Picolo Research: A comprehensive analysis of the high-performance public chain Elrond's ecological development and market value potential
Author:Picolo Research
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ElrondCompany overview
Since our last report in January 2020, Elrond has reached key milestones this year: mainnet launch (80,000 accounts created, over 1.2 million transactions), new token economic model released (1,000 ERD = 1 EGLD), and surpassed our previous price target for a return of 750% for the year (rebalanced).
Project Highlights
Project Highlights
This year has been a successful one for Elrond as they achieved many milestones and gained a foothold in top high-cap projects. We would like to review our previous analysis to update our view and identify potential price targets for Elrond to reach by 2021.
In this report, we focus on the development of the Elrond network and investment judgments about EGLD.
Price target of $68.24, upside potential of 212%
High rewards and the upcoming DeFi program are the main drivers of EGLD's value growth
Launch of Maiar, a global payments app, fuels widespread adoption and growth
Aerial View
Thematic Viewpoint
Positioned to capture greater market share in Tier 1 protocols
Blockchain scalability has been the bottleneck of major blockchains like Bitcoin and Ethereum, currently reaching about 3-4 tps and 15 tps respectively. Compared to centralized counterparts such as VisaNet, which achieve orders of magnitude higher throughput, the current bottleneck has led to a flood of new projects entering the space to address this barrier to mainstream adoption.
As Metcalfe's Law deduces, the value of a network grows exponentially with the number of its users. Thus, user adoption factor becomes the most important metric for evaluating new projects and can be replaced by community engagement statistics. Elrond has created a vibrant ecosystem of users, developers, and partners, and is actively collaborating with other projects to develop new features. It has become the provider of infrastructure programs of choice for high-throughput applications such as Orion Protocol or PlotX.
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As Elrond co-founder and CEO Beniamin Mincu rightlyas pointed outas pointed out
With their expertise in marketing and community management, they keep users engaged, and since the last report, the Elrond community has become one of the largest among layer-one blockchain projects.
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Community Engagement Comparison with Other Layer 1 Blockchain Projects
The Elrond mainnet, despite being only 140 days old, has achieved over 1.2 million transactions from 80,000 accounts. In comparison, Hedera Hashgraph launched its mainnet in September 2019 with about 81,000, Polkadot about 56,000, and NEAR about 6,000 active accounts (wallets).
Although initial adoption is critical during the onboarding phase, users will just linger and not use the product when no advanced features are present. Elrond has strong execution capabilities and is on track to achieve the goals outlined in its roadmap. According to data from Flipside Crypto, Elrond is the top 20 blockchain project in terms of developer activity, and data on Coingecko shows that Elrond's Github development activity ranks first in the world for the past 4 weeks. All of these confirm the team's strong development and delivery capabilities.Elrond's many technical advantages further differentiate it from the major Ethereum competitors that have sprung up recently. its high performanceWorks with all major programming languages and is one of the fastest virtual machines in the blockchain space. A rich toolset gives developers easy access to Elrond's technology, including a dApp development boilerplate, Elrond IDE for Visual Studio Code, rich APIs, and the Rust Smart Contract framework.
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Virtual Machine (VM) Comparison
Generous staking yields and plans for DeFi startups could lead to a shock to EGLD supply
In a proof-of-stake network (PoS), the security and consensus of the network depend on the economic stake of the validators. Validators on Elrond are rewarded for their contribution, which is initially paid out of the inflationary supply. The team has adjusted its economic model at mainnet launch, renaming the token from Elrond (ERD) to eGold (EGLD). The idea is to simplify and enhance communication, to be able to convey value immediately.
What's more, the supply, which previously grew at 5% per year with no other ceiling, is now capped at a theoretical maximum of 31,415,926 EGLD. This change reinforces the concept of scarcity, and as network adoption increases, inflationary rewards will be replaced by transaction fees, ensuring that the maximum supply will not be reached, and will only become smaller (see EGLD economic paper ). We believe that embedded concepts and aggressive initiatives will result in a healthy shock to the token supply.
To bootstrap the network, Elrond launched a four-stage staking campaign:
Phase 1: Incentivized Node Queue (Starting October 14, 2020)Phase 2: validator queue ()
Launched on December 1, 2020
Phase 3: Public pledge (expected to start in January 2021)
Phase 4: Advanced Staking Functionality
The campaign has gone well so far, with roughly 55% of the tokens in circulation already staked. The third phase is expected to start in early January 2021, which will allow more nodes and egld tokens to participate in the staking (currently limited to 2500 EGLD per person). Elrond currently serves 29% to delegators, 36% to validator nodes, and up to 20% to those in the queue. With rewards significantly higher than other blockchains, combined with strong demand for collateralized assets, we expect the effective supply to be significantly reduced, creating a benign shock to supply.
