LTO Network is a hybrid blockchain designed for trustless B2B collaboration. The private layer is for data sharing and process automation (each process residing on its own miniature ad-hoc permissionless private chain). The public layer acts as a global security settlement layer — an immutable digital notary. This hybrid approach makes LTO Network GDPR and data privacy compliant, as well as scalable and ready for adoption. In this analysis, I conclude that LTO has very strong fundamentals, but its token would not perform in the short term.
Advantage: Token Economics Design Encourages Staking
Officially, LTO Network categorizes the staking validators into four categories as seen in the diagram above. In the same document, LTO says “we aim for a token distribution in the maturity phase of about ~80% held by participants.” Participants refer to clients who stake (Joint Business Builder) and clients who don’t stake (Passive Clients).
LTO’s main network use is driven by its corporate clients. By encouraging the clients to hold tokens, the clients would have a direct incentive to care for the network’s stability and functionality. Ensuring the stability of the network can help LTO get more clients in the long term. A high staking ratio also makes it more costly to perform attacks. As a result, a high staking ratio increases the overall security of the network.
Furthermore, LTO has incorporated this push for staking into the design. As a measure to incentivize staking, LTO implements a “troll bridge” to charge tax when people convert mainnet staking token to and from liquidity token, which is used for trading. Although the troll bridge was implemented to discourage early holders to sell and is now no longer significant.
This sentiment is further reinforced by the company blog, “We do not rely on sales proceeds to continue the operations and network growth, so we have committed to a long-term lockup, to strengthen the community trust in the project.”
Advantage: Use-case Driven Design
LTO Network’s blockchain is built to serve real-world problems. The structure is designed with corporate clients’ needs in mind. The concept of a hybrid blockchain is an innovative way to merge enterprise and the crypto community. The public blockchain that powers the Proof of Evidence Engine is necessary to be run by third parties (stakers). Furthermore, the public blockchain is fast (1.1 second response time), cheap (0.25 LTO = $0.01 per anchor at the current price of $0.043 as of April 28, 2020), and GDPR-compliant. The private blockchain serves to increase efficiency and transparency, similar to any enterprise blockchain, and it can be easily configured using the LTO provided toolkit.
One might argue that the “anchoring” (proof of existence) service could be done easily on other public blockchains. This is not true as the LTO chain also serves a governance purpose. For example, stakers can vote to decide the transaction cost. If the cost of anchoring becomes overbearingly expensive that enterprises are being deterred, then the community could vote down the cost of anchoring. There are already a few blockchains on the market that serves as Proof of Evidence such as Factom and Tierion. For a more detailed competitive analysis, please see the table below.
Advantage: Strong Go-to Market Strategy
The business strategy of LTO Network focuses on two major features: external parties building and integrating existing products, and developing LTO Network’s products which enable companies to benefit from the advantages of blockchain technology, without having to worry about the downsides of decentralization. The former goal is gaining traction: LTO is currently implementing a private blockchain solution for the Dutch Ministry of Infrastructure that would save $7 million in cost. LTO’s official website also shows a few other projects that implement the network’s anchoring service. Although it is hard to tell the actual number of transactions these use cases are producing for the blockchain. The latter goal is implemented through the company’s three products: FillTheDoc, Proofi, and LetsFlow. FillTheDoc is already gaining traction while the latter two are still in development.
Analysis: Number of Transaction and Yield
In terms of blockchain activity, LTO Network is one of the top 25 public blockchains. It has seen a constant growth of transaction count but recently plateauing at around 1.3 million transactions/last 30 days. This probably is caused by the current economic downturn, which results in less anchoring from LTO’s clients.
However, this yield is nominal, meaning that it does not take into account the inflation caused by increasing token supply. A closer look at LTO’s transparency report reveals its token release schedule.
Looking at this schedule, we can see that, as of April 2020, there are still 160 million tokens yet to be distributed to the team, the community programme, and M&A. There are currently 211 million tokens in circulation. If further 160 million tokens were to be released, the total supply would be inflated by ~76%, which would theoretically devalue the token by 76%.
Conclusion
LTO Network is a blockchain with solid token economics design, real world usage, and has a solid customer acquisition plan. If its business development team onboards more clients down the road, the activities on the chain will definitely growing. However, its token release schedule reveals that almost half of the tokens are yet to be released. These further releases of LTO tokens would theoretically devalue the token. In conclusion, LTO Network is a project with solid fundamentals, but future token releases work against the token valuation in the short term. Once the tokens are all released by September 2023, then it could be explored either as an investment or a staking instrument.
