Harmony ($ONE): Full protocol analysis

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Harmony($ONE) Protocol Analysis This is a condensed twitter thread of my full essay altcoinevolution.substack.com/p/harmony-one-protocol-analysis Video version: youtu.be/pTjq91Qknz8 TL;DR below in 3️⃣ tweets, full🧵 in 45 tweets

a) The promise: A solution to the blockchain trilemma twitter.com/harmonyprotocol/status/1512212877696016386?s=20

b) The reality: From a technical side the team are delivering, however they are a bit behind when it comes to attracting usage and the level of funding compared to other L1s.

c) The rub: For Harmony to outgrow the shadow of other chains it's bets on DAOs being the future will need to show fruit through strong growth across a range of measures e.g. TVL, Active Users, Daily Volume and Community. So are we seeing this? Let's find out...

To keep things consistent I always use the following framework adapted from @a16z's economic flywheels for crypto We look at each part individually to create a picture of the whole flywheel and how fast it is spinning...

01/45 Part 1: Origin and Protocol @harmonyprotocol came from a question that the @stse asked: Q: What is the biggest market opportunity now? Which product can capture the most value in the market right away? A: platform infrastructure to power the decentralised economy

02/45 He saw that the internet had empowered millions of people, the mobile revolution hundreds of millions and that Web3 could impact 10 billion people in the future.

03/45 Vision: Harmony's vision is to provide scaling infrastructure to DAOs, DeFi and NFTs. In 2022 it's focus is: twitter.com/harmonyprotocol/status/1509289594432409603?s=20

04/45 Protocol: Harmony runs a Practical Byzantine Fault Tolerance (PBFT) and combines this with a novel Effective Proof-of-Stake (EPoS) mechanism to provide fast time to finality (<2s), low costs and scalability.

05/45 There are a couple of key advantages of their approach you need to understand: Random sharding both reduces latency and eases congestion but there are some security implications generally... Read more here: medium.com/the-5th-p/what-is-sharding-223cc5d3ef6f

06/45 Cleverly Harmony’s EPoS is engineered so that block rewards are based on the median staked by all validators This discourages an over-concentration of tokens with any node, increasing decentralization & preventing single-shard attack Read more: messari.io/article/at-one-with-harmony

07/45 Part 2: Investment, Tokenomics and Validators According to @MessariCrypto, Harmony had three funding rounds; seed $18m, node $5.5m and IEO $5m. The investors are Lemniscap, Continue Capital and Hayek in amongst others at seed and binance and HashKey in later rounds.

08/45 The return on investment for the rounds ranges from 1461% to 5007%... Not bad..

09/45 Harmony is very open with the initial supply distribution, the token allocation. Insiders hold 65.7% of the tokens when the chain was launched. Using the below data this seems in line with a lot of the Alt-L1s. twitter.com/MessariCrypto/status/1394298624906047491?s=20

10/45 Tokenomics (Supply): Looking at the composition of the supply as of today vs in 4 years time we can see that we still have a large amount of staking rewards to be released (~2.2m $ONE), as well as around 1m for the ecosystem development and a smaller amount for the team.

11/45 What else could effect the supply? Well back in 2020 Harmony performed a burn of some 319M $ONE. We could see this happen again potentially, although afaik it was a one off to offset some early mining. twitter.com/harmonyprotocol/status/1265793826251108353?s=20

12/45 Tokenomics (Demand): The team points to issues with Bitcoin’s economic model where it is unclear how participants will get paid in the long run. They modelled their issuance rate to settle at 3%/yr by adjusting for burn. Other uses via dApps, storage fees and governance.

13/45 Validator Statistics: To participate in Harmony as a validator you will need 10,000 ONE tokens, for delegators that drops to 1,000. This is low compared to some other chains and as such Harmony has a good amount of validators for a relatively small chain sitting at 161.

