Step Data Insights: GenesysGo
Step Data Insights: GenesysGo
A data-first overview and summary of the GenesysGo and Shadow ecosystem.
Advisory
This article is not financial advice and is meant to be treated as an informative piece. Always do your own research before investing or trading any cryptocurrencies.
Introduction
It is a fact that the entire crypto community, especially the Solana ecosystem, is going through a turbulent period due to the recent insolvency issues of FTX and Alameda Research. However, it is important to keep in mind that crypto is high-risk and volatile. At times like these, it will be beneficial for investors to ignore the noise and focus on the projects that are dedicated to building.
In this week's volume of the Step Data Insights newsletter, we will be evaluating one of the earlier projects in the Solana ecosystem. GenesysGo, launched in April 2021, is well known in the Solana ecosystem with its NFT collection that generated a total volume of 421K SOL and its token $SHDW which has a market cap of $12.3M at the time of writing.
GenesysGo originated as the infrastructure provider of RPC and Validator services on the Solana network. In the words of Frank, the co-founder of Genesysgo, RPC servers are the backbone of the Solana blockchain and arguably the hardest working piece of hardware on the chain. For those who haven't heard before, let’s go over what an RPC network is.
What is an RPC Network?
RPC stands for ‘remote procedure call’ which is a term used in distributed computing systems. RPCs could be classified as a type of API (application programming interface) that allows computer programs to communicate with each other.
In order to interact with any blockchain, users need to send a request to the chain from different kinds of resources (this could be terminals, websites, wallets, etc). This request happens in the form of a transaction with specific parameters. Those transactions do not directly interact with the blockchain. Instead, they go through an RPC. RPCs make sure that the transaction is sent to the blockchain and stored permanently on the next available block. In this context, RPCs act as users’ gateway to the blockchain.
Due to structural differences, the desired qualifications for RPC networks vary across distinct blockchains. Solana has a very high processing capacity compared to other existing chains. At its peak, the blockchain had a daily average of 6,193 transactions per second (TPS). Due to its large transaction throughput capacity, the workload of RPC networks on Solana blockchain is much higher than others. RPC servers that are powered by leading hosting companies such as AWS, Hertzner, and Google Cloud often struggle to handle Solana’s throughput requirements. For this reason, existing RPC network providers who have built their foundations on other blockchains need to redesign their architecture completely if they intend to move to Solana. This would not be an efficient business decision for most of the existing RPC network providers. Thus, the need for RPC server networks that are specifically designed to handle Solana's high processing capacity emerges. This is where GenesysGo’s Shadow Protocol steps in.
Shadow Protocol
Shadow Protocol is the broad brand name of the decentralized RPC network, decentralized data storage, decentralized cloud, and all other things that GenesysGo has been building. The protocol consists of 3 pillars being Shadow Network, Shadow Drive, and Shadow Cloud. Shadow Protocol also has its own native token $SHDW which is backed by all of the products developed by GenesysGo.
Shadow Network
As mentioned in the previous section, building RPC servers on Solana is exclusively hard due to its sheer throughput capacity. Being the main and first product of Shadow Protocol, Shadow Network is the first decentralized RPC server network with a tailored architecture that is able to handle Solana's performance needs. Shadow Network powers a significant portion of the traffic on Solana at present. Through their RPC network, GenesysGo has been allowing for the creation of hundreds of projects to be built in the Solana ecosystem since April 2021. The user traffic of their network has been growing progressively since then. There was a time when, as the founders put it, the network was powering more than half of all traffic on the blockchain.
There are other things GenesysGo does differently that set them apart from other RPC network server providers besides Shadow Network’s tailored architecture designed for Solana. Solana protocol does not have a proper reward mechanism for those who run RPCs. RPC providers earn nothing by simply providing. Considering the demanding hardware requirements due to Solana’s high performance, the number of RPC providers on Solana is limited. GenesysGo resolved this issue by rewarding community members who run RPC nodes to contribute to the network's processing power (who are called Shadow Operators) with their native token, $SHDW.
