank account. We further explain several features below:

•MKR - The primary token governing DAI’s ecosystem. Tokens are burnt with interests and fees awarded from debt issuance, thus increasing the value of MKR

•DAI – Maker’s stable coin pegged to 1 USD

•Collateralized Debt Position (CDP) – The locked-up collateral needed to issue DAI. The collateral amount is fixed at 150% of the loan amount (i.e. for every $1 borrowed, $1.50 of collateral is required)

•Stability Fee – The fee needed to pay down the debt to close a CDP. It was recently revised from 0.5% to 2.5% in Aug 2018

•Debt Ceiling – The maximum amount of debt that can be created by a single collateral CDP

•Self-stabilising mechanism – Market forces by arbitrageurs will stabilise

DAI prices by maintaining the peg (i.e. DAI holders will sell if the price is above peg or buy when the price is below the peg). Also, a Global Settlement process is implemented as a last resort to shut down the system and unwind outstanding CDPs in the event of an emergency

Currently, the system is running on a single-collateral DAI. However, the team will be pushing out multi-collateral DAI, allowing more assets to be collateralised in the near future.

Thematic Views

Weaknesses in current stabilisation mechanisms – One key factor that to maintain DAI’s peg to the USD is Maker’s notion of stabilisation mechanisms. The nature of Maker’s structure does not allow 1 DAI to be redeemable for $1 unlike Circle’s USDC and True USD, where a user can always redeem one token for $1 from their platforms since the collateral that backs it is in USD instead of ETH. Therefore, Maker has to rely on other stabilising mechanisms derived from general market forces combined with economic theories on supply and demand to maintain the peg. We lay out several mechanisms and its weaknesses that add to MKR’s price volatility in the market.

•Global Settlement - The option to shut down the system in a black-swan event. This is triggered by global settlers who are elected representative of the platform. If an imminent crash happens, which tend to be fast and big, it will be difficult for the system to buy back outstanding DAI quickly to prevent the platform from becoming under-collateralised. Furthermore, it is unknown if settlers could detect irrationality in the markets quickly enough to act on such events. Hence, the intended effect of deterrence in this mechanism is weaker than what it should be.

•Self-stabilising mechanism by arbitrageurs - This mechanism requires market forces to bring the price back to the peg, which is highly dependent on the

rationality of users. For example, if a user thinks that DAI could go to $1.50 in the future, they will have no incentive to open a CDP to issue and sell DAI even if the market price is $1.25. Eventually, this could add to the volatility rather than reducing it. Furthermore, without the redeemable function as mentioned above, this mechanism will have a lesser effect on the overall stability of the ecosystem.

Limited scalability of DAI as a stable coin – There are a couple of parameters within the system that currently limits the scalability of DAI. The first one would be the current debt ceiling of 100m implemented within the system. Even though the debt ceiling is created to minimise downside risk, it sacrifices scalability. In comparison, the overall market cap of major stable coins currently sits at $2.6b, which is far from DAI’s overall market value of $57m. Our analysts do not foresee the debt ceiling to increase to $1b in the near future, as the system is unable to assume the substantial downside risks that necessitate stability. Secondly, for DAI to be issued, a CDP has to be opened by a user with backed collateral. There is little or no incentive for users to open CDP aside from the arbitrage opportunities mentioned earlier. Hence, the CDP market relies heavily on and is skewed to borrowers, which currently does not justify a $1b loan issuance market to support the stable currency. Furthermore, the competitive environment in the lending space with increases Maker’s difficulty in acquiring market share. Therefore, the restrictions to scalability deflate the value attributable to MKR tokens, and in turn its price.

Low trading volume of MKR increases liquidity risk – Maker currently sits comfortably in the top 30 coins ranked by market cap. However, its 24hr trading volume of $0.23m pales greatly from an average of $407m between the 30 coins. MKR’s trading volume is one-third that of their closest competitor, SALT. The lack of trading volume translates into substantial liquidity and systematic risks for MKR holders, as they might incur a substantial loss in transaction value when they liquidate or enter into positions. Hence, investors need to be compensated for holding this additional risk. In some instance, illiquidity could cost investors 20% of the token price, and it is important to note that illiquidity increase during bear markets, which is further exacerbated in a black swan event where MKR is liquidated to cover losses.

Competitor Analysis

Maker’s competitors appear on two fronts, the stable coin market and lending sector. Amongst the stable coins, Maker’s DAI has the widest price range and highest annualised volatility at 22.5%. Having initiated in 2017, DAI has lost traction against its competitors, such as TrueUSD, Circle’s USD Coin, which began in 2018. Even though it has a truly decentralise mechanism, it lacks the direct redeemability feature to 1 USD. A comparison chart with more details is shown below.

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Summary

Binance started in Jul 2017 and is an exchange platform for crypto to crypto transactions. It is one of the largest exchanges by trading volume, serving over 350 token pairs for trading.