14/45 Harmony employs slashing, but doesn’t penalise stakers for downtime like other PoS blockchains. All of this has led to a participation rate of 45.22% (up 16% in the last 90d) according to @stakingrewards and a total of 107,359 wallets staking. stakingrewards.com/earn/harmony/

15/45 Harmony is engineered from the ground up to be decentralised. However it has a relatively low Nakamoto coefficient; 5 to reach 33% and 11 to reach 21% control... But thanks to EPOS, the protocol is protected due to the random allocation of block validators… Clever.

16/45 Checking in with our framework we can fill in the first half of the flywheel... Now for the second half...

17/45 Part 3: Developers... There is a lot of support from Harmony for developers working in the ecosystem. A recent example of which is their launch of Zero-Knowledge university with the aim upskilling 1,000 developers by 2024: twitter.com/harmonyprotocol/status/1509234394057256960?s=20

18/45 Electric Capital Developer Report (2021) medium.com/electric-capital/electric-capital-developer-report-2021-f37874efea6d shows Harmony is growing fast in the number of developers, with 4x as many as in 2020. Also it is one of the fastest growing developer ecosystems for part time devs with over 50+ developers.

19/45 Harmony have a $300m incentive program which may be on the smaller end of the funds announced. The money is initially going to be spent on: DAOs $50m, Bounties & Partners $30m, Ports/Launches/Investments $20m and hackathons $10m. open.harmony.one/300m-on-bounties-grants-daos

If you are liking the content so far please consider subscribing to my blog which goes into much greater details, thanks! altcoinevolution.substack.com/p/harmony-one-protocol-analysis

20/45 There has been progress with a number of proposals getting funded so far: @tweet4jack twitter.com/tweet4jack/status/1446922361387638785

21/45 If you would like to dive into any of the projects you can have a look through this thread: twitter.com/harmonyprotocol/status/1507023158376755200?s=20

22/45 Do I think DAOs are the future. Yes. Do I think they are easy. No. A potentially worthwhile alternative/parallel approach would be to accelerate top hackathon teams by partnering with an incubator in the space.

23/45 This will go down the path @a16z laid out in their piece of progressively decentralising, and enables teams to experiment quickly to find product market fit then exit to the community. Monitoring this area will prove whether I am wrong or right on this.

24/45 Part 4: Usage Harmony recently hit 1.1m wallets And an ATH of 5.4m transactions! Comparing these numbers to other chains we can see that Harmony is a little behind but not by much with some of the largest chains like BNB, and Luna.

25/45 Harmony attracted a large amount of TVL in 2021 as shown by The Block’s 2022 Report theblockcrypto.com/post/127723/the-block-research-2021-digital-asset-outlook-report Compared to other chains the have done relatively well in this regard as they are one of the leaders when we normalise for price.

26/45 One aspect of TVL will be bridged assets from Ethereum, with Messari showing Harmony's bridge usage: messari.io/article/at-one-with-harmony However it still represents a small amount of the bridged assets in the market with $476,677,683 in TVL (~2.2%).

27/45 Off Chain Metrics - Socials Harmony has a smaller community than some of the other chains (Social Volume as per LunarCrush: Eth 1.26M, Solana 158.49k, Fantom 48.72k) we have looked at but still growing. lunarcrush.com/coins/one/harmony

28/45 Harmony has a rapidly growing ecosystem mapped out by @AkshayJ15572769 last year. twitter.com/AkshayJ15572769/status/1478359524515844100

29/45 Harmony also did a year in review which is worth reading twitter.com/harmonyprotocol/status/1512026398969323522?s=20

30/45 In terms of the number of dApps and how this compares to other ecosystems Harmony has 82 (according to harmonyuniverse.one). This is larger than the numbers for Solana (51) and Cardano (70) but less than similar chains Avalanche (201), Luna (160) and Fantom (144).

31/45 dApp Highlight: DeFi Kingdoms $JEWEL I always like to do a brief stop off with a shining star project of the ecosystem at this point. This time it's @DefiKingdoms :)

32/xx After initially launching and attracting huge amounts of interest and users DeFi Kingdoms is now at a much slower rate of growth (although +20% in a 30D time period is still big).

