The Comprehensive ICON Report Part 2: ICX Token Utility & Valuation
This is part 2, which attempts to explain the utility of the ICON ICX token and explore its possible valuation in terms of demand and supply. Click here for part 1.
By Markus (Deblock): https://twitter.com/markusjayvc
08/07/2018 Update : theloop has rebranded to ICONLOOP.
This rebranding was done to solidify the relationship between theloop and ICON. Note that any mention of theloop is equivalent to ICONLOOP.
This report is a comprehensive overview of ICON for both beginners and enthusiasts. I wrote this report to clarify many aspects of ICON, especially its relationship between theloop & ICON, and explain why I think it’s on course to become one of the most important blockchain projects of our time. I unpack ICON in its simplest terms.
Table of Contents
- Essential ICON Facts.
— Core Components: Relationship between ICON & theloop & Deblock
— Korean Dominance & Core Initiatives
— Government Funding and Initiatives
— Deblock: Building the ICON Ecosystem
— Institutional Investors & Global Expansion
— Major Corporations and Real-life Applications
— Will Loopchain Connect to ICON?
— How Loopchain will Connect to ICON: A Chain ID case study
— Interoperability Beyond ICON
— ICON’s Real World Focus & Network Effect
- ICON ICX Token Utility
— ICX Fees
— IISS ICON Incentive Scoring System
— ICON Decentralized Exchange
— ICO Fundraising ICONest
- ICON ICX Token Valuation
— ICON High performance Interoperability protocol
— ICON’s Professionalism and Enterprise Blockchain Expertise
— ICON’s Korean Dominance & Global Initiative
— Early Stage of the Project
— ICON Dapps
— Deblock: Building the ICON Ecosystem
— ICO Fundraising
— IISS ICX Incentives (Passive Income & Partial Governance)
— ICON Dex (Improved Scalability)
- Final Thoughts
ICON ICX Token Utility
This report so far has had a strong focus in describing the network that ICON has managed to build. This is because as the network grows, so does its value, making it increasingly attractive for companies, dapp teams, and people to join. ICX tokens are utility tokens required to use and participate in this ICON network. Thus, the value of ICX tokens is in the network.
The following is a list of ICX token utility.
- ICX Fees for:
— sending and receiving ICX
— executing smart contract
— running dapps
- IISS ICON Incentive Scoring System
- IISS Issuance (staking for passive income)
ICX token holders will have an incentive model in which they will receive ICX on a monthly basis according to their IISS score (e.g., the higher the score, the more ICX you receive). IISS is calculated after an AI analysis of the following factors:
— ICX exchange volume
— DEX exchange volume
— DEX Freezing volume
— Dapp generation and usage
To the average investor/holder, the most important factor in this list is the DEX Freezing volume. This is because it’s one of the most significant criteria of the IISS, and also the individual factor entirely within your control. The freezing volume is essentially the amount of ICX you stake in return for ICX rewards.
2. IISS Governance
Within the ICON ecosystem, you can ‘vote’ for a C-rep who will represent your ICON community by voting for matters related to ICON governance on your behalf. This system is similar to representative democracies, such as the US and Korea, in which you vote for government officials, who in turn vote and make decisions for you during their terms. You can ‘vote’ by delegating your IISS score to a C-rep candidate of your choice. The more ICX you hold and stake (freezing volume), the higher your IISS score, thus the more you’ll have a say in how the ICON Republic is run.
- ICON Decentralized Exchange (Dex) Trading Pairs
Ethereum and other cryptocurrencies will be tradable on the ICON dex, built by the core ICON team, with an ICX pairing.
- ICO Fund raising via ICONest
Dapp projects launching on the ICO platform, ICONest, can be funded using ETH and ICX tokens.
ICON ICX Token Valuation
Having outlined the utility of the ICX token, this is my exploration of its value. There are a host of reasons why I believe that demand for ICX will surge in the coming months, among both individuals and institutional investors, besides the ones that are backing them already, such as Pantera Capital, largest crypto fund in the world, and #Hashed, largest crypto fund in Korea.