GenesysGo had an interesting go-to-market strategy for Shadow Network. The team announced that they will launch their own NFT collection in November 2021, which we will evaluate later in detail. They have promised that if all of their NFTs were minted within the first 24 hours, they would provide the entire Solana ecosystem with full RPC network access at no cost to show that an NFT collection could provide a real meaningful value to the community. The collection sold out within the first 24 hours, and GenesysGo started their no-cost RPC network on 3 November 2021. The team kept providing a free public RPC network which was being funded by the creator royalty earnings of their NFT collection for 10 months.
However, recent developments regarding the creator royalties in the Solana NFT ecosystem that we have talked about in the previous volume of Step Data Insights newsletter have plummeted the protocol’s royalty income. As a result, GenesysGo decided to make a transition to a paid RPC network model. Shadow Network currently offers three tiers of RPC with different price options where 100% of the payments go directly to independent Shadow Operators powering the RPCs. Now that the revenue from Shadow Network is being fully distributed to Shadow Operators, operators powering the network no longer need to be paid in $SHDW. This allows Shadow Operators to have predictable revenues as their rewards are not affected by market volatility. However, the team does not give up on the utility of their native token $SHDW with the new business model they have transitioned to. Shadow Operators need to stake $SHDW to be able to power the network and generate revenue for themselves. This ensures that the circulating amount of $SHDW decreases as the protocol and the number of Shadow Operators grow.
Shadow Drive
Shadow Drive is an on-chain decentralized data storage which is specifically designed to address Solana’s growing need for an ecosystem native storage solution. As of last month, there are 3.5 terabytes of data stored in Shadow Drive by Solana developers. While Shadow Drive has an optimized architecture to store on-chain data on the Solana blockchain, it still retains the ability to become a polychain service in the future.
It is true that data storage services have a natural synergy with blockchain technology due to its trustless, transparent, and immutable nature. Shadow Drive combines an open source storage software called Ceph with the Solana’s Proof of History consensus mechanism. This allows Shadow Drive to have massive scalability and data integrity while leveraging the previously mentioned benefits of blockchain technology.
While Shadow Drive has its own perks, existing data storage solutions fall short from a couple of aspects. The most commonly used storage solution providers are either non-censorship resistant, incapable of handling Solana’s demanding throughput, or unable to store data permanently. This further emphasizes the value of Shadow Drive’s potential.
Shadow Drive is backed by Shadow Protocol’s native token. In order to upload data to Shadow Drive, users are required to pay a small fee in terms of $SHDW. The smart contract sends that $SHDW to the Shadow Operators as emissions for running nodes to provide storage.
Storing data in Shadow Drive is both fast and affordable. For example, a request to create a 1GB storage account permanently costs 0.25 $SHDW, which is equivalent to ~$0.025 at the time of writing.
The team also has some impressive news about Shadow Drive. Frank, the co-founder of GenesysGo, discloses that they are partnering with the Solana Mobile team. Solana Saga is Solana's hot new phone. According to the deal, Saga holders will be able to commit their phone's storage capacity to power the expansion of Shadow Drive to generate revenue. In order to do that, Saga users will be required to lock up $SHDW on their phone in order to signal how much of their phone's storage they want to provide to the network (i.e. 1GB would require a Saga holder to lock up 10 SHDW). That way, the circulating supply of $SHDW will get more scarce as Saga grows in popularity.
Shadow Cloud
Shadow Cloud is an innovative product to be launched which is designed to revolutionize the cloud computing industry. By combining distributed ledger technologies with cloud management platforms, the GenesysGo team is pursuing to build a decentralized cloud. The team announced that they are powering Shadow Cloud with their new invention DAGGER, which is a decentralized cloud orchestration protocol.
Although not much information has been published about them so far, the team has already started to give hints about Shadow Cloud and DAGGER. Curiosity is also growing among the community, who are intimately familiar with what GenesysGo has built before.
Frank has huge expectations from Shadow Cloud, which are directly tied to Shadow Protocol’s future success and to the value of $SHDW. He discloses that their ultimate goal is to onboard as many Web2 enterprises to use their decentralized cloud.
Shadowy Super Coder DAO
GenesysGo launched an NFT collection on 3rd of November with a supply of 10,000 and mint price of 2.5 SOL named Shadowy Super Coder (SSC). Considering that at the time of the SSC’s mint GenesysGo had less than 4,000 Twitter followers and less than 2,000 Discord members while SOL was very close to its ATHs, the fact that SSC got sold out in 9 hours is pretty impressive. The founding team attributes this to their never-ending focus on delivering real products, and to the tie of the NFTs with the IDO of GenesysGo’s utility token. The team’s utility-driven approach might be the reason why SSC is one of the top collections in the Solana NFT ecosystem (currently ranked 5 by total floor value).