33/45 TVL tells a similar story having run up impressively in the initial period it has since stalled a bit hovering around the 3b ONE mark in TVL defillama.com/protocol/defi-kingdoms/all/ONE

34/45 The recent spike in activity is largely down to launching a bridge to an Avalanche subnet. Their DFK chain continues to add demand. twitter.com/Gojo_Crypto/status/1511399335535153153?s=20

35/45 To bridge across the team used Synapse protocol to launch. It instantly took off showing the huge amount of demand that sits behind this game. twitter.com/SynapseProtocol/status/1509621041504522240?s=20

36/45 This interest is sure to capture the attention of other chains… which seems to be playing out nicely... Here’s to seeing a Terra ($LUNA) integration soon 💯 twitter.com/stablekwon/status/1510883844341174275?s=20

37/45 Part 5: Team and Governance Chain debrief chaindebrief.com/what-is-harmony-one-crypto/ wrote a good piece in their article on the team. In summary: > Experienced team with a depth of technical knowledge > Highly transparent with regular status updates

38/45 Governance on Harmony is available to all Harmony holders, although you must be an elected validator to propose an amendment. Harmony has seen a 113% increase in the number of proposals in the Forums, which is a sign of the engagement. twitter.com/harmonyprotocol/status/1509578123305959425?s=20

39/45 Filling everything in then we are left with out Business Model Analysis framework for L1s complete:

40/45 🐂 Bull Case • The protocol has been engineered cleverly • Harmony can continue their current trajectory, outperforming bigger chains on a relative basis they will catch up. • DAOs do become the future

41/45 ... cont. • The announcement that @stablekwon acquired Avax via the LFG raises interesting prospects for other chains. With the interest already in DeFi Kingdoms, the optimist part of me says a similar announcement could be on the cards for $ONE.

42/45 🐻 case / headwinds: •Issues cropped up with Shard 0 early this year twitter.com/WuBlockchain/status/1482038153636552706?s=20 • Competition for TVL: Fantom rack up a lot of TVL and then had a sell off as a key team member left. Something which isn’t reflected in the blocks research.

43/45... cont. • Competition for developers: Raise a bigger ecosystem fund (~$1b) in conjunction with a leading equity provider. The team has close ties with Binance so this could be a strategic partnership. And there’s a precedent for it twitter.com/OasisProtocol/status/1480913232261005319?s=20

44/45 ... cont. • DAOs are hard right now (imo), an alternative approach would be to accelerate top hackathon teams and progressively decentralising, and enables teams to experiment quickly to find product market fit then exit to the community.

45/45 Overall, Harmony has - promising tech, - robust onboarding processes for new developers, - interesting initiatives to drive usage - a great team who quantifiably keep themselves in check If they continue to execute I think they will earn their place as a top L1 soon.

As always DYOR this is not investment advice, also I might have missed stuff that is a key technology thing that you may understand better than I do 😊 Read the full article here: altcoinevolution.substack.com/p/harmony-one-protocol-analysis Or watch the video version: youtu.be/pTjq91Qknz8

Read all my deep dives and threads here: twitter.com/0xGregH/status/1508750426765627396?s=20

Team & community & projects accounts you may want to follow: @stse, @harmonyprotocol, @amythesoon, @ONECreativeDao, @lijiang2087, @givp, @samuelpharrison, @shmula, @OniiiONE, @kratos_harmony, @OneCommunityDAO, @ShroommaNL, @MonstersRocket, @Bricktop_ONE, @TimPos4,

..cont. @DefiKingdomsITA, @cptomonk, @TaikiMaeda2, @logicalgraphs @Gojo_Crypto, @yellowpantherx, @digitalslowmad , @DreamerDFK, @DefiKingdoms, @planetleague, @CoalMiner_Game, @EthereumRio, @ThreeFoldComics, @GetMyProof, @GetMyProof, @VibeStreamNet, @curio_invest, @harmony_podcast

..cont. @DeFiatoOfficial, @kalamint_io, @DuelistKingNFT, @TavernDAO, @AmbassadorDao, @RachelBHarmony, @harmony_dev_dao