Nice work. What about satellite competition down the road? Also, after the Helium community call last night, they are proposing completely redesigning the blockchain and the Tokenomics.
Jan 27, 2022·edited Jan 27, 2022Liked by MoneroMahesh
Nice work on this writeup. You mention HNT is cheap and reference that it trades at 6x revenue. However, the cash flows are captured by the miners, not passive holders. From where is the actual token value derived? I don’t believe there is a staking mechanism that creates a yield to holding the token itself like Ethereum for example (and you probably wouldn’t want to burden the unit economics of miners by forcing them to stake to earn tokens either).
And the issue with using % T Mobile Market cap is that TMUS captures value in a traditional way, through directly capturing revenue and earning a stream of cash flows. Helium appears to be almost a franchised model where the franchisor’s royalty rate is zero, so even if Helium achieved high penetration of TAM, why would it lead to the token being valuable?
The token velocity problem seems to apply here.
I’ve seen others refer to the burn and mint mechanism as the source of value but I have not seen a clear explanation of this. I know Tushar has been very thoughtful and creative about this point but I don’t fully get how it imparts value to the token. Getting people to understand this / explaining it to people in a clear way I think would be tremendous for driving investment demand for the token.
Understanding how to convert different operating cases for KPIs to valuations is critical for assessing the distribution of outcomes here.
Moreover, the token needs to be fundamentally valuable for the yield to miners to exist as well, unless we think pure speculative demand will be enough to keep prices sufficiently high to create an attractive ROI to the miner.
Thanks a lot of the comment Eric, it's a good and important question. Three points here:
1) think validator staking just went live in the last quarter so yes, there is newly this avenue to create yield, and in fact 32mm HNT is staked today mostly VCs/founders. If you bought today, you could delegate to a validator (Or become one yourself at 10k+ HNT)
2) As p. 12 illustrates, over time the majority of the "revenue" accrues to data credits so the endogeneity you reference is reduced significantly - this was why i highlighted why TxN revenue is really important to watch and
3) The early bootstrapping mechanism meant that most HNT that wasn't distributed to VCs/founders went to miners themselves (people providing PoC) - as such, would think it's intellectually honest to show the returns of the project as a whole as the cash flow this business produces, especially given the change in proportion driven by #2 over time.
Thanks for the quick response. And apologies - I kept adding to and editing my post while you were writing. Would be curious to hear your take on the additional pieces.
I wasn’t aware of the staking component. It looks like 6% of HNT will be allocated to staking here so I guess you could size it by saying ((6% * annual $ transaction volume) minus (ongoing staking expenses)) / (HNT Cost plus upfront costs to set up staking) is the ROI to stakers, so this should mean HNT gets bid up to the point where this equation provides an overall yield that is in line with similarly risky alternatives. Any issues with this approach?
Do you have a good understanding of the mechanism by which burn / mint imparts value to the currency even excluding this staking component? I tried understanding from the HIP but I think it would beneficial if Helium made this more clear.
There's a famous tweet by James Fayal, claiming that the tokenomics (mainly based on the burn-mint equilibrium) is designed in a way that each $1.000.000 monthly demand for data credits (which can only be acquired by burning HNT) necessarily increases HNT floor price by $20 (don't know whether validator staking changes this, don't think so, but not sure). If this claim is true (and I have no info making me doubt it), then $HNT has one of the most predictable revenue-token floor price relationships in the space.
To elaborate a bit more on where the value comes from: users need data credits to pay the network, they can only be acquired by acquiring (buying) HNT and burning it. How many DC you get for one HNT depends on the price of HNT, as the burning mechanism ensures a fixed buy price for DCs. (e.g. HNT price doubles, you'll get twice as many DCs for one HNT burned). In the long run, monthly HNT supply for burning is capped, if demand for DC increases, price of HNT will also rise because this is the only way that users (in aggregate) can acquire the amount of DCs they want/need. Works in the other direction, too: demand for data transfer decreases, HNT demand and price will decrease.
