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Welcome to issue #24 of Our Network, the free newsletter about on-chain analytics that reaches almost 2500 crypto investors every week.

Projects and analysts often ask me how they can get featured on this newsletter, so today I am announcing a new community submission form in which anyone can submit their own project updates moving forward. The best submissions will be featured in the newsletter, and some analysts may even be asked to become regular contributors.

Click here to view the community submission form. I will be checking this each week from here on out. I’m looking forward to seeing what everyone comes up with, and if you’re looking for ideas, here are some projects I would personally be interested in seeing covered:

• Reddit’s cryptocurrency efforts
• Binance Coin (BNB)
• Tether
• Lightning Network
• Erasure

Now let’s dive into this week’s coverage!

Emerging Networks: Polkadot, Nervos CKB, Enterprise ETH, Handshake

The first Polkadot candidate was released on May 26th. While Kusama, an early-release "canary" version of the Polkadot codebase, has been running since August 2019, this marks the beginning of the Polkadot mainnet launch process. Currently, the network is running in a "proof of authority" phase - only Web3 Foundation (W3F) validators are producing blocks. Transfers and most other user-facing functionality is disabled, and no block rewards are being distributed. The goal of this phase is to verify the stability of the network and to allow accounts to signal their intent to be validators. Once W3F determines that the network is stable and enough users are willing to be validators, the network will be transitioned to proof of stake and external validators will be allowed to start producing blocks. From there, the process will continue to proceed in phases to add functionality and put more power in the hands of the stakeholders, until Polkadot becomes a fully decentralized network. See here for more details on the Polkadot launch process.

Even though the network is new and actions are limited, there are some metrics that can be shared with how it is working so far. As of June 4th, 1,723 accounts have been created on the network, with a total of 1.522 million DOTs claimed. 85 accounts have signaled their intention to validate once the network has transitioned to proof of stake. The first runtime upgrade - which updates the actual logic of how the blockchain works in an entirely on-chain process - has already occurred with no issues.

• While the launch of the Polkadot mainnet has been in the limelight, Kusama has continued to grow and evolve. This evolution has included 57 referenda (on-chain votes that indicate the future technical direction of the protocol), 25 runtime upgrades (which modify the logic of the blockchain without requiring a hard fork), an increase in the size of the democratically-elected Kusama Council to 13 members, and 25 proposals to spend money from the Kusama Treasury (of which 12 were approved).
• Kusama's economic security (the fundamental force behind proof of stake systems) has continued to improve. Out of approximately 9.27 million KSM outstanding (spread among 27,366 accounts), 5.53 million KSM are being used for staking, for a staking rate of 59.68%. There are algorithms and incentives to make the distribution of stake among validators as equal as possible, which increases the cost of attacking the network. For example, consider a set of validators with the following stake {1, 1, 1, 48, 49}. Validators are chosen by the amount of stake allocated to them, so an attacker would only need to stake 6 KSM to replace over half the validator set - {2, 2, 2, 48, 49}. A perfectly even stake allocation - {20, 20, 20, 20, 20} - would require an attacker to stake over 60 KSM to take over 3 of 5 slots, ten times as much KSM as the poorly-allocated set earlier. Looking only at maximum and minimum stake behind validators, it appears that there is a very high divergence in the current validator set. The lowest-staked validator has 12,488 KSM staked; the highest has 57,513 KSM. However, a closer look reveals that this last validator is an outlier; the second-highest amount of stake is only 38,006 KSM. The current median stake for a validator is 18,171 KSM, the current mean 20,116, and the standard deviation is 4,782.

One key focus for the Polkadot team is to keep block production times consistent at 6 seconds per block, even under network stress and the addition of more validators. Although the number of validators has increased from 50 at Kusama's launch as a decentralized network in November to 275 now (and about to move to 350 on June 6th), thanks to protocol and code improvements, block production time consistency has actually improved. This is easily visible when viewing a history of daily mean Polkadot block production times.

The Kusama network has also seen a consistent number of daily transactions (~300 - ~800) on the network (charts below - source).

• Nervos hashrate has grown about 168x to 11.93PH/S from 75.47TH/S at mainnet launch. Nervos CKB uses a simple and new hash function called Eaglesong to make it easier for ASIC production and it has seen the update of mining hardware from CPU, GPU, FPGA to ASICs in about a year since the testnet launch in last May. So far two CKB ASIC manufacturers (Toddminer and Bitmain) have been shipped.
• Block time is 8.18 seconds (weekly moving average) and uncle rate (percentage of blocks that were created during short forks) has stayed at ~2.5%.

• As of writing, the number of addresses on CKB grew from 4k to 35.4k, while the amount of active cells grew from 10.1k to to 152.9k at mainnet launch. A cell is a generalized UTXO and the most basic structure needed to represent a single piece of data on CKB. All data on CKB is contained in cells.

The native token of Nervos is known as CKByte or CKB for short. One CKB entitles one byte of data storage on the blockchain, and is used to pay transaction and computation fees. In addition to a hard-capped issuance of 33.6 billion CKB, as block rewards with the amount issued halving every 4 years like Bitcoin, Nervos also has a fixed 1.344 billion annual secondary issuance to incentivize miners in the longer-term. Based on CKB usage, the secondary issuance is divided among miners, Nervos DAO depositors and a treasury fund (which is being burned until the ecosystem fund in the genesis block is depleted). By depositing in the Nervos DAO, the CKB holdings will never be diluted by secondary issuance.

