A few days ago, I was talking with my friends about ChainX, they raised these questions：
What issue does ChainX want to solve? What would market value of ChainX be in the future？
On the last day of this not-too-bad year of 2020, I will try to answer them based on my understanding of ChainX’s new white paper, which can also be regarded as my prospect for 2021.
First is my root point：
The market value of BTC accounts for half of total digital assets. After the official release of the Polkadot Parachain, all obstacles restricting the development of the BTC ecosystem will disappear. Therefore, the Defi based on BTC will explode in the Polkadot ecosystem, and its energy will not be lower than those in the Ethereum. An inevitable result is that there will be a huge amount of BTC that needs to be crossed to Polkadot.
Then the answer to the first question “What issue does ChainX wanna solve?” is obvious, and the white paper also emphasizes this:
ChainX’s primary mission is to bring BTC into the Polkadot ecosystem and be the largest BTC layer2 financial platform.
You may ask, ChainX is not the only project that does BTC cross-chain, why do you think ChainX will stand out?
Following is the basis of my judgment:
Due to the limitations of BTC itself, all BTC cross-chain schemes cannot bypass the security of the original chain BTC custody. The first question for users to choose a cross-chain scheme is whether my BTC is safe or not. On this basis, Economy and ease of operation have become secondary criteria for users to choose BTC cross-chain solutions.
Let’s start with security and economy, comparing ChainX’s cross-chain solution with PolkaBTC.
The custody scheme launched by PolkaBTC allows anyone to become the Vault custodian of BTC by collateralizing DOT assets, so as to achieve trustlessness and ensure the security of BTC assets under user custody.
From the new white paper of ChainX, we can see the upgrade route of ChainX’s BTC custody scheme：
1、The 1.0 custody scheme currently in use relies on the credit endorsements of multiple trustee nodes, which have undergone strict KYC. And They manage the BTC assets together in a multi-signature manner. The scheme has been operating stably for one and a half years, and the maximum amount of BTC assets under custody exceeds reached 2000 BTC;
2、In order to prepare for the large-scale cross-chain of BTC, the 2.0 version of the BTC custody solution introduces the “asset custodian” (Vault) mechanism, that is, any user can mortgage PCX, DOT and other assets to become a Vault, and achieve trustlessness asset custody and BTC cross-chain through the XCLAIM framework；
3、If the 2.0 version of the solution realizes the decentralized custody concept that everyone can be a vault, then the 3.0 version, which based on the “MPC-based threshold signature”, is a concrete practice of the latest popular multi-party computing (MPC) theory in the industry. Through this scheme, the custody operation is not only protected by a multi-signature level security mechanism, but also be independant on the security of the chain itself, which further shields the possible security risks on the chain for the custody assets.
4、The 4.0 version realizes a “decentralized and autonomously controlled asset” custody solution, that is, on the basis of 3.0, by modifying the MPC algorithm and threshold, users themselves can become one of the holders of their own BTC custody address private key fragments. And further more he has the extra right to veto, that is, no one can transfer this asset without the user’s signature. This is similar to the security of the LBTC mining scheme previously launched by ChainX. The lock-up amount of LBTC once reached 20,000 BTC, so this scheme is definitely worth expecting.
We can easy tell that ChainX2.0’s BTC custody solution strives to improve security at all levels, and has absolute advantages over other products.
PolkaBTC needs Vault to mortgage DOT assets, but I did not find a detailed description of its Valut-oriented incentive mechanism. At present, in the testnet experience, you can see that there is an option for casting PolkaBTC with a fee. I guess this is the main incentive mechanism for Valut. This means that users need to pay additional costs to mint PolkaBTC. At the same time, whether or not the fee income of minting PolkaBTC is comparable to the income of Dot staking? If it is lower than the staking income, then the Vault motivation will be insufficient, and the amount of PolkaBTC that the ecology can mint will be limited. If it is higher than the staking income, it means that users need to pay a high fee to get PolkaBTC, which is undoubtedly not what users want.