On a side thought: not sure if using trad. telco valuation models like it is done in this article is applicable here (being far from an expert on valuation models). Happy about learning why this may be applicable.
Eric, the franchise model is is the right way to think about it, however franchisor royalty is 35%. Helium Co gets 1.05 HNT of every 3 newly minted HNT via the network. The other 65% of HNT is DC spend (real network revenue) and Proof of Coverage rewards (speculative network value) with a trend towards DC being 100% of that 65% over time.
The terminal value of the network at 0 miner growth and ~0 PoC rewards is equal to the market value of the data transferred over the network. PoC rewards are just a bootstrapping mechanism and more closely reflect a market value for the assets of the network (Helium Co balance sheet plus network miner assets at a market multiple). In other words, speculative value.
The name of the game for Helium is to cross the chasm by maintaining speculative value till real value becomes dominant. Making Helium multi protocol will buy the network quite a bit of time till real revenues hit scale. Tease he S3XY while selling the Roadster.
The downside case seems relatively low risk. Even if the token value crashes to something closer to the DC spend value, I don’t see people shutting down hotspots en mass. The cost to operate relative to the potential future value will always be alluring enough to leave it running. Network growth may stall in the disaster scenario, but I think hotspot supply chain will drive down the cost to mine such that growth won’t go to 0.
Mr. Monero. Good if not rosy analysis. One thing to clarify in your deck is the 1 HNT equals 1DC comment. I think you just expressed it too vaguely in the deck. X HNT/$ is equal to $0.00001/DC.
Re: staking. Right now it’s just a mechanism to lock up supply and secure the network via validators. Validators were introduced because network security and blockchain growth were proving too overwhelming for Raspberry PI based miners. The is still playing out as the network transitions to “light” hotspots. Staking dynamics will change if the multi protocol DAO and subDao model is adopted.
Eric, The staking as a valuation equation is interesting but seems flawed somehow. I have to give it more thought.
I would love a copy of the deck for this. Thanks so much. Ken
Ken, please shoot an email to MoneroMahesh@protonmail.com, will send this over
Would love to check out this deck as well! Email sent.
Nice work. What about satellite competition down the road? Also, after the Helium community call last night, they are proposing completely redesigning the blockchain and the Tokenomics.
Nice work on this writeup. You mention HNT is cheap and reference that it trades at 6x revenue. However, the cash flows are captured by the miners, not passive holders. From where is the actual token value derived? I don’t believe there is a staking mechanism that creates a yield to holding the token itself like Ethereum for example (and you probably wouldn’t want to burden the unit economics of miners by forcing them to stake to earn tokens either).
And the issue with using % T Mobile Market cap is that TMUS captures value in a traditional way, through directly capturing revenue and earning a stream of cash flows. Helium appears to be almost a franchised model where the franchisor’s royalty rate is zero, so even if Helium achieved high penetration of TAM, why would it lead to the token being valuable?
The token velocity problem seems to apply here.
I’ve seen others refer to the burn and mint mechanism as the source of value but I have not seen a clear explanation of this. I know Tushar has been very thoughtful and creative about this point but I don’t fully get how it imparts value to the token. Getting people to understand this / explaining it to people in a clear way I think would be tremendous for driving investment demand for the token.
Understanding how to convert different operating cases for KPIs to valuations is critical for assessing the distribution of outcomes here.
Moreover, the token needs to be fundamentally valuable for the yield to miners to exist as well, unless we think pure speculative demand will be enough to keep prices sufficiently high to create an attractive ROI to the miner.
Thanks a lot of the comment Eric, it's a good and important question. Three points here:
1) think validator staking just went live in the last quarter so yes, there is newly this avenue to create yield, and in fact 32mm HNT is staked today mostly VCs/founders. If you bought today, you could delegate to a validator (Or become one yourself at 10k+ HNT)
2) As p. 12 illustrates, over time the majority of the "revenue" accrues to data credits so the endogeneity you reference is reduced significantly - this was why i highlighted why TxN revenue is really important to watch and
3) The early bootstrapping mechanism meant that most HNT that wasn't distributed to VCs/founders went to miners themselves (people providing PoC) - as such, would think it's intellectually honest to show the returns of the project as a whole as the cash flow this business produces, especially given the change in proportion driven by #2 over time.