Company overview

Binance  was  initially  incorporated  in  China  but  has  recently  shifted  their headquarters to Malta in favour of its crypto friendliness. The exchange boasts a matching engine that can perform 1.4m transactions per second (TPS) and is known for its high liquidity. Behind the platform is a professional team of 400+ employees with an influential CEO Zhao Changpeng at its helm.

Binance  is  primarily  an  altcoin  focused  exchange,  differentiating  itself  from Coinbase, Bitmex and Bitforex. The platform averages $1b trading volume per day, has over 9m userbase worldwide, and recently surpass Deutsche bank profits in Q1. The platform also announced a $1b social impact fund to foster the growth of blockchain industry and is continually innovating together with its community.

Thematic Views

Higher  adoption  through  organic  growth  and  reputation.  Binance  has gained  a  significant  foothold  in  the  digital  asset  exchange  sector  since  its inception. It has continuously retained the top 3 positions as an exchange with the most traded volume globally with an average of $1b per day. The platform has  developed  itself  as  one  of  the  major  players  in  the  crypto  to  crypto exchange sector and has built a strong brand name in both the demand and supply side, naming it as one of the most sought-after exchanges for listing. The exchange also dictates one of the best referral programs in the market (40% max  commission),  as  compared  to  Huobi  (30%),  OKEx  (Adhoc  referral program),  and  Bibox  (20%).  Binance’s  reputation  coupled  with  the  steady organic growth of users could translate into sustainable long-term success.

Binance  gaining an  increased market  share  of  overall  trading  volume.

Even though total market cap and trading volume has dropped significantly (-70% YTD), Binance trading volume has been consistent around the $1b mark. Its market share of trading volume for both BTC and ETH has increased from 2.4%  to  6.9%  and  2.9%  to  6.1%  respectively  since  Jan  2018.  We  see  a continuation of this trend going forward as we expect Binance to capture 10- 15% of the market’s trading volume.

Innovative  drive  to  improve  exchange  features  and  product  offerings. Binance  has  consistently  been  at  the  forefront  of  providing  better  user experience of their services. In Aug 2018, the exchange revealed an MVP of its decentralised exchange (DEX) platform, which is a core component of their business strategy to provide a hybrid exchange ecosystem. In addition, the firm made its first acquisition in Trust Wallet to support its DEX platform. There are several other features that Binance had rolled out within the past year, which includes Binance Labs, Binance Info and Binance Academy.

Competitor Analysis

There are many competitors in the exchange sector. We have identified two projects  that  portray  significant  similarities  to  Binance  for  its  competitive landscape.

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Summary

Chromapolis is a blockchain project backed by ChromaWay. The idea redefines both  the  blockchain  architecture  as  well  as  the  programming  language  to enhance  developer  experience.  Chromapolis  is  designed  to  overcome  the shortcomings  of  existing  blockchains  by  providing  a  smoother  integration, better user experience and scalability for greater dApps adoption.

Company overview

Chromapolis  is  incorporated  in  Estonia  and  is  backed  by  an  experience blockchain company, ChromaWay. The company has been in existence since 2014, redefining blockchain technology across both  the public and private sectors. Their objective is to accelerate the adoption of dApps by allowing developers  to  build  applications  on  their  platform  easily  and  providing smoother  end-user  experience  with  no  wait  times  and  no  fees.  Several limitations they seek to resolve includes:

•Limited network capacity in existing blockchains

•Expensive I/O (Input/Output) operations

•Error-prone programming language

•End-users paying fees for every transaction

•Limitations on indexing data on blockchains

Chromapolis is integrating a relational model that has existed in corporations for  decades  into  blockchain.  This  will  help  in  the  adoption  of  existing corporations given that SQL has been used for decades.

Token Sale

A total of 1b Chroma tokens will be issued. 15% of the tokens will be sold to investors in a private sale, with 30% (up to 10% per year) reserved for airdrop and promotional purposes. These details are subjected to changes with more information to be released soon.

Commercial & Technical Strategy

Chromapolis  is  a  blockchain  that  is  built  utilising  an  existing  framework, Postchain, with a specific focus to create a truly decentralised shared database. Most  blockchains that  are optimised  as payments are not suitable  to host dApps. Hence, with Chromapolis, dApps will be able to achieve the scale and adoption that is currently lacking. Several technical features of Chromapolis are:

•Relational  model  –  The  database  management  model  that  has  been  in existence the past 5 decades. This model allows Chromapolis to leverage on SQL DBMS (Data Base Management System) to deploy complex indexing and querying methods without losing throughput.

•Horizontal Scaling – Postchain allows for the creation of multiple blockchains, which are operated by corresponding nodes, which ignites scalability with an increase in total throughput

•RELL – The new programming language developed for Chromapolis that is safer  and  7x  more  efficient  than  SQL.  RELL  is  concise,  expressive  and convenient.