ICON’s Core Components
ICON is a high performance 3rd generation interoperability protocol that has one of the largest networks in the world. Currently, the most popular smart contract protocol by far is Ethereum, and although I’ve placed less emphasis on technical elements, scalability issues often bottleneck the Ethereum experience, as seen during popular ICOs, and network congestion with dapps like cryptokitties. With ICON running its own version of delegated proof of stake, it’s able to support up to 9000tps (transactions per second) which is 600 times faster than Ethereum’s 15tps. It’s safe to say that ICON won’t be running into scalability issues anytime soon.
ICON’s Professionalism and Enterprise Blockchain Expertise
ICON has considerable institutional backing (Dayli Financial Group) and expertise. The size and record of the team is exceptional with over 200 dedicated people and theloop in operation for years. This is a rare example in this space in which the average team consists of 10 people or less who assemble to work on their vision for the first time.
It’s important to realize that ICON’s initial clientele were the largest corporations in South Korea. Theloop was providing highly customizable high-performance enterprise grade blockchain solutions to major industries before Antshares becomes NEO, and before we had heard of EOS and its crowdsale. Before it had launched its public chain, ICON had already built a network involving corporations and government entities with a scale and national dominance that have few parallels in the blockchain world.
Many projects that boast much larger market caps, are quite behind in terms of enterprise adoption, and only a handful of them have attained the level of institutional backing that ICON has (e.g., Enterprise Ethereum Alliance).
ICON’s Korean Dominance & Global Initiative
Although some people regard ICON’s focus on Korea as a limitation, this view is shortsighted on few levels. If you’ve read the factsheet, you will agree with the fact that ICON has first mover advantage, domain expertise, market dominance, and a history of government cooperation and funding in Korea.
This makes them an extremely attractive investment prospect, especially for investment firms that are looking to diversify their portfolio in specific regions. With ICON being dominant in Korea, and Korea always having been at the global forefront of technology and blockchain, this makes it a doubly enticing position.
Having said that, ICON has plans for global expansion, as evidenced by Pantera Capital’s Partner expressing his support for it and ICON’s own statements regarding it (although they will begin with Korea). But in light of the fact that much of global adoption hasn’t occurred in a meaningful manner and many are skeptical of blockchain technology, what could be a better demonstration to the world of a project’s use cases and aptitude than a national implementation of it? It seems that the ICON team is being strategic in not stretching itself too thin and is focusing on a region they have years of experience in.
Early Stage of the Project
ICON has planted seeds of loopchain in every major industry in Korea and are signing contractual agreements with the largest companies in Korea every 2 weeks. However, the majority of these implementations are still at a very early stage. Many of the business agreements and joint ventures are new and focus on future development (e.g., ICON’s joint venture with LINE hasn’t begun any projects yet). Even the mature projects like Chain ID have not yet been able to fully capitalize on ICON’s network effects (i.e., connect with the ICON Nexus) due to the token swap not being completed yet. What this means is that seeds have been planted, but much of the truly game-changing network effects haven’t materialized yet.
Regardless, every business agreement (MOUS) adds value to the network, even without full development of a project, as it makes the ICON network more attractive to companies that aren’t a part of it. But the real fruits of a business agreement will materialize when projects mature and drive demand for ICX utility tokens. Simply put, these are extremely early days (e.g., ICX genesis block launched in 2018, Bitcoin’s genesis block launched in 2009.)
ICON’s public mainnet launched earlier this year, but with the token swap not fully realized, the ICON public chain is still far from being fully utilized. For all intents and purposes, the mainnet engine has not yet activated. In the coming months, with the token swap, dapps, ICOs, IISS, DEX, and the network effects that play out, it will be interesting to see how demand for ICX surges.
It’s important to note that the ICON’s network is attracting not only corporations but also dapp teams to build on it. This is because no other public chain to date has launched with the size of ICON’s network. It’s simply more strategic for a dapp team to build on ICON due to the future possibility of communicating with other parties within its significant network (if permission is granted of course.) It’s the same reason why a developer would much rather build apps on Facebook as opposed to Myspace. This is of course, not the only factor for a dapp team to consider but possibly the most important one. It’s true that most dapps built today target the crypto community as users instead of corporations. But I would argue that with ICON, dapps teams have a unique opportunity to interface with both corporations and individuals. We can see this network effect already at play with more than 12 dapps projects announced.
