Jax.Network attractability for early investors
by Lucas Leger, Chief Economist at JAX.Network
NB. This note is not financial advice and potential returns are based on assumptions that, if not realized, the value will be adjusted. This document details the possible rate of return in case of mass adoption of our coin and why its value proposition has at least the same merits as of Ethereum. Also, explaining how our network operates is out of scope here. If you are new to our community, we advise you to watch our videos or read our academic paper.
Before launching and reaching critical mass, there are multiple factors at play to ensure the success of any blockchain-based networks:
- Team recognition among peers and communities
- The seriousness of white paper
- Future use cases
- Adoption rate
- Proper incentives and economics
That being said, these key elements are out of reach if technical hurdles are still on the way. This common missing link for mass adoption is the low throughput of distributed networks. Blockchain-based networks do not scale easily and do not process enough outputs per second to be used by the public at large. For instance, the Ethereum network is almost overloaded, as the graph below shows.
In this context, scalability issues need to be tackled for open blockchains to be of practical utility in the real world. Multiple projects have worked on this including on Bitcoin and Ethereum for years. As of today, as we have stated elsewhere, Proof-of-Stake solutions are not fully satisfactory since they open the door for more attacks. While lightning network might prove difficult to scale for at least two reasons: i) opening and closing a payment channel goes through the Bitcoin blockchain, and this blockchain has very limited throughput. ii) multi-hopping is rather inefficient since some nodes can be offline and the transaction needs rerouting. We argue our protocol can scale immediately after its launch. And this statement is the backbone of our value proposition. The second value proposition is that our native coin is stable by design and suitable for day-to-day payments. We will review these two claims in light of the Ethereum core value proposition.
A very brief history of Ethereum
Ethereum’s raison d’être is to implement decentralized applications. It was designed to become the “first zero infrastructure platform”. This ecosystem has witnessed an ROI of up to 9000% when the price was at its peak in early 2018. With nearly 72 million coins created during the ICO and a fundraise of USD16 million was targeted. Based on these figures, the average coin price was set at USD 0.22.
One early critique of Bitcoin from Ethereum’s white paper lies in its limited capacity to implement smart contracts, especially due to its scripting limitation. A script is “a list of instructions recorded with each transaction that describes how the next person wanting to spend the Bitcoins being transferred can gain access to them.” However, these scripts are not turing-complete and cannot sustain any type of digital transaction.
A smart contract is a set of lines of code, which follow a particular logic. This logic can be summed up, for simplicity, as IF X, THEN Y. A famous example was given by Nick Szabo who stated that a vending machine works similarly as a smart contract: IF you put 5 coins, THEN you’ll get yourself a Mars bar.
Once this concrete example is understood, we can better comprehend the purpose of Ethereum. To overcome Bitcoin issues in writing broader transactions than just Bob sent 2 to Alice, Ethereum implemented a virtual machine in order to compile any kind of rules.
This distinction has no value judgment, we just want to emphasize that Bitcoin and Ethereum have two different purposes. The latter is a decentralized platform to create apps, while the former was the first truly decentralized payment system.
Separating speculative purpose from transactional demand
Bitcoin and Ethereum native coins are speculative in essence. This is due partly to their deflationary nature. Supply scarcity increases its exchange rate as long as the demand for transactions is on the rise. Speculative behaviors on money are not new and it was already reported by Irwin Fisher in the early 1900s.
What is important to distinguish is long term and short-term growth of the network. In the short run, speculative behavior is expected from users and would help increase the adoption rate. Speculation is fine as long as it can be kept separated from a transfer of utility, which is the basic function for any stable currency. This is not the case of ETH, which is both a transactional token for running dApps and a digital asset.
The logarithmic trendlines are strongly correlated. Ethereum holds value because it has transactional purposes. And the recent DeFi boom has increased ETH value since a lot of speculation has occurred.
This is why we have separated the Beacon chain from the Shard chains with two different reward functions and economic incentives. Our speculative vehicle, the Beacon chain, has a predetermined growth rate, while the transaction coin has no predetermined money supply, albeit it can be slightly anticipated.
A stable coin by design
The need for a stable coin in the cryptocurrency market is obvious. To give one example, Tether processes daily transactions worth USD70+ billion. And hundreds of stable coin propositions have emerged over the last few years. Nonetheless, these propositions are either centralized, like Tether and have regulatory risks, or not really scalable.
Other propositions are algorithmic-based instead of using collateral. Then some other risks emerge. A coin supply that is elastic to aggregate demand is an elegant proposal. But, as far as we know, these propositions resorts to oracles. This opens new doors for attacks while entailing some centralization.
The JAX coin design is innovative and does not rely on external data sources, a peg, or some collateral to function. It is purely based on economic incentives provided by our reward function and the economics behind PoW consensus algorithm.
Interestingly, one can compare the difficulty of a network (which reflects the cost of production of a certain coin) and its price. Indeed, on Ethereum, we can observe a strong correlation between these variables. This is not to argue that there is a causal link. Nonetheless, the higher the difficulty, the higher the resources to mine ETH (or JAXNET). As the costs of production go up, so should the market price. The difficulty is correlated to the rate of adoption of the cryptocurrency.
