Why has Zilliqa’s token underperformed, despite the successful mainnet launch?
On January 31, in a major milestone for the whole crypto space, Zilliqa became the first blockchain implementing sharding to launch its mainnet that has since then been performing smoothly. However, as we shall see further below, this, surprisingly, has not been reflected in the price of Zilliqa’s native token ZIL. The interesting question is what is behind this underperformance.
Zilliqa’s core features and value proposition
Zilliqa is the first live blockchain featuring sharding, or splitting of the on-chain activity among several sub-chains, or shards. At this point, Zilliqa only implements network sharding, with the much more complicated sharding of the state of its virtual machine (VM) set at a later date. As far as consensus is concerned, it uses a hybrid approach involving mining and Byzantine Fault-Tolerant (BFT) voting.
In addition to sharding, Zilliqa delivers a smart contract platform based on a programming language called Scilla specifically designed to ensure smart contract verifiability and security. If successful in its implementation and adoption, Zilliqa can be an attractive alternative to Ethereum, at least until its second iteration launches in full.
The evolution and current state of the mainnet
The Zilliqa team has generally pursued a very cautious approach to development and rollout and avoided hype. Initially, the network launched in the bootstrap mode, meaning that no transactions were possible, and the objective was to accumulating sufficient hash power to protect the network. This phase ended on April 2.
While the bootstrap stage has ended, though, the mainnet is still limited since smart contracts are not yet enabled on it, they are planned to be made available after the token swap.
Nonetheless, the results of mainnet running in the wild seem to be encouraging thus far. According to Zilliqa’s team, the recent mainnet transactions were 40,000 times cheaper than those on the Bitcoin blockchain.
Given Zilliqa’s cautious marketing strategy, it is perhaps not surprising that the project team has not been hyping every single interaction with a major company as a promising partnership.
Two major developments concerning adoption that were made public are worth mentioning, though, are Project Proton and Hg Exchage. The first involves, among others, Mindshare and Pepsico and is aimed at reducing inefficiencies in advertising campaigns. Hg Exchainge is supposed to be a Zilliqa-blockchain-driven exchange in the South Asia that will allow trading of private company shares and security tokens.
So far, it appears that no interruptions to the network or other major incidents have been reported in the publicly available sources after the mainnet launch. However, one has to bear in mind that, so far, Zilliqa has not yet presented an attractive target to external attacks.
Why has ZIL’s price underperformed?
Given all of the above, it is somewhat surprising, however, that Zilliqa’s native token ZIL’s price has not so far benefitted from what looks like a positive rollout trajectory. ZIL’s USD price is roughly where it was at mainnet launch, despite a visible uptick in April. At the same time, over the same period, Ethereum’s native token USD price has risen by almost 2.7 times. This has happened, despite the scalable version of Ethereum still being at least a couple of years away.
This may mean at least three things. First, there may be some hidden problem that the project has been facing and of which most people in the blockchain space are not aware but some insiders are. Although this cannot be ruled out, given the project’s stand-out transparency and careful approach to development, this is highly unlikely.
Secondly, this may signify that the cryptocurrency markets have not yet matured enough to be able to reliably distinguish high-quality projects from flukes and reflect that in their token prices. Contrary to what many financial commentators and even economists believe, financial market results do not arise from the actions of identical investors behaving like automatons. Rather, they depend on the quality of participants evaluating the investments every day.
The majority of the cryptocurrency market participants probably still consists of people who were lucky enough to invest in cryptocurrencies early because they happened to be in the right place at the right time. However, this does not magically make them good at evaluating the longer-term potential of particular blockchain projects. Without more level-headed institutional investors being able to counteract hype-driven price movements, it is probably possible for whales to pump even projects like EOS or Tron into the top 11 cryptocurrencies by market cap. And this despite the fact that the former merely masquerades as a blockchain and the latter is almost completely based on code plagiarism and the crudest possible approach to scalability (DPoS), and is quite possibly closely connected to the Chinese state.
In this environment, projects like Zilliqa that tend to avoid hype are almost certainly disadvantaged at least to some extent compared to their more self-promoting counterparts as far as speculative price dynamics are concerned. However, this certainly does not imply anything about their longer-run prospects compared to them.
However, ZIL’s price behavior since mainnet may, in theory, be telling us something about Zilliqa’s perceived potential compared to its main rival, Ethereum. It might suggest that, despite the formidable and long development effort that Ethereum faces in its bid to scale, it is still considered as an overwhelming favorite by most market participants. The reasons for this may be Ethereum’s enormous first-mover advantage and widespread adoption of Solidity as the smart contract programming language of choice. Some market participants may also believe that whether a scalable blockchain platform launches now or in two years is not that important because there are still no popular DApps that would be ready to put a scalable public smart contract platform to use.
Is this potential perception justified? The aforementioned generally low quality of crypto market participants should probably give us pause. While the reasons for their skepticism about serious Ethereum competitors like Zilliqa may be understandable, it does not mean that they are necessarily sound. Ethereum does, of course, have a powerful first-mover advantage but there is the flip side, too. The Ethereum community cannot just build a new version of their platform from scratch, they have to somehow connect it to the legacy platform utilizing outdated tech, and the vast ecosystem that was built around it. And none of the DApps from that ecosystem has so far achieved mainstream traction which could make Ethereum in some sense indispensable.
To sum up, at the moment, it is difficult to say why Zilliqa’s token price has not reflected the relatively successful mainnet experience since January 31. However, serious participation by institutional investors in cryptocurrency trading may be just around the corner, and this may finally allow us to see whether solid but less-hyped Ethereum competitors like Zilliqa have true potential that their tech suggests they have.