Helium Coin is Not a Stock. So What is HNT?
In today’s era of 140 characters or less, people think a single-sentence critique is a sufficient way to challenge someone else’s thesis. “Boy, that didn’t age well,” they’ll say. If they completely disagree with everything you said, you’ll get a similar intellectually lazy response. “You’re gaslighting everyone,” or the classic “okay boomer.” The latter happens to be a favorite admonition of the crypto cult, a group of people who see cryptocurrencies as only going upwards, and whose vocabulary lacks the phrase “intrinsic value.”
Crypto “thought leaders” are sinking deeper and deeper into the mire, refusing to simplify the topic for the rest of the class who “just doesn’t understand Web 3.0.” Instead, they obfuscate things behind more layers of drivel. From one of the biggest advocates of the “creator economy:”
Crypto, as mentioned in both pieces, can be viewed as a techno-populist movement to push for reform against centralized incumbents that wield monopsony power. Optimizing for user ownership, autonomy, and enfranchisement is how we resolve this legitimacy crisis.
That’s great you went to Hahvud, but can you tone it down a bit for the commoners? It’s hard to decipher anything useful from that babble, except that this thought leader has become detached from the investment thesis. We’re not investing in companies because we believe the working class isn’t being treated fairly and that urgently needs to be corrected per the ruminations of Karl Marx, we’re investing to show a return on das kapital we worked so hard to accumulate. Period.
One thing you learn very quickly as an investor is how easily you can be proven wrong. That’s why it’s important to never outright dismiss even the most superficial criticisms. You constantly need to revisit your assumptions to make sure things haven’t changed. When someone said our article on Helium “hadn’t aged well,” we decided it was time for a second look.
What is HNT?
A few years ago, we published a piece titled Helium – Solving the IoT Connectivity Problem. The most notable piece of news since then was probably Mr. Musk’s move into IoT, something we covered in a piece titled SpaceX Takes on the Industrial Internet of Things. As for Helium, things would appear to be taking off based on their original value proposition which was:
- Sell an IoT connectivity device for hundreds of dollars
- Reward the people who operate these devices so they are incented to buy them in the first place and continue operating them
- Allow IoT developers access to this connectivity which only requires 50 to 100 devices per city for complete network coverage
Here’s our conclusion from several years ago:
If we shell out $495 dollars for a device, what’s the payback period? Until we start seeing some information trickle in about how beneficial it is to operate these devices, how can we tell how strong of an incentive this is? While we wait and wonder, others aren’t so hesitant. Helium sold out of their devices for their coming launch in Austin and the Helium Network U.S. nationwide roll out is scheduled to happen Q4 2019.
A key piece of missing information was what sort of reward device operators were expected to receive. That information is now known. The reward is a cryptocurrency called Helium, and the price of that cryptocurrency has taken off.
In the past 16 months, the reward for operating a Helium hardware device (mining Helium) has increased +7,890% giving the “market cap” of this token (circulating supply of coins X price of coins) a value of $2.2 billion. No, that’s not the value of the company called Helium we wrote about. It’s the value of a token propped up by
greater fools cryptocurrency speculators. You may disagree with that, but you only have to look around to see the blind mania driving the price of cryptocurrencies like Shiba Inu Coin (market cap $9.8 billion), a token that’s meant to mimic Dogecoin (market cap $30.5 billion), a cryptocurrency that’s literally a running joke.
How many of these Robinhood weekday warriors driving meme stocks to the moon actually understand the underlying businesses they’re investing in? How many holders of Helium understand the underlying business it supports? This is an important point of contention. It appears that the Helium coin exists solely as a reward mechanism for miners, but derives its value from speculators.
If business models like software-as-a–service (SaaS) are ascribed a market premium for their simplicity, then complex business models should be discounted. If that’s true, then Helium should be at least half off. Trying to wade through all the documentation that accompanies this platform is no simple task. Here, they describe what happens when the need for mining this $2.2 billion coin simply stops 50 years from now.
