CPChain — Update I
TL;DR. Ecology:2 (2). Technology:3 (4). Decentralization:2 (2). Valuation:3 (3). Rating:3/10 (3/10)
Six months have passed since the first BD Ratings article on CPChain. Here is how that prediction has turned out so far.
2018-07-22 USD 0.071177, Satoshis 950.
2019-01-22: USD 0.014481, Satoshis 402.
The prior rating of 3, equivalent to 'sell', is clearly a hit so far. Let's explore what the project has been up to the last 6 months.
Just one day into the new 6-month review period, the CPChain team made a decision to initiate a Bibox competition where users with highest net buy orders would win CPC tokens. It was part of a marketing campaign initiated to create more talk about the project.
On 24th of July, CPChain launched an airdrop aimed at the Chinese BIHU cryptocurrency community. A total of 2 000 000 CPC tokens were assigned to this launch. On August 1st, the team announced that CPChain now was a member of the IEEE Standards Association where CPChain CEO Long Chengnian was already a member. In the end of that same month, a token buy-back program was announced, affecting up to 13% of circulating supply.
At around this time, more details on the tiered node system were released. Economy nodes require a minimum of 20 000 tokens for participation. These have the right to vote in the community. Reputation nodes (RNodes) require a minimum of 200 000 tokens for participation. Industry nodes were reserved for IoT Industry partners verified by the CPChain foundation. Both Economy and Industry nodes can become RNodes, but Economy nodes seems to be the only ones that also needs to lock up tokens. They both also have hardware, software, and network requirements. RNodes have the right to be elected to a committee according to a specific algorithm and so can claim rewards from the network as they build and publish blocks. The committee itself uses Lightweight Byzantine Fault Tolerance (LBFT) to achieve agreement among committee members.
Based on data from the blockchain, the network runs a reputation assessment model to calculate the Reputation Value (RV) of every node in the system. This data helps populate five parameters as RV is calculated: Account Balance, Transaction, Proxy Reputation, Data Contribution and Blockchain Maintenance. See the specifics here. Finally, with regards to how mainnet is setup, it looks like CPChain Foundation will provide tokens for basic rewards as well as block rewards for the first 5 years. After that, the market is thought to price block space efficiently by itself.
On the 17th of October, a delay of mainnet was announced. The alpha version was scheduled for December 2018, while the full mainnet was scheduled for March 2019. A two-token system was also introduced, the new token being CPCG. It is a gas token used for transaction fees or for smart contract execution fees.
In preparation for the delayed mainnet, a Rewards Program was introduced where CPC token holders could lock up tokens to receive rewards funded by the CPChain treasury. Mainnet alpha launched just before Christmas Eve, followed by a second iteration of the Rewards Program.
The Bibox trading competition is a prime example of an incredible stupid way to spend a cryptocurrency's war chest. By using the parameter net-buy as the single deciding factor whether a trader won or not, the CPChain team ensured systemic price appreciation which to BD Ratings borders price manipulation. It is effectively a bribe that acts as an indirect buy-back of tokens and proves only that the team was way too greedy when conducting the ICO. According to at least one reddit user, the CPC-BTC pair had the highest trading volume on Bibox that day. Around the same time, a similar competition was held on KuCoin.
More evidence of a too greedy ICO is coming from the fact that the team does airdrops of CPC tokens. Getting short term loyalty through these money throwing activities is not what constitutes the sound value protocol of the future; it resembles much more the opposite, unprofessional short term thinking. Moving from airdrops to the buy-back program mentioned earlier, BD Ratings again concludes that CPChain is good at making things worse. Firstly, this again proves the team raised too much money. And secondly, it again borders price manipulation.
Reasons: Continuous bad decisions with regards to marketing. No full mainnet yet and so no real on-chain utilization.
It is somewhat difficult to judge the DPoR consensus mechanism without letting it run free in the wild for some years, but there are a couple of points that investors should be concerned about. The whole Reputation Value calculation could be dangerous in the sense that node operators would do their best to game the system in order to maximize RV. This means that CPChain needs a great dose of skill and luck to get the different incentives right so that little or no cheating occurs over the long run.
For example, the chance of an RNode to get elected as block producer increases with the amount of data bought in CPChain's PDash data marketplace. It should be obvious that RNodes will try to buy data just for the sake of it. BD Ratings will look into the details of what this data consists of (and if it can be gameable).
Another strange aspect of how the tiered node system is constructed is the fact that Economy nodes are entitled to rewards just for the sake of it. As CPChain puts it:
The reason for Economy Nodes is that we are responsible for covering a big part of our community to benefit from our ecosystem. For Economy Nodes, they are not going to contribute a lot to the ecosystem. However, they are still part of CPChain's community. By locking-up tokens for a certain time period, they will get the benefits from Basic Reward Pool daily.
So, they do not contribute (though BD Ratings does see governance inclusion as real contribution), but since people like cash, they have to be included in the delicate node system anyway? This is mad reasoning. Hopefully the CPChain team will emphasize participation in voting to be a good enough reason for the lock up period as well as the rewards.
Reasons: Not at all convincing tired node system. Larger team. Still no real, battle tested mainnet.
The buy-back program affects decentralization as well. As already established in the initial rating article, the CPChain team sits on a huge reserve of tokens, all of which can be used to increase the chance of finding the next blocks. Buying back even more CPC further enforces this setting.
Introducing a second token out of nowhere is not really optimal from a decentralization standpoint. People have bough CPC not for surprises in its fundamental structure, but rather for the typical reasons: decentralized value network with stable, predictable supply.
Reasons: Still concentrated token ownership and example of centrally introducing huge blockchain changes.
By the introduction of CPCG, the CPC tokens are absolutely diluted in a hidden form of inflation. BD Ratings awaits CPCG market prices to form a deeper opinion on this. With that said, the value of all CPC tokens have decreased substantially since the last rating article, resulting in a total CPC valuation of around USD 14M. This is still too high considering the untested mainnet and centralization stemming from token concentration.
Reasons: Concentrated token ownership.