Thanks for the quick response. And apologies - I kept adding to and editing my post while you were writing. Would be curious to hear your take on the additional pieces.
I wasn’t aware of the staking component. It looks like 6% of HNT will be allocated to staking here so I guess you could size it by saying ((6% * annual $ transaction volume) minus (ongoing staking expenses)) / (HNT Cost plus upfront costs to set up staking) is the ROI to stakers, so this should mean HNT gets bid up to the point where this equation provides an overall yield that is in line with similarly risky alternatives. Any issues with this approach?
Do you have a good understanding of the mechanism by which burn / mint imparts value to the currency even excluding this staking component? I tried understanding from the HIP but I think it would beneficial if Helium made this more clear.
There's a famous tweet by James Fayal, claiming that the tokenomics (mainly based on the burn-mint equilibrium) is designed in a way that each $1.000.000 monthly demand for data credits (which can only be acquired by burning HNT) necessarily increases HNT floor price by $20 (don't know whether validator staking changes this, don't think so, but not sure). If this claim is true (and I have no info making me doubt it), then $HNT has one of the most predictable revenue-token floor price relationships in the space.
To elaborate a bit more on where the value comes from: users need data credits to pay the network, they can only be acquired by acquiring (buying) HNT and burning it. How many DC you get for one HNT depends on the price of HNT, as the burning mechanism ensures a fixed buy price for DCs. (e.g. HNT price doubles, you'll get twice as many DCs for one HNT burned). In the long run, monthly HNT supply for burning is capped, if demand for DC increases, price of HNT will also rise because this is the only way that users (in aggregate) can acquire the amount of DCs they want/need. Works in the other direction, too: demand for data transfer decreases, HNT demand and price will decrease.
On a side thought: not sure if using trad. telco valuation models like it is done in this article is applicable here (being far from an expert on valuation models). Happy about learning why this may be applicable.
Eric, the franchise model is is the right way to think about it, however franchisor royalty is 35%. Helium Co gets 1.05 HNT of every 3 newly minted HNT via the network. The other 65% of HNT is DC spend (real network revenue) and Proof of Coverage rewards (speculative network value) with a trend towards DC being 100% of that 65% over time.
The terminal value of the network at 0 miner growth and ~0 PoC rewards is equal to the market value of the data transferred over the network. PoC rewards are just a bootstrapping mechanism and more closely reflect a market value for the assets of the network (Helium Co balance sheet plus network miner assets at a market multiple). In other words, speculative value.
The name of the game for Helium is to cross the chasm by maintaining speculative value till real value becomes dominant. Making Helium multi protocol will buy the network quite a bit of time till real revenues hit scale. Tease he S3XY while selling the Roadster.
The downside case seems relatively low risk. Even if the token value crashes to something closer to the DC spend value, I don’t see people shutting down hotspots en mass. The cost to operate relative to the potential future value will always be alluring enough to leave it running. Network growth may stall in the disaster scenario, but I think hotspot supply chain will drive down the cost to mine such that growth won’t go to 0.
Mr. Monero. Good if not rosy analysis. One thing to clarify in your deck is the 1 HNT equals 1DC comment. I think you just expressed it too vaguely in the deck. X HNT/$ is equal to $0.00001/DC.
Re: staking. Right now it’s just a mechanism to lock up supply and secure the network via validators. Validators were introduced because network security and blockchain growth were proving too overwhelming for Raspberry PI based miners. The is still playing out as the network transitions to “light” hotspots. Staking dynamics will change if the multi protocol DAO and subDao model is adopted.
Eric, The staking as a valuation equation is interesting but seems flawed somehow. I have to give it more thought.
Very well researched. You noted that you can share the full deck if desired, can you please send along?
Please reach out via email, happy to share. Moneromahesh@protonmail.com