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Welcome to Issue #18 of Our Network, a weekly newsletter about on-chain metrics and crypto analytics that reaches almost 2000 investors every week.

This week, our contributor analysts cover emerging networks:

• Polkadot
• Enterprise Ethereum
• Handshake
• Opyn
• Kadena
• Nervos CKB 🆕

Although the Polkadot mainnet has not yet been released, an early-release and unaudited version of the code has been used to produce the network Kusama. Kusama has been active in one form or another since August 2019 and in the hands of the community since November 2019. Note that Kusama is not a testnet; it is a network existing in its own right and on which teams are currently building.

Since November, the Kusama network has produced and finalized almost 2 million blocks, sent over 138,000 transactions, and successfully processed over 5.5 million extrinsics (messages received externally from the chain, e.g. token holders bonding stake or voting in on-chain governance). Since the beginning of this year, active accounts have gone from 5,471 to 9,574 (as of 18 Apr), a 75% increase. Data courtesy of Polkascan.

• Mean block production time has remained consistent at approximately six seconds. This rate has continued even with the recent increase in validators from 180 to 225. There is generally a trade-off between decentralization (in terms of number of validators) and speed of blocks. If think about it in extreme examples, this makes sense: a single centralized server could produce blocks extremely quickly, whereas if a billion different nodes had to come to a consensus before the next block could be produced, it would take much longer. Polkadot's goal is to maintain this six-second block time up to approximately 1,000 validators, although the specific number is set by on-chain governance. Data courtesy of Polkascan.
• The number of Substrate nodes being tracked by telemetry continues to increase. Substrate is the blockchain development framework on which the Polkadot and Kusama relay chains are built, along with their proposed parachains (aka shards). It is not necessary to connect one's node to a telemetry server, and so these numbers are an established lower bound but may not reflect the true number of nodes running. As of this writing, we know of 422 Kusama relay chain nodes being run, along with 124 nodes on the Edgeware chain, 67 nodes on the Acala Mandala testnet, and 241 on other Substrate-based chains, for a total of 854 nodes. You can view current telemetry statistics here.
• Kusama (and Polkadot) use nominated proof-of-stake, the security of the system is directly related to the amount of stake bonded to validators, as that economically secures the network. The current active validator set is staked by over 4.7 million Kusama tokens, or over 54.6% of the entire circulating supply. This is slightly over the targeted staking rate of 50%, which means that staking rewards have been automatically reduced to encourage other uses of tokens.
• Development on Substrate continues at a rapid clip, with at least 17 commits, and often much more, every week for the last year on the Substrate repository. As Polkadot is built on top of Substrate, all code which is part of Substrate is also part of Polkadot. All of this work is done open-source and transparently on Github.

• “Enterprise Ethereum” and “private networks” have historically been near-synonymous. In 2019, this changed. We began seeing early signs of mainnet adoption from traditional enterprises: from a $112m bond issuance to mainnet-compatible privacy and, most recently, using mainnet as middleware for systems of record.

  These early signs of enterprises warming up to mainnet are encouraging, but it is hard to quantify their impact or scale. Quantitative data being spare, it needs to be complimented with qualitative analysis. Taking bond issuance as an example, we need to not only look at the amount of on chain activity happening, but also at its sophistication.

  Let us dig into three examples: Societe Generale, Banco Satander and Cadence Group.

• Societe Generale SFH issued the first set of bonds for $112m on the Ethereum mainnet about one year ago. The bonds were issued to itself, the press release made it clear it was an initial pilot, and no Ethereum data was shared by the company. If we look on-chain, we notice a few things:

  1. Everything is managed through a single contract: 0xcfe929db54596b1d52e92f93b943b6df0a0bb2c5.

  2. There are no other bytecode matching ones deployed on mainnet, meaning it was entirely custom.

  3. There are only ever two transfers on chain and no activity in the past year.

Six months later, Banco Satander also issued bonds on mainnet, this time, to the tune of $20m. While the press release also highlighted the early nature of the work, their Head of Digital Investment Banking, John Whelan, revealed more about the mechanics of the bonds, including their on-chain addresses on Twitter.

Looking at the addresses on chain, we notice things are slightly more active and sophisticated: the issuer and investor wallets are separate, we find some similar contracts on mainnet (although they appear unused) and the number of transfers grows from 2 in the span of a week in the case of Societe Generale to 44 spread over more than 100 days. Progress!

• Fast forward to today, Bankless recently reported that the latest Cadence-issued Ethereum bonds ($40m) referenced the on-chain contract address for them directly on Bloomberg. If we dig more into Cadence’s contracts, we now see a different pattern: the deployer contract has its source code verified on Etherscan, there are 77 issuance contracts with the exact same bytecode, most of them with a modest amount of activity, all deployed within the last 3 months!

