The HIP-51 (Helium Improvement Proposal #51) starts a new way for Helium network. When it has started about 2 years ago, Helium has been designed to propose a global LoRaWan network. But, has I explained at the beginning of this journey, it’s not just a network, its the uberization of the telecom industry. In other words, once you find a good way to transform an industry, there is no reason to just transform on of its services, better is to transform all.
Telecom are not single network, they have IoT networks with LoRaWAN, NB-IoT, LTE-M, they have some WiFi services and 4G/5G services. The HIP-51 is basically a way to go that multi-service direction to compete with telecom industry.
I’ll detail in this post the way this is working (as much as I understood it, reading the HIP-51 currently under vote), and try to explain what will be the impact on the network and tokens.
Intro about rewarding
Currently the reward have been low, and there is a certain frustration from the community, this frustration impact the way some people discuss on HIP-51. For sure there is a difference between long & short term expectations. I’m always discuss the long term expectation, short term expectations in a such domain is just speculation. If people looks for short term, there are a lot of ponzi project fitting really well with such expectation. I really like Helium because it has a real economical equilibrium long term and offer a real service with known and valid business model. It also means that you need to wait time to get it real, it also means that the revenue expectation, particularly short term is just a mirage.
A year ago, I was calculating the real token price, cash in / cash out around $1-$3. In my point of view, all what is above is about speculation, speculation is positive, it means that investor have a mid-long term positive feeling with the project. But concretely, 1M device with $50 fees have been registered, this is a demand for $50M on a 119M supply of token. This gives you a good estimate of the value until we have a big volume of communications.
The reward has been reducing a lot in a year, as a reminder, Helium have a limited supply to 2.5M HNT (now) per month, a year ago it was 5M HNT. As a consequence, a miner a year ago, when we had less than 100 was getting about 2HNT a day, now with 10 times more token and 2 times less HNT, it’s about 0.1HNT. All of this has been predicted, announced a year ago. It’s an investment rule : until the investment will become less profitable than an other, people will continue to invest on it and reduce the revenue of everyone, including himself. My forecast a year ago was an average revenue per hotspot around $30 / months, in regard of the investment cost. Currently we are about 0,1HNT * 30 * $10 = $30. This is just making sense. What is good with helium is that the running cost are close to 0, so basically they are just $30 of free money. Great !
This does not mean the revenue will not be growing in the next month, this is a question of market that will impact the HNT value. There are different factor on this:
- The ratio between offer and demand
- The trust on future on the market
- The quantity of locked token that influence the offer
- The different burn mechanisms that going to influence the demand
The HIP-51 and association HIP-52 and HIP-53 are impacting all these levers. If I can’t forecast how much they will change the token value, I can explain what mechanism they are triggering.
Understand HIP-51 – Helium DAO
The purpose of this HIP is to create DAO and SubDAO (Distributed Autonomous Organization). A DAO is defined by rules, these rules conduct the way the organization works and the relation with the subDAO. Basically, they are not real DAO but non profit organization that organize the decentralization like the Helium Foundation do.
For Helium, the DAO manages common rules for different technical networks, the subDAOs will be specific to each of the technical networks. The Helium DAO will continue to use HNT token, the SubDAO will have different token. We will see how they are going to interact.
The reason for having a separation for this is simple: imagine we have the same rules for all the technologies, the cost on LoRaWan to transfer 22bytes is 1DC. It means that 1MB of data transferred is about $0,5 ; 1GB about $500. Would anyone of you ready to pay $500/GB on a 5G connectivity ? No. Technologies are specific and specific rules are required. In another hand, packet offering, token burning, token transfer and wallet management for communicating are common rules.
With HIP-51, the network is ready to support any existing and later invented technologies. It’s also an interesting point regarding the market size.
The graphic is interesting to understand the impact of the HIP-51 economic potential for Helium. Many people did not really understood it, so let me explain: This is the current global telecom market share, according to Grand View Research, an analyst group. There is nothing related to Helium in this chart.
It says that the telecom market is today 88.9% dominated by cellular (3G/4G/5G/LTE-M) and only 1.2% LPWAN (Sigfox + LoRaWan) (somewhere we have NB-IoT but not clear where). Helium is currently addressing the 1.2% of the LPWAN market and is about 0.0X% in it today to be realistic.
This chart show the potential of growth and impact related to the new SubDAO. But as we have to see the part of Helium in the future we also need to have some consideration:
- The global IoT market will grow, may be 4x, 10x and Helium is in the right way to become a giant in that area. Your hotpost is equivalent to what the telecom industry deploys.
- The cellular market is mature and Helium should not take a large place on that domain because the 5G CBRS do not have the capacity of the telecom 5G tower. Your home 5G solution will not be what the telecom industry is deploying with a factor of 100. On top of this, this market is protected and the deployment is restricted in many countries. France at first.
So some people, that usually looks short term, understood from that chart that 1.2% of the Helium revenue will be later distributed to IoT and the rest for 5G long term… That is a total misunderstanding.
There will be a distribution of reward based on the network usages, yes. Not on the market share of the telecom industry. So if we look really long term and expect Helium to be a big player of the IoT domain, we can have about 5-8% of the big pie. Helium could be a small player of the cellular market, let’s say 5-10% of the big pie (optimistic) you see that the ratio between the two is close to one. For sure I can be wrong but it gives you a better way to analyze it.
What Helium DAO will manage
The Helium DAO (Layer 1) manages a certain number of common services, like the governance and communications. This point is important: it means that the real economy around all the subDAO will involve HNT. When you run a router, when a device is transmitting data over the network (LoRaWAN as 5G, WiFi…) the associated costs will be made in DCs and DCs are obtained from HNT burn.