Let’s look at ChainX’s economic model again. It will allocate PCX mining power to the assets used to mortgage and mint XBTC. That is to say, Vault has enough motivation to mortgage assets. At the same time, holding XBTC will also get mining power. As far as users are concerned, they can also get additional PCX incentives without paying their own fees. ChainX’s two-way incentive model has an absolute advantage over other solutions under the same security.
At the same time, taken DOT as collateral, ChainX also has a fantastic solution. Users can obtain X-DOT by crossing DOT to ChainX. Then users can still obtain DOT’s staking income on the original chain, and they can also deposit X-DOT by mortgage XBTC, to get the mining income of PCX, this is so called X-DOT dual mining, its advantage is obvious.
With all those reasons, I can tell that XBTC will be the most important and widely used BTC cross-chain asset in Polkadot ecology. Then, various applications based on XBTC will appear on a large scale, forming a BTC layer2 financial application platform.
About the second question, “what is the market value level of PCX?”
Next, I will analyze this question from two perspectives:
First, what does it mean to take PCX as a collateral asset for vault to host BTC?
Some people once said that “PCX is the BTC of POS version”. At that time, they thought that this was a slogan. But now when we analyze it, we will find that there is some truth in it.
First of all, the total number of PCX is 21 million, which is consistent with BTC, and also has a regular halving mechanism;
Secondly, taking PCX as collateral asset to escrow BTC now means that a certain amount of PCX has been used as asset endorsement behind each XBTC, which is equivalent to create a bond between the market value of PCX and that of XBTC. With the increasing demand of XBTC, the market value of PCX will also have a corresponding breakthrough.
Now let’s do some math. Ideally, if chainx has a plan that attracts 1% BTC, that is, 210000btc to cross in, and we say 50% of total PCX is used for mortgage for minting XBTC, and only 50% of XBTC is mortgaged by PCX (other mortgage could be dot and etc). and We keep the mortgage value rate of PCX/X-BTC to 300%, which means to build 1 dollar X-BTC we will lock 3 dollar PCX (this rate is a little low, theoretically it should be higher), then let’s figure out the value of a single PCX:
X-BTC amount mortgage by PCX = 21,000,000 btc * 1% * 50% = 105,000;
Their market value = 105,000 * 29000 usdt/btc = 3,045,000,000 usdt;
The amount of corresponding PCX mortgaged = 21,000,000 pcx * 50% = 10,500,000 pcx;
So, per PCX’s value is 3,045,000,000 * 300% / 10,500,000 = 870 usdt
If you think that the goal of 210,000 btc is too far away, then the volume of 21,000 btc would also result in a unit price of 87 usdt/pcx.
Please note: This is an ideal calculation model under various assumptions. It’s my judgment on the future value of PCX. It’s only for communication, not investment instructions. We still have to be in awe of the market.
Second, when the BTC layer2 financial application platform develops to a certain scale, it will be natural for chainx described in the white paper to become a Polkadot secondary relay chain. Then what will it bring to ChainX?
Just do a simple comparison, the parallel chains and slots of Polkadot will also appear on the ChainX network in the future. In theory, we may need to lock PCX to auction slots. I will not describe how much value it could be, you can imagine yourself.
In the new white paper, I personally see the transition of PCX’s usage. Before halving, the polkadot parallel chain has not been put into use. In fact, the main feature of PCX is mainly a mining machine, a chicken that can lay eggs. Many people use mining income as the basis for evaluating the value of PCX. With the opening of the parallel chain, the value of PCX will gradually become collateral as an endorsement asset of XBTC, There is a positive correlation between their market value. When it finally develops into Polkadot secondary relay chain, the demand of PCX as the basic network resource will be fully reflected.
Finally, I would end up this article with a poem by the Chairman MAO, to show my expectation for ChainX in 2021:
Obstacles may be as hard as iron, but now we would take our steps to get through them.