•High I/O throughput – Data queries and updates are optimised through a relational database, resulting in higher processing performance

•Chromapolis Consensus – a PBFT-like consensus algorithm anchored with blocks on a PoW blockchain. This mechanism captures both benefits of fast transaction time and improved security strength within the network

•dApss  customizability  –  The  flexibility  to  allow  developers  to  implement various token usage policies that suits the needs of their dApps

Roadmap

The  roadmap  presented  by  the  team  was  very  brief  and  is  subjected  to changes. Here, we cite some significant developments:

•Jul 2018 – Private sale to investors

•Sep 2018 – Testnet Launch

•Oct 2018 – MVP release and TGE

•Feb  2019  –  Chromapolis  v  1.0  (decentralised  governance,  support  for business applications, custom DB implementation)

•Jul 2019 - Chromapolis v 1.1 (dApp Marketplace, dApp templates, parallel processing, automatic sharding)

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Summary

Ankr Network is a 3rd generation blockchain with multi chain features. It adopts a consensus algorithm called Proof of Useful Work (PoUW). Ankr’s efficient mining  mechanism  within  a  shared  computing  environment  will  enable Distributed Cloud Computing (DCC). In addition, they are one of the first to leverage the use of trusted hardware (Intel SGX).

Ankr is based in San Francisco with a goal to create a revolutionary multi-chain and  useful  work  based  blockchain.  With  a  user-friendly  infrastructure,  Ankr seeks to tap into idle computing resources using trusted hardware, enabling decentralised cloud computing (DCC). Some of the issues they seek to resolve includes:

•Waste of power consumption using PoW consensus

•Lack  of  trusted  oracle  services  that  connect  existing  business  to  the blockchain

•Scalability issues such as low Transaction per Second (TPS) and overcrowded blockchains

Token Sale

The team has not released any information on the deal structure or token metrics publicly. The company indicates the hard cap will be $16m. However, we are unable to verify this information with the team. More details will be released soon.

Commercial & Technical Strategy

Ankr will develop a resource efficient blockchain with a native oracle service. They will be utilising a trusted hardware to initiate the mass adoption of their network. The core features of Ankr blockchain includes:

Proof of Useful Work (PoUW) consensus – A consensus that utilises energy efficiently to solve complex hashing problems as compared to Proof of Work (PoW). This mechanism will also reward miners equivalent to the amount of correct work that they put in.

Intel  SGX  enclave  –  Using  a  trusted  CPU  hardware  that  provides  the computation  power,  and  act  as  trusted  proctor  to  validate  miners’  useful computation and provide proofs for miner rewards.

Native Oracle System (NOS) – Ankr’s native data feed system to execute smart contracts

Plasma Sidechains – A protocol for building unlimited side chains to improve the efficiency of the main chain. It also has the flexibility to integrate new cryptographic methods (e.g. ring signatures of ZkSNARKs)

Below depicts a graphical representation of Ankr’s consensus protocol.

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Summary

Loki Network (Loki) is an open source project developed from the Monero source code to create a completely decentralized private network built upon a foundation of service nodes. SNApps can be created on top of these nodes to provide privacy and security. The first SNApp, a private messaging service called Loki Messenger will be created by the Loki team.

Company overview

Loki Network and its team is based in Australia. The project seeks to provide services and transactions that are decentralized, private and untraceable. With a core objective of privacy, Loki Network is a modified version of the Monero source code built upon a foundation of service nodes.

Commercial & Technical Strategy

Loki seeks to establish itself as a secure and private network, at the same time resolving several underlying issues of Monero.

Mixin Distribution – Altering the methodology of sample mixins spent by users to increase Loki’s resilience against attacks

Ring Size Signatures – Adopting the methodology of churning, Loki will enforce a fixed minimum ring size of 10 to prevent attack on ring signatures

Block Reward – A hybrid proof of work/proof of service system will be utilized through a block reward equilibrium algorithm. On average the split to miners, service nodes and governance pool will be 50%, 45% and 5% respectively.

Staking – Staked tokens will be dynamically adjusted based on block height and will decrease overtime as compared to a fixed amount (Figure 1).

Bulletproof  Declaration  –  Loki  uses  a  modified  version  of  Monero’s  range proofs called bulletproofs to verify service nodes, which revealing the actual amount of LOK that a service node operator holds.

Token Use

1)Currency  –  Similar  to  most  currency  tokens,  LOK  is  used  to  facilitate transactions and act as an exchange medium for digital service or payments in anonymity. For example, LOK can be used as form of payment to another party in complete privacy. In addition, it could create value in the community through the services of future SNApps. More information on this to be released in the future.

2)Staking – Token holders can earn LOK by running a service node through staking.  The  amount  of  LOK  required  to  run  a  node  is  dynamic  and  will decrease over time.

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