Dapps are valuable because they build up the network and the utility of the ICX tokens. Although Dapps may issue their own tokens, every transaction and execution of smart contracts will require the use of ICX tokens, thus driving demand for them. Dapps are mostly geared towards the crypto community, but popular dapps with large volumes can create significant transaction volumes. Furthermore, each dapp will further contribute to ICON’s network effect. For instance, a storage network dapp may choose to build on ICON if it finds that it’s beneficial to collaborate with Sentinel Protocol (dapp) to tighten their security.
Unchain, Line’s joint venture with ICON, cannot be overstated. It’s an exceptionally rare example of a crypto venture pledging to create dapps that are primed for real world adoption. With Internet giant Line boasting a user base of 200 million active monthly users, the ICON team has mentioned that this could lead to ‘hundreds of millions of users of LINE potentially utilizing the ICON blockchain on a daily basis to access dapps.’
Although this is pure speculation on my part, the fact that Line is the subsidiary company of Korean internet giant Naver cannot be ignored either (the CEO of Unblock, blockchain subsidiary of Line, was part of the panel during Deblock’s dapp’s day event). Personally, as someone who uses Naver on a daily basis, not just as a search engine, but also for its news, entertainment, blogging and internet community platform, I see a myriad of use cases for the blockchain and cryptocurrency within it.
ICON SCORE (Smart Contract on Reliable Environment)
Teams would require the use of SCORE (Smart Contract on Reliable Environment) to build dapps. SCORE is a high performance smart contract that runs on the Loopchain/ICON platform. There are many factors which make SCORE attractive for developers to build on it.
Unlike Ethereum, in which developers can use only certain languages (e.g., Solidity) available on the Ethereum Virtual Machine, developing on ICON’s SCORE is made easier and more familiar to traditional developers as the smart contract source code is based on the Python language and allows them to utilize the Python runtime as it is. In the future, Java, Go, and other languages will also be supported, further lowering barriers to entry. SCORE also runs on the node operation environment (separate from the blockchain process) without a separate virtual machine. This ensures real time efficiency while protecting from errors occurring in the smart contract platform.
Deblock: Building the ICON Ecosystem
ICON VC firm and accelerator Deblock will undoubtedly play a major role in pushing dapp acceleration. With Deblock being jointly founded by ICON and Ad4th, the largest AdTech company in Korea, a significant surge in marketing efforts of the ICON ecosystem can be expected.
Deblock’s monthly dapps presentation day provides a meeting ground between ICON’s core team, dapps teams, investors, potential users, enthusiasts and even bloggers. It’s a rare initiative in the blockchain space that truly raises the bar with a panel of blockchain and fintech leaders of South Korea that have included companies such as LINE, Kakao, and Upbit. With more than 300 dapps planned in the coming years, we can except many dapp projects to further build on ICON’s expansive network.
All dapps require funding and ICON offers a dedicated ICO platform called ICONest which allows dapp teams to raise funds as painlessly as possible. It should be noted that both Ethereum and NEO, when first launching their ICO platforms, saw meteoric rises in value during the initial wave of ICOs that raised funds with their cryptocurrencies.
With the ICONest having launched this month, and none of their 12+ ICOs having raised funds in ICX yet, it will be interesting to see how much effect this has on the demand for ICX.
IISS ICX Incentives (Passive Income & Partial Governance)
ICON IISS in its simplest terms, will allow token holders to exercise 2 fundamental rights:
1. Monthly passive income from staking ICX (in the form of issuance)
2. Right to ‘vote’ for a C-rep (leader) that will vote on your behalf.
Both these rights directly correspond to how much ICX you own. If you become a C-rep, the ICX rewards issued will be higher. It’s not inconceivable to imagine that institutional investors (ICX, being the biggest holdings of Pantera Capital’s billion-dollar fund) will run to become C-reps much in the way that certain institutions (including exchanges) are running to become EOS block producers.
