HPB — Update I
TL;DR. Ecology:3 (4). Technology:4 (5). Decentralization:3 (4). Valuation:8 (8). Rating:5/10 (5/10)
Six months have passed since the initial BD Ratings article on HPB was published. Here is how that prediction has turned out so far.
2018-05-12: USD 3.46, Satoshis 40 986.
2018-11-12: USD 0.677119, Satoshis 10 590.
The rating is so far a big miss. Let's go through the important events within the HPB ecosystem for the last 6 months to figure out if there is a fundamental cause for this crash.
In May as the last review was published, HPB was getting ready for a mainnet launch. In preparation for this, more information on the master nodes was released. The HPB public chain network was going to be divided into three layers: 1) High-performance nodes, 2) candidate pre-nodes, and 3) light nodes. On the 19th of June, further details were released. The stated goal seemed to be 300 nodes in total, including 61 High-performance nodes. All of these nodes are utilizing the Blockhain Offload Engine hardware. The 300 candidate nodes were to take turns in forming the 61 high-performance consensus-participating nodes.
To incentivize all these nodes to stay online, the network would issue new coins and distribute as block reward. Single node incentives were not going to change with the increase of the total number of nodes, meaning that as all 300 nodes are up and running in the future, inflation will get as high as 6%. Regarding the 300 nodes, 70% were to be decided by voting, 24% by invitation and 6% were to be held by the foundation. The invitation category included mainly institutions, enterprises, developers or non-profit organizations.
On the 27th of July, HPB announced that they had received a strategic investment of 20 000 ETH by mainly Chinese investment firms or exchanges. A week later on the 3rd of July, the HPB Blockchain Offload Engine Launch Event was held in Shanghai. On the event, the finished hardware product was revealed. On the 24th of August, a closed mainnet was launched by the team with the purpose of doing some final testing. 4 days later, individuals around the globe started to receive BOE hardware that hey had applied for earlier.
On 10th of September, a HPB wallet was released in preparation for the public mainnet. Around this time an updated economic model document was released. The new information included a coin burn plan that detailed a burn of 3 million HPB, the same number of tokens that were to be issued during the first year in the form of block rewards. Inflation for the first year of mainnet was thus set to 0.
On the 24th of September, mainnet was finally open for anyone and it is currently running uninterrupted.
Sadly, HPB ran a really stupid bounty campaign that clogged up the subreddit with nonsense posts of no value whatsoever. It was extremely unprofessional and probably hurt the project as a whole. After cleaning that one up and after mainnet was released, a new marketing initiative started. This one seems much more fitting as there is now a tangible network to market.
When looking at on-chain transactions, there seem to be relatively many transactions happening compared to other small altcoins. BD Ratings still awaits the result of partnerships and dapps. If HPB manages to attract real economic activity, that would be positive. The high transaction throughput capabilities only carry large value if someone actually is using the blockchain.
Reasons: Bad marketing moves. Some on-chain activity but no evidence of businesses using the chain yet.
According to team members on the subreddit, HPB consisted of around 40 employees in May 2018. Some of these are continuously committing code to GitHub. Mainnet is finally launched and the dedicated hardware works. BD Ratings looks forward to mainnet stress test results for some throughput statistics.
It seems that the High-performance node selection is dangerously complicated. A too complicated process is probably very susceptible to attacks in the form of nodes trying to 'game' the rules. The HPB team lists a number of influencing parameters: BOE hardware, number of HPB tokens held, upload speed, network bandwidth, number of times the HP-Node has been elected previously, current status and compliance status. It doesn't take much imagination to speculate how such a broad arsenal of parameters can be turned against the project as some smart node owners manage to send tweaked input to whatever judges the data.
Reasons: Mainnet launched, but complicated consensus mechanism. Waiting for throughput capacity data.
The HPB team recently announced that they were going to distribute dedicated hardware for free. This indicates a willingness to decentralize the protocol by encouraging masternodes outside of their control. It remains to be seen exactly how many of the 300 candidate consensus nodes will be external.
What is certain is that the requirements to run a consensus master node are and will remain high. Some people in the community have recently estimated the threshold to around 25 000-28 000 HPB which is very high. Such a high requirement is essential to limit the number of nodes and so to increase the throughput of the network. But by limiting the number of nodes, the network becomes more centralized as well.
Another centralization issue is the amount of candidate nodes reserved for invited stakeholders. It is not far fetched to imagine that invites will not be sent to stakeholders who do not align with the foundation. This kind of model will just not do.
The coinburn decision is a net positive for the Decentralization rating. It is apparent that the team needs to reduce its number of tokens considerably to not be a long term threat to the integrity of the blockchain.
Reasons: Mainnet looks more centralized than initial estimations.
As already mentioned, HPB has seen its token fall drastically in price, and to some degree this is warranted. The team has made some bad decisions regarding marketing an also regarding factors that centralizes the network that just recently launched. So in other word, fundamentals has decreased somewhat, but as price has fallen even more, BD Ratings keeps the Valuation rating unchanged.
On the whole, it looks like the project is less undervalued now compared to 6 months ago.
Reasons: Fall in token price. Worse fundamentals.
Disclaimer: The writer owns HPB.