SherpaX
Last updated: May 24th, 2021 11:45 PM CDT
The Technology
SherpaX is the testing ground for ChainX and is named after the sherpas that guide people through difficult climbing terrain. It represents an experimental ecosystem where layer-2 Bitcoin solutions can be tested. Layer-2 of Bitcoin is what is called “the lightning network” which utilizes a chain of light-nodes to facilitate fast and private BTC transactions. Essentially, ChainX and SherpaX are striving to build Bitcoin’s largest layer-2 platform where users can interact with many different blockchains. This is done by “crossing” blockchain assets into ChainX and SherpaX where synthetic X-tokens are minted and utilized.
What makes SherpaX and ChainX different from other PoS ecosystems is that it is tied to Bitcoin mining instead of being a self-sustained game of stake incentives. The Bitcoin that is mined through this process is funneled into the protocol which generates PCX and KSX tokens. The competitive edge with ChainX and SherpaX is its network of node operators leasing their hardware for mining effectively creating a decentralized supercomputer. The amount of computation for the network is proportional to the assets that back a node; PCX and KSX represent the largest amount of stake-mining power but users can stake other assets that represent different computational weights. The ecosystem regulates staking (i.e. computational resources) through naturally occurring arbitrage just like any other PoS ecosystem; it’s game theory in action!
The Bitcoin network alone cannot communicate with other blockchains to facilitate smart contracts but with ChainX and SherpaX all sorts of assets will be able to interact with Bitcoin. The ecosystem regulates these interactions providing an expansion of the Bitcoin network into the Polkadot and Kusama relay chains. Simply put, SherpaX is Kusama’s foot-in with Bitcoin.
The KSX Token
As I mentioned before, KSX will be the highest weighted stake-mining asset in the SherpaX ecosystem. Users will be able to stake KSX for rewards generated by node operators; the more that is staked the larger the computational power of the network. There are no mentions of KSX’s computational weight within the ecosystem but PCX (ChainX’s native token) mentions a 1:9 computational ratio of interchain assets to PCX. This ratio is an upper limit to ensure that PCX staking is responsible for at least 90% of the network’s computational power. KSX might adopt this ratio or it might even experiment with different ratios to see how it affects the ecosystem; information on these KSX specifics is either non-existent or so hard to find that I missed it in my research.
Currently, PCX is live and being traded at ~$7. ChainX has been operating for years generating X-BTC, their synthetic BTC token. ChainX plans on funneling X-BTC into SherpaX once a parachain slot is acquired. This is done through something called the “Spider route” which is a mathematical protocol that facilitates the efficient movement of assets across a network. This injection of funds will kick off SherpaX and ensure a financially backed ecosystem.
In addition to staking, holders of KSX will be able to use it in governance to guide the direction of SherpaX. The intention is to give complete governing control to the holders KSX. As it stands now, inflation is set to 10% per year with no maximum supply of KSX.
The Crowdloan Reward
- Percent of total supply depends on winning bid (early publications mentioned ~23% of initial supply)
- 10 KSX:1 KSM ratio plus lockup bonus
- 48 week long lease
- 100% of reward is locked until the end of the lease
- Auction gap bonus for support beyond the first parachain auction (in case they lose the first auction)
SherpaX has some interesting incentives for their crowdloaners especially for those who continue to lock their KSM in the case that SherpaX loses their first bid. Let’s see some potential outcomes:
Keep in mind that these are just examples and are not indicative to what prices will actually do. SherpaX also has a bonus based on the amount you bond toward their project but I did not include it in the trade-off analysis because the lowest bonus comes from bonding at least 50 KSM. Not to say my readers don’t have that kind of money, but I would be willing to assume most of them do not.
Notice that the proportion of the total supply going to crowdloaners depends on SherpaX’s winning bid. This is because they have promised a ratio reward instead of a lump sum payment. While knowing the ratio is nice for planning I would much rather know what proportion of the total supply is going to crowdloaners. Also, if for whatever reason SherpaX wins by an ungodly landslide, crowdloaners would get a proportion of KSX that might break the economics behind the token. The team has not said anything about hitting an upper-bound but the natural limit to the reward is 40% of the total supply. It is also not clear what will happen to the extra KSX if the winning bid implies the possibility of a higher token ratio.
Overall Evaluation
Risk: Medium
Reward: Medium
Novelty: Medium
Utility: High
I don’t know if it is a difference in culture or if there is something happening with translations but I personally do not like how SherpaX publishes official documentation. Everything the team puts out appears to be bare minimum; they do not attempt to thoroughly explain important information pertaining to node operation or parachain strategy and rewards. Their roadmap is even lacking detail. However, they have a proven track record and seem to have really good intentions behind their project.
The reward is quite generous especially if they are willing to give up to 40% of their initial supply to crowdloaners. They also have proven token value with PCX which earns this project a medium reward rating.
The novelty of this project is something I really appreciate; in a world of smart contracts and alt-coins not many people are considering Bitcoin for their projects. I am glad that there is a team out there dedicated to bringing the Bitcoin network to the relay chain. Improving the Bitcoin lightning network will meet a huge demand for interchain communication which is why I believe this novel project is also highly useful.