Our research shows that higher staking yields correlate with higher returns, and that the greater the percentage of tokens staked in the network, the greater their appreciation. Therefore, we believe EGLD has the potential to outperform its peers. In addition to the extremely attractive yield, EGLD will become increasingly attractive with Elrond's partnerships in the DeFi space. One of the most important collaborations is with Orion Protocol; Orion is an aggregation protocol that will aggregate liquidity from centralized exchanges and distributed exchanges on multiple chains to create a meta-liquidity on the Elrond network layer.
Users can make better use of liquidity schemes to try more opportunities to reduce opportunity costs while obtaining Elrond staking income, such as Stafi tokenizing pledged Egld tokens or Ramp lending pledged Egld tokens. At the same time, Egld will be part of the multi-asset collateralized stablecoin BAI, which will partner with Bidao to mint ESDT tokens on Elrond.Bonded FinanceEGLD will also beInjective ProtocolPart of an index basket that groups altcoins to leverage capital for more efficient production. Distributed derivatives platform
and Elrond are collaborating to explore how Elrond technology can introduce new derivative products to Egld while using the trading platform.
With multiple interoperability initiatives underway, users of Elrond will soon be able to interact with other major blockchains such as Bitcoin, Ethereum, NEO, Ontology and Cosmos (via Poly Network) or use stable Coins and Ethereum-based DeFi contracts (via xDai Stake).
These projects will not only bring a large number of transactions to the Elrond blockchain, but will also bring more practical value to EGLD, and will also increase Elrond's position in the DeFi field.
Highly Anticipated Maiar Global Payments App Sees Wide Adoption, 180,000 Waitlisted Users Together at Launch
Interacting with DeFi applications remains challenging for non-technical users and presents a huge hurdle to the user experience. Elrond aims to change that with Maiar, a highly intuitive, non-custodial payments app that allows users to send and receive money globally using a simple mobile phone. The Maiar app has been well received by the community and over 180,000 users have joined the trial list in anticipation of its global launch on January 31, 2021.
Maiar will be the easiest way to interact with the Elrond ecosystem and allow users to buy, store, stake, lend and spend EGLD tokens. EGLD is currently available through some compliant channels, for example, MoonPay helps users access and use it directly in the APP.
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route map
Valuation
Valuation
Our research analysts employed several assumptions and methodologies to analyze EGLD's potential return and determine its valuation. The two-pronged approach combines regression modeling and relative valuation analysis.
Regression Model - Based on Return on Equity and Market Cap
Yields determine price action this year, which forms the basis of our valuation regression model.
With the positive initial observations, we further performed a multiple regression analysis to include more variables, namely market capitalization, staking reward adjusted staking rewards, and total staking percentage. Based on the results of the analysis, the model predicts a market cap of $1.9B for Elrond, which places it in the top 20 of all cryptocurrencies. The analysis estimates that Elrond's market value is about 5 times the current market value, which is equivalent to a price of about $128 per EGLD, implying a 450% upside potential.
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Staking returns and market cap comparison with other projects, data source: Coingecko, Stakingrewards.com (December 16, 2020)
relative valuation model
Our analysts use comparable blockchain projects to construct Elrond's relative value. By deriving the volume/market value (Vol/MV) multiple for each project, we extracted the track average ratio for our analysis. Similar to the regression model, the ratio indicates that EGLD is undervalued, implying a token price of $48.32 per EGLD, implying a 120% upside in price.
Picolo's Prospective EGLD Valuation
Applying a weight of 75% to the relative valuation and 25% to the regression model, we arrive at a target price of $68.24 for EGLD with a potential upside of 212%.
Summarize
Summarize
Overall, Elrond has made significant achievements in technology development, community engagement and adoption. Additionally, the launch of the Maiar app is another milestone, which reduces friction for new users on the platform. This generates more active users for Elrond's ecosystem, which in turn increases the demand for EGLD tokens. Our analysts believe that the project is well-positioned for another explosive growth, similar to what we described in our previous report: Elrond surpassed our original price estimate by 750%.