Unlike Ethereum, we can argue that JAX coins are a “cost-based” stable coin indexed on the productivity gains in the mining market, which encompasses hardware, electricity grids, human resources, R&D in a mining rig, etc. JAX coin reward is proportional to the aggregated hash power allocated to the entire network. Ultimately, it means that the production of the coin is linked to its production costs, especially its fixed costs, and in our case to the marginal costs as well. The latter, due to the very nature of our reward function is constant. Mining one extra coin will cost you the same as the previous one.
This is an important aspect, as it does not allow miners to scale their operations beyond a certain breaking point: the cost of one extra coin should equal the expected profit. In other words, the supply of coins will not increase unless there is a transactional demand for it. Miners will make extra profits by also mining the Beacon chain and getting paid through transaction fees. The higher the throughput, the higher the revenues. Assuming our network grows in the long run to the size of Tether, a 0.1% transaction fee will entail $70+ million of daily revenues.
Use cases for Jax.Network
In a nutshell, Ethereum has implemented a network to process a broader type of transactions and its use cases span from ICOs to dApps and DeFi. But ultimately these two blockchains lack three features to be mass-adopted:
- Immediate scalability
- Low price volatility
- Low transaction fees at any point in time
We can see that once these three key elements are solved, the potential of public blockchains can be fully appreciated.
- Day-to-day payments thanks to a stable coin
- Digital asset (JAXNET) that reflects the value of the entire ecosystem
- Limited smart contracts run on separated shards from transactional shards
We pointed out the main differences between Bitcoin and Ethereum to demonstrate that our value proposition is at the crossroad of the two. Just like Bitcoin, we have a digital asset. Just like Ethereum, our core value proposition relies on an entirely new ecosystem. Beyond the two main cryptocurrencies, we strived to design separated transactional and speculative networks, as well as future use cases for smart contracts, where governance can be separated and specific to smart contract parallel channel, entirely disconnected from the transactional network as they can be running on dedicated shards.
What you are investing in
The Beacon chain coin (JAXNET) has technically little purpose but to keep track of shard chain creations. However, from an economic perspective, it is the native asset class. And this what you invest in. Stakeholders will be able to bet on the value of the whole network by buying and selling it. If our blockchain holds its promises, transaction throughput and adoption rate should be correlated to the market price of the Beacon chain native coin, JAXNET. Unlike financial assets though, this coin generates a convenience yield, i.e. the price difference of JAXNET between two-time intervals. Indeed, there are no interest rates or dividends attached to this coin. Only the change in value in the secondary market can be a reflection of the utility (or disutility) of the entire network.
Jax.Network ambitions to set up a new standard for both measuring value and process online transactions. This implies our cryptocurrency has to scale. In order to achieve this goal, we have created a brand-new ecosystem.
We argue that our ecosystem could follow the same value growth as the one of Ethereum. Like Ethereum 1.0, we use GPU mining and we will strive to implement a consensus algorithm that is ASIC resistant so that anyone can participate in mining, thanks to our proportional reward mechanism.
Ethereum’s value proposition is based on smart contracts, it has opened the room for token standards, DeFi, and dApps. It has involved a huge community contributing to the core development of the protocol. But ultimately it has not solved yet the technical problems that public blockchains have been struggling with for years. And we expect our team to deliver a protocol to solve these issues all at once, for the very long run.
JAXNET ERC-20 tokens are offered to early adopters. Once our network is live, these tokens can be swapped 1:1 with JAXNET coins — Beacon chain coins. Once swapped, JAXNET tokens are burnt. However, in order to limit the number of pre-mined coins, 10 million JAXNET will be released during the initial offering (with 8.1 million dedicated to investors), at USD 0.617283 per unit at a 10% discount for early investors. Assuming the value is similar to Ethereum, this could bring about a 700x ROI over the next 3 years.
Conclusion
We are assuming mass adoption as a given parameter. This optimism deserves a few words at least. First, let’s define what we call mass adoption. We can see different phases:
- In crypto, a dominant solution for solving scalability
- Dominance translated in the world of payments.
As recently stated by the International Monetary Fund, money will continue to trend more toward more digitization. But changing habits is the most compelling argument against cryptocurrencies, putting aside technological challenges. Indeed, fiat money has been around for many years and users might not be so keen to switch to a new environment with its own peculiar monetary rules. The status quo bias (Samuelson & Zeckhauser, 1988) explains why people tend to stick to what they know.
We believe that a fully integrated digital payment ecosystem where users can both speculate on its future value and carry out transactions is a game-changer for the crypto world, as well as for online payments in general. Bitcoin doesn’t scale, and despite its volatility, it has been an efficient store of digital value. Ethereum’s value proposition greatly departs from payments, and if it ever scales, it will not be a suitable medium of exchange. Its coin value will also be linked to smart contracts development throughout its ecosystem, not just its transactional value.
We think that Jax.Network is at the intersection of the two. Like Bitcoin, if user adoption reaches the same level, it will be a store of value. Like Ethereum, our value proposition relies on an entirely new ecosystem to achieve decentralization of payments, and other transactions.
That being said, mass adoption remains a challenge and a very long-term goal. A reliable global and decentralized payment system can be achieved by targeting unbanked users at first, and users who don’t trust their financial system.
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