• All this implies we’ve not only settled on some repeatable patterns instead of building everything custom, but also that adoption has “spread” from short bursts when press releases are put out to a more evenly distributed usage over time. Enterprises have also gone from only mentioning Ethereum and nothing more in press releases to exposing entire Solidity contracts on chain for people to query via Etherscan!

• Again, with such a small sample size, it’s hard to draw quantitatively robust conclusions about the state of enterprise on mainnet, but if we look closely, the early signs of what could be the next tidal wave of Ethereum adoption are starting to show.

• Increasing supply comes with an increasing amount of coins burned. After surpassing the cliff on Feb 14, after the protocol unlocked token transfers at 2016 blocks which generated massive coin redemption events, the circulating supply has grown steadily to 270M HNS. But this number can't be taken alone to determine what's currently in circulation.

  

  Here are the total coins minted so far, which have grown steadily at a delta of 13.7 (slope of the line).

  But to get a complete picture of actual coins in circulation, we also need to consider the total amount of coins that have been burned so far. Remember: whenever HNS is used to bid *and win* a name auction, those coins get transferred into a covenant on the Handshake blockchain where the coins are locked in perpetuity, becoming effectively "burned".

  

  The amount of coins that have been burned ever since name actions began is now at 2.5M, linearly increasing at a rate of ~2,082 (slope of the line).

  

  When you take the two charts together, you get the complete picture. While supply is indeed growing, with more and more coins being minted every block, this number is simultaneously decreasing at the high burn rate that was just illustrated. On top of that, HNS is a deflationary cryptocurrency. So as demand grows while the coin gets scarcer and scarcer, so will the value of HNS and the value of the TLDs associated with it (source).

• .defi was the most in-demand top-level domain that was just purchased recently. The lucky winner spent 74,777 HNS, which, at a price of $0.12/HNS, comes out to a price tag of $8973.

  In comparison, in order to have purchased /defi, a new TLD, from ICANN, you'd need to submit an application to them, which alone costs $200K for the fee, and then you'd spend an additional $185K to purchase it after your application has been accepted.

  

  This was the story of just one name out of thousands of names purchased so far. In fact, business is so good in Handshake land that the number of total transactions are in excess of 383K. This is a relatively high rate of usage compared to other coins that have been around for much longer.

  And guess what—the more TLDs that are bought on Handshake, the more it increases the value of HNS for you and me because all those coins are getting burned, making the value of the HNS you do hold more valuable as the supply grows scarcer.

• Hashrate is oscillating at around 42 TH/s in recent days. This is actually lower than the hashrate we were seeing in March since we last checked in for Handshake on Our Network Issue #13. Speculation says that some miners may have been affected by the pandemic.

  

  However, if we zoom back all the way to the very first update about Handshake, in Our Network Issue #8, 42 TH/s is an overall increase compared to the 19 TH/s from over 2 months ago (source).

• While the hashrate has been holding steady in the 30s to 40s TH/s range, average network difficulty is constantly adjusting to hashrate with its sensitive "hashrate barometer". While Handshake's technology is rooted in Bitcoin, because it is derived from bcoin, a JS reimplementation of Bitcoin Core, Handshake's difficulty algorithm, unlike in Bitcoin, is taken from Bitcoin Cash's custom difficulty algorithm. This means that Handshake's difficulty adjusts every block, so every 10 minutes—a much higher adjustment cadence than the roughly 2 weeks it takes Bitcoin to adjust difficulty (source).

• Globally, there are a minimum of 61 nodes currently connected on and running Handshake. It's not a comprehensive list of all nodes running Handshake, but does show the amount of and geographical location of all the nodes on the network currently connected to hnscan.com, with clusters primarily in the US, EU, and China (source).

• Opyn provides DeFi insurance and risk management built using protective put option tokens called oTokens. Opyn provides protection on Compound deposits and just launched ETH protection one month ago with ETH protective put options (oETH). At time of writing, there is currently $1.8mm of collateral protecting ETH and Compound deposits (Source: DeFi Pulse).

• Opyn has hit $7.6mm in notional volume with above $7.1mm in notional volume this past month and over $3.2mm notional volume this past week. Notional = oETH * ETH price at time of trade. This is how notional is usually calculated for options in traditional finance (option * price of asset at time of trade).

• Daily notional volume has been steadily increasing as well, with $515k seven day moving average for daily notional volume and $214k thirty day moving average for daily notional volume. Contrary to the team’s expectations, April 20th was a busy day for oTokens, as Opyn’s pools hit a daily record of over $1.2mm in volume.

• In the last month the number of unique Ethereum addresses interacting with oTokens has almost doubled with, 318 unique Ethereum addresses having interacting with oTokens, protecting themselves against DeFi risks (source).