Once IISS goes live and ICX holders, both individuals and institutions, exercise these 2 fundamental rights, we can expect a significant amount of ICX supply to be frozen in the ICX dex reserve, dramatically decreasing circulating supply. It’s fair to say that demand may increase as people seek to gain 2 fundamental rights: passive income and voting rights on the ICON platform.
The stability that the realtime AI analysis provides to calculate IISS scores is significant. The AI engine, provided by DaVinci, Korea’s largest AI provider, takes multiple factors into consideration when determining the IISS score (read ICX token utility) and this ensures that some of the volatile nature of incentives will at least be partially mitigated. Stability is an important factor to consider for an investment and ICON is unique in having an incentive system systematically adjusted realtime by an AI engine.
Working perfectly in conjunction with IISS, the frozen ICX in the ICX dex reserve will ensure the smooth operation of the ICX dex. High trading volume on the ICX dex will drive demand for ICX tokens, as Eth and other cryptocurrencies will have ICX trading pairs.
Currently decentralized exchanges with the highest trading volume operate on the Ethereum protocol, and even though the best of them are certainly usable, they often provide a suboptimal experience due to scalability issues, namely low transactions per second (tps), currently at 15. Thus, in the status quo, the experience provided by centralized exchanges is far more desirable and many users use a dex only when they have to (e.g., the token trades nowhere else).
However, with ICON expected to deliver up to 9000 tps, which is 1/5th of the throughput of VISA’s 45,000 tps, it appears to be a substantial improvement of 600 times over Ethereum. While this doesn’t guarantee success of the dex, it will be interesting to see what kind of experience the ICON dex will deliver, especially considering the fact that it’s a rare instance of a dex developed by the core team (of ICON), as opposed to being built as a 3rd party.
As a researcher of this space for 2 years, I’ve studied countless projects and countless surges and crashes in market value. I’ve concluded there are few projects in the blockchain space that have the network effect, enterprise technical expertise, real world partnerships and growth initiatives that ICON has. At the same time, I’ve seen few projects that have been as mischaracterized and misunderstood as ICON, which is why I felt compelled to clarify.
As a Korean, I want to refute the idea that Koreans are nationalistic and will always support their own. Yes, we’re passionate and proud of our gold medalists and Samsung but that’s because they are the best at what they do, and ICON isn’t there yet. However, I feel that ICON is currently Korea’s best hope for global blockchain leadership.
As an investor, I believe that ICX is one of the most undervalued tokens in the space, especially when considering that larger market cap projects can’t compete with the scope of ICON’s network nor their years of experience in providing enterprise solutions. Oncoming developments in the next few months will prove to be catalysts for a significant surge in ICX demand both in institutional and individual investors. As I’ve stated before, widespread misunderstandings of ICON and its relationship with loopchain, and frequent delays have cast uncertainty on the project. But this is mostly immaterial as I feel these are still extremely early days, and these doubt arise mostly from a lack of understanding. Hence, I write.
ICON has successfully planted seeds that are critical for success in major industries, but they are currently just that, seeds. Much of the projects haven’t matured enough to enable the truly game-changing network effects yet. I would say that there aren’t many projects in this space in which the utility of their utility tokens actually drives organic demand, and it’s certainly not true for ICX either right now. But with the network that ICON has built, and the projects that are set to begin developing, I see a strong case to be made.
The crypto market isn’t rational. Everyday, millions are poured into ideas with no product, let alone a network. But in mid-late 2017, Ethereum had an explosive growth in value as people realized its utility/value proposition as a leading 2.0 blockchain smart contract protocol and all its corresponding uses.
I see parallels between ICX currently and ETH in early 2017, both in their initial mischaracterizations, and failure of the public to see their value. If ICON manages to do what it seeks to do just in Korea (and I’d argue they’ve done most of the heavy lifting), we can expect significant growth in demand for ICX. Not just among speculators and investors, but among those actually seeking to utilize ICON as a leading 3.0 blockchain interoperability protocol.
By Markus (Deblock): https://twitter.com/markusjayvc
Disclaimer: Blockhack does not provide investment advice. I am not a financial advisor.