The SSC DAO is meant to be the ultimate custodian of Shadow Protocol. Currently, a central council undertakes most of the decision making process of Shadow Protocol. However, both the team and the community expects the SSC DAO to have a much more crucial influence over the protocol in the future. Accordingly, 50% of the token emissions are meant to be distributed to NFT Holders. The percentage of tokens allocated to NFT Holders is now even greater considering that the team has burnt a portion of the supply ever since.
This could be why SSC Holders are less inclined to list their NFTs compared to other NFT projects in the Solana Ecosystem. The listed count of SSC has been extremely low since launch. Even now, there are only 43 NFTs listed across the marketplaces, which is about 0.43% of the total supply. Considering this information, it is very evident that the holders are convinced of the team’s plans and vision. The stability of the listed NFT count also shows that holders’ behaviors are not influenced by external factors such as the recent crypto crash.
So, what are the holders doing with their NFTs? Looking at the on-chain data, we can see that there are 9,581 staked SSC NFTs. The fact that so many people are staking their NFTs to receive their token emissions emphasizes the community’s interest in the token.
About the SSC community, all the clues so far show us that holders are actually more concerned with utility rather than aesthetics. Since the token emissions do not change according to the properties and rarity of the NFTs, it would not be wrong to think that the SSC community will not have an obvious preference over traits. The price-rarity distribution of the listed NFTs confirms this, as we can see that NFT prices are uniformly distributed regardless of their rarities.
Tokenomics
GenesysGo raised funds for the expansion of Shadow Protocol through an IDO on Jan 3, 2022. The IDO pool consisted of 15% of the supply, which is 30M tokens. The IDO started with a floor price of $0.50 per token, and the price per token rose based on the funds contributed to the IDO pool. The team has raised approximately $52M, which sets the IDO price per token at $1.73.
The maximum supply of $SHDW is capped at 200M tokens, and half of the supply is reserved for NFT holder daily emissions. For SSC holders who stake their NFTs, $SHDW is vested and can be claimed on a daily basis. Holders who lock their NFTs for more than 12 months will receive bonus emissions as 15% of the supply is reserved for bonus emissions to long term holders.
The reserve for Shadow Operators who run nodes to power the Shadow Protocol was also capped at 10% of the total supply, which had the same percentage as the strategic reserve for the team. However, as previously mentioned, the team has decided that switching to a subscription-based business model where clients pay in USD would be the right choice for the sustainability of the protocol and $SHDW. Accordingly, the team has burnt the $SHDW reserve for Shadow Operation emissions forever. Owing to the success of the IDO, the team decided that they will not need the allocation for strategic reserve and they also decided to burn the strategic reserve. Taking all tokens burnt into account, currently $SHDW has a total supply of ~169M tokens. This leaves all of the remaining supply to be vested to NFT holders only.
Since the allocations for Shadow Operator emissions and strategic reserve are gone, what utility will $SHDW have? The founders have repeatedly made it clear that $SHDW is meant to be fully utility-driven and is expected to grow along with the Shadow Protocol. In the current model, $SHDW is used as a collateral that operators will have to put forward and lock up in order to run nodes and generate income. This is intended to increase the scarcity of $SHDW and make it more valuable as the number of Shadow Operators grows in time. In light of the team's recent partnership with Solana Saga, it's possible that $SHDW will become scarce in the future. Lastly, we should mention that the team is planning to institute a $SHDW buyback program as their revenue streams get bolstered and come in maturity.
Conclusion
As being one of the earlier projects that have launched on Solana, GenesysGo has already shipped products that undeniably contributed to the growth of Solana ecosystem. The team, which has proven themselves with what they have delivered and their intentions so far, has further ambitions. Securing huge capital raise which was driven by demand and generating a revenue stream from existing products, GenesysGo team seems to have prepared themselves to survive and thrive under volatile market situations.
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Author: @levvercetti
Excellent write-up
Great explanation!