Using Net Emissions, the blockchain would monitor how many HNT were burnt for Data Credits in a given epoch and add them to the number of HNT to be minted that epoch. For example, if 10 HNT were burned for Data Credits in an epoch, the system would mint 10 more HNT than were expected in that given epoch.Credit: Helium
Enough already lads. Let’s get back to basics. How does the value of the HNT token relate to the value of Helium as a company, other than as a reward for people who operate Helium hardware devices? All this “passive income” people are being promised will quickly vanish if the price of this token falls as sharply as it has risen.
The People’s Network
As with most cryptocurrency projects, there’s an element of “us against the man” marketing. Now labeled “the people’s network,” Helium has grown as fast as one would expect when rewards for adoption increase by +7,890%. Excitement is in the air. There is no longer one device provided by Helium, the company. There are now more than a dozen devices you can buy from various vendors and hundreds of YouTube videos comparing them, including the use of additional hardware like antennas.
In other words, things have become far more complex since the last time we looked. And complexity equals more risk for investors, not to mention the end consumer. Helium says, “please do your own research as a vendor listing does not equal endorsement or recommendation.” Will a proper industrial IoT enterprise implementation architect feel comfortable sending data to all these different devices which aren’t endorsed by the platform provider? (More on this in a bit.) Speaking of which, this brings up a very obvious question. Just how many customers are paying to use this network? We’ve seen plenty of “build it and they will come” business models fail miserably. Attention seems to be centered more around mining the rapidly appreciating Helium token and less on how useful the network is proving to be for any Fortune 1000 reference customer.
A section of the Helium website titled “ecosystem” lets one filter on users of the platform. These are customers who will pay for access to this decentralized network and create an actual business around it. We’re not seeing a lot of notable names in that list, nor any detail as to actual usage. However, the Helium blog talks about signing “roaming” agreements where other networks can use the helium network seamlessly for solutions that are already deployed. That’s great, but still doesn’t prove us with any assurance that meaningful revenues are being produced from usage of the Helium decentralized wireless network. That missing data point keeps us from knowing how much traction Helium the company is realizing.
The Good, the Bad, and The Ugly
As the HNT price increases, more people buy Helium tokens thinking that price appreciation translates into an asset worth owning. In that respect, speculators are helping the network grow faster than it ever could otherwise. The use of a cryptocurrency automagically solves the problem of miners being given too many rewards today.
As more miners come online, the rewards will decrease as they’re shared among more people. Once the payback period for a mining rig reaches a certain duration – perhaps measured in months – people won’t want to wait that long to be paid back for the device. The company could eventually resort to giving the devices away, which would further increase coverage. In principle, this sounds like a good business model. But there are things that can go terribly wrong if two fundamental assumptions prove to be false:
- The underlying technology must be foolproof and secure in every respect. None of this “someone ran away with $100 million” stuff.
- The HNT token must maintain a minimum monetary value. We don’t know what that value is, but right now it’s being assigned by speculators.
One question we have which we can’t find an answer to surrounds the need for the cryptocurrency in the longer term. It must be possible to operate this business model without the need for a volatile cryptocurrency to underlie the entire operation. Maybe that’s where they’re going with this. The cryptocurrency simply serves to accelerate adoption. Even if HNT ends up crashing, they can just pay a fixed rate of compensation to anyone with a device based on the simple measure of uptime. Again, we’re left wondering about the role of HNT in this whole thing aside from getting hundreds of thousands of people to quickly build a decentralized network that needs to generate a profit once the token excitement runs out.
It remains to be seen how well the Helium utility token ages. A good scenario would be that it stabilizes at a certain price point that assures an equilibrium across all constituents. IoT providers will have reliable connectivity at a fair price, and the providers of that decentralized wireless network are incented to continue providing it. Then, when Starlink is fully operational, let’s hope Helium’s decentralized network doesn’t get displaced by Sir Elon of Musk. The entire shebang may be encompassed by a great deal of uncertainty, but one thing is for sure. Only time will tell how well Helium ages.
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