The Helium DAO manages:
- HNT to DC burn
- Router running cost
- Global governance
The global governance (for the core evolution that impacts all the subDAO) is also redefined. Currently the governance is related to the HNT you are owning in your voting wallet. The HIP-51 is changing this with the creation of veHNT. Your vote will depends on the amount of HNT you have locked for this and the amount of time you commit to lock them. If you lock 1HNT for 4 years, you get 100 votes for this. The minimum lock time is 6 month, in this case each HNT locked count for 1 vote. The subDAO can offer up to 6% reward in DNT to the veHNT stackers to get their vote capacity. On top of this, the quantity of veHNT locked for a certain subDAO will influence the way HNT are distributed (detail this later)
As you can see the HNT is not anymore involved in PoC rewarding, but 35% of the HNT distributed goes to PoC currenlty and for a certain time even if this is decreasing year after years, to be replaced by Data Transfer. Currently the HNT supplied for PoC are also completed by all the HNT not distributed for data transfer so the reality of the PoC HNT distribution is more about 65% than 35%. As a side remark, more the network is used and less HNT are distributed for PoC.
With the arrival of the subDAO, this mechanism will still be in place. But, as the subDAO will reward the PoC with the DNT ($IOT, $MOBILE…) the hotspot owners will not directly earn HNT. So the HNT will be distributed to the subDAO treasury reserve. This treasury reserve is basically locked and can only be used to provide buy-side liquidity to DNT holders. It means that the only way to use it is to burn DNT to obtain HNT. With the ratio SumOf DNT / SumOf in treasury HNT.
DNT can be listed on exchange, they can have a value higher to the HNT exchange rate, that is speculation but basically the price is backed on HNT.
What subDAO will manage
The subDAO will manage:
- The equipment insertion and location costs
- The PoC mechanism (or equivalent) as the technical solution is related to the networks technologies. Called reward distribution mechanism, in DNT (Decnetralized Network Token, aka $IOT of $MOBILE). A witness like can be reward 0.001 or 1000 DNT, rules defined in the SubDAO.
- The data volume to DC price relation, as an example the 5G subDAO will have a price of $0.5 per GB of data when IoT is about $0,5 per MB.
- The DNT / HNT conversion ratio (through the DNT distributed by bloc, but not only, see above)
- The subDAO governance
All the decision that are related to a subDAO is decided at the subDAO level, the rules for the governance can be different on each of them. They may be based on the DNT ($IOT, $MOBILE…)
The Oracle roles takes the Validator and Oracle work in the subDAO (basically just a naming change).
The DNT / HNT conversion ratio is basically defined by the way the DNT are distributed. That way a DNT can decide to deliver 1000 DNT that correspond to a single HNT. By the way, saying that the DNT / HNT conversion ratio is decided by the subDAO is wrong. The quantity of HNT locked in the subDAO treasury depends on the weight of the SubDAO over the others SubDAO so the conversion DNT / HNT will also depends on the success of one network over the others.
The 5G subDAO emits 116B $MOBILE the first year, 50B initial and 66B for the PoC/Data/…/ activities (nice to see some rewards reserved for Mapping). You can see that $MOBILE supply will be really higher than HNT delivering 30M per year.
The IOT subDAO will emit 70B $IoT on the first year, with 5B initially given to existing active participants to helium.
You see that we have different rules but they are all backed by HNT.
How HNT are distributed between the different subDAO ?
What makes the value of the DNT is basically the HNT treasury reserve. So the way the HNT are distributed to the different treasury is important. The distribution is based on a subDAO score and basically its score relatively to the other subDAO score.
The score is calculated based on the following criteria:
- Volume of DC burned in USD
- Number of hotspots
- Hotspot onboarding cost
- veHNT stacked
One of the most impacting element is the veHNT stacked, the other elements are basically SQRT of the elements but veHNT comes at the end as a multiplier.
Number of hotspots and onboarding cost works together as, this is basically representing the amount of fiat invested in the blockchain. The volume of DCs burn also represent this aspect.
Based on that score, at a given epoch, the HNT will be distributed over the different subDAO treasuries.
Consequences of all of this
As we basically see, there are a lot of different mechanisms to lock HNT in treasuries, in the veHNT for the governance and also for growing the score of a given subDAO and for a long period of time if you want to get a significant impact. This should have a significant impact on the token value by drastically reducing the offer on the markets, particularly if the DC consumption is growing: driving the demand.
The HNT distribution is, in my point of view, piloted a lot by the veHNT stacked (we can basically write score calculation as USDBurnForOnbloarding * USDBurnForCommunications^2 * veHNTStacked^4. This is in my point of view the most risky aspects of the HIP51.
The veHNT stacked with a potential ratio of 100veHNT / 1HNT (for a lock of 4 years) could be a vector of attack for whales investing in a DNT at a low value before changing its subDAO ratio with an investment in HNT and a lock for that subDAO. This will push the community to have a high level of veHNT locked in the subDAO they are mining for, this is also why the veHNT stacking is rewarded up to 6%. And also why it’s not more than 6% to avoid having some subDAO acquiring a higher score just by providing high reward rate.
The main impact for miners, in my point of view, with this HIP is that we are going to have a higher interest in locking HNT, not only for rewarding but also to protect our future rewards.
The locking and the larger market potential will offer to our token a opportunity of growing it’s value. The new subDAO will inject new fresh $ for the hotspot on-boarding. This expected growth could also help to continue the development of the historical IOT subDAO.