Decentralized Storage Project Chia Network (XCH) Market Analysis
I. Introduction
Chia Network is a decentralized storage project created by Bram Cohen, the founder of BitTorrent, to sell the software services and support from its open-source blockchains and smart trading software to institutions, enterprises, and large-scale storage buyers/sellers.
Recently, due to the hard disk mining of Chia Network, the market demand for hard disk has surged and the price has skyrocketed.
Different from the mining logic of existing projects, Chia uses the free disk space on hard disks to run the Proof of Space + Time to validate the blockchain, the mining yield is directly proportional to the amount of resources/storage space, i.e., the larger the amount of resources/storage space is, the higher the standard XCH mining yield is.
Business logic layer:
1. Chia is a global open-source decentralized network, which uses its local XCH to operate the payment and settlement system. It can be used for the issuance of DeFi stable assets protocol and synthetic asset protocol.
2. Chia plans to sell software services and support of its open-source blockchain and smart trading software to institutions, enterprises and large-scale storage buyers and sellers.
3. Chia emphasizes on how it is easy-to-use, more energy-efficient and safer than the existing alternatives to digital assets.
4. Chia’s blockchain improves on the shortcomings of Proof-of-Work in terms of centralization, power consumption and poor programmability.
At present, although Chia is a storage mining project, XCH can still compete with BTC, FIL and XRP, in which its core competitiveness lies in its energy saving ability and low power consumption.
II. Tokenomics
There is no cap on the total amount of XCH that can be issued. Before the main website goes online, 21 million tokens are mined in advance as strategic reserve. When the main transfer website was launched, the actual market circulation was 387 thousand tokens. In the first year, more than 3 million tokens were released by mining, a single block produces 64 XCHs per 10 minutes, this production rate is halved every 3 years. After 12 years, the halving stops and a single block produces 4XCHs per 10 minutes. The XCH output schedule (partial screenshot), is as shown below:
In terms of the use of the strategic reserve, the following key information is mentioned in Chia network’s Whitepaper:
1. Chia will not sell its reserves;
2. Chia’s investors invest in equity and do not hold XCH, nor do Chia’s team members receive any XCH as a work reward;
3. If the company fails to complete its listing within three years after its main website has gone online, or if the total market value in 30 days after listing is less than 65% of the actual amount of XCH held, the investor has the right to swap their shares for XCH, but the amount swapped is the amount originally invested, and no yield will be obtained;
4. The use of the strategic reserve is decided by a vote of the board of directors and requires the consent of both the majority of directors and the majority of independent directors. The current board of directors has three members, including an external independent director. The board is looking to bring in two other external independent directors. That is to say, the future use of reserves requires the consent of two external independent directors.
5. Any changes to the rules governing the use of strategic reserves will be made public at least 90 days in advance.
6. Prior to submitting the listing application, the company will not use the Chia it holds to carry out stock repurchase, dividend distribution, foreign investments, etc.
III. Financing Situation
According to Chia’s official statement, Chia’s development company will be listed within three years after the launch of its main website, partially through equity financing, totaling about $30 million.
In April 2018, Chia network completed a $3.3 million seed round financing, including investors A16Z, Naval, True Ventures, Greylock, Galaxy Digital, Metastable etc.
In August 2020, Chia network completed $5 million equity financing, with Slow Ventures leading the investment, followed by investments by Collab Crypto, IDEO, Ravikant, and by that time, the total amount of financing reached $16 million.
IV. XCH’s Risk Trend Analysis
1. It is uncertain whether XCH can be used as a settlement tool.
2. XCH is based on a slow inflation economic model, and at present, its burn mechanism and other usage scenarios are not seen in the Whitepaper.
3. In terms of Chia’s listing expectations, the issuance of XCH should first meet Howey’s test.
4. The early stage of the project is too hot and there is a risk of selling.
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