All applications need to utilize CKB for state storage, and the CKB being occupied forego the annual inflation rewards from the secondary issuance. This model automates state rent payments, i.e. applications running on chain that need to pay state rent to miners. The deposits in Nervos Dao and the deposit to circulation ratio have seen continuous growth. Here is a graph showing the growth of CKB circulating supply and Nervos Dao deposits since mainnet launch. As of writing, 6.51 billion CKB (~37.21% of the circulating supply) is locked in Nervos Dao with 3.42% APC (annual percentage compensation).

Data for this post was sourced from CKB explorer.

A lot has happened in Enterprise Ethereum over the past month and a half! Let's dissect some of the major news around advances in gas efficiency for private transactions, the issuance of startup equity on mainnet, and an on-chain bond settlement using a central bank digital currency.

First up, EY announced that they have reduced the cost of sending private transactions on mainnet using Nightfall by another 200x! Their 2018 prototype, which they had challenged people to try and de-anonymize, had a per transaction cost of $100. With the introduction of Nightfall, in 2019, the cost had fallen to $10 per transaction. Now, by adding batching to Nightfall transactions, the cost has fallen to roughly $0.05, although that number was benchmarked when gas prices were closer to 2 than 20 Gwei! Unfortunately, while the first prototype was deployed by EY on mainnet with addresses made available, there aren’t known public deployments of the latest Nightfall release yet.

• Second, a few weeks ago, Tokensoft, a security token platform, distributed $4 million of its equity on the Ethereum mainnet. The company used the ERC-1404 security token standard to issue 8,052,572 TSFT tokens, each representing one share in the company, to 7 Ethereum accounts. The company’s founder, Mason Borda, explained on Twitter that issuing shares this way made it easier to keep track of their cap table than even modern startup equity tools like Carta.

Finally, Societe Generale, which we discussed in Our Network #18, has made the news again for issuing on-chain covered bonds and settling them using France’s Central Bank Digital Currency (source). While the press releases were sparse on details (the French Central bank hasn’t issued an update since its initial request for CBDC proposals) and on-chain data for the transaction couldn’t be found (yet!), when digging into Societe Generale’s transaction history, something noteworthy came up!

If we look at the contract for the $112m bond issuance we discussed last time (0xcfe929db54596b1d52e92f93b943b6df0a0bb2c5), we see it was created by 0xae5509c203f1bdd00dda5fc0261931ca79f06c50, which is a very active address: it has over 2,800 transactions, the first in January 2019 and some as recent as this week, and has balances for 1,406 types of tokens, most of which appear to track currencies like euros, or US dollars, and a wide range of equities, ranging from tokenized AAPL to shares from this week’s newly IPO'ed ZoomInfo! Click here to view the its expanded holdings.

• Starting off with some high-level statistics (source):

  • 29,318,000 HNS generated by mining (189,996 HNS paid in fees to miners)

  • 256,693,208 HNS generated by 5,939 airdrop proofs

  • 3,959,349 HNS generated by 841 reserved name claims

  • 3,536,173 HNS burned by name registrations

• Hashrate: When Handshake was just launched, there was one prominent mining pool, 6block, whose hashrate had comprised of nearly 45% of the entire network, with a total hashrate of 19 TH/s (see: Our Network #8). Now, 3 months later, the network hashrate has almost doubled to 36.59 TH/s. Meanwhile, that dominant mining pool has diminished its hashrate to a paltry 252 GH/s, being replaced by a more distributed network of miners now operating globally.

• Profitability: The last time we calculated Handshake profitability was in Our Network Issue #13, almost 3 months ago. Then, miner rewards were 5.5 HNS/GH. Now, profitability amounts to 8.7 HNS/GH. But the price of 1 HNS in March was at about $0.20/HNS compared to the $0.12/HNS it is today. In sum, per GH, comparing now versus then, a miner is making $0.06 less. Calculations below:

  • March profitability: 5.5 HNS/GH * $0.20/HNS = $1.10/GH

  • June profitability: 8.7 HNS/GH * $0.12/HNS = $$1.04/GH $1.10 - $1.04 = $0.06 less

  This could be the unit economics affecting the mining pools which has led to the decline in hashrate that we are observing from 6block.

• Finally, some good news and some bad news. First, the good news:

  

  You can now resolve all Handshake domains when using NextDNS without the need to install anything on your device!

  Then, the bad news: TLDs that were recently sold or have upcoming auctions through ICANN but after Handshake's mainnet launch were not accounted for in Handshake's Alexa Top 100,000 blacklist approach. The following is a list of names that had been sold or are slated to be sold through ICANN that must be reconciled somehow, pending resolution, in the protocol.

  • .アマゾン ("Amazon" in Japanese) This has auction slated for January 2021

  • 亚马逊 ("Amazon" in Chinese) Auction available

  • .HOTEL This has an auction slated for December 2020

  • .IDN This one closed April 22, 2020

  • .KIDS This has an auction slated for July 2020 .MUSIC There is a TLD in reveal phase that conflicts