Cross-chain DeFi Hub of the IBC ecosystem

Neutron Investment Memo

Preface: The objective of this report is to determine if the NTRN token is a sound investment as a liquid token via an overview of the protocol’s fundamentals, market positioning, risks, and other factors that may affect future token price.

Executive Summary

• Neutron is well positioned to be the preeminent smart contract chain in the IBC ecosystem as well as the gateway for Cosmos via bridge connections to external ecosystems
• Neutron be offering settlement for Celestia rollups and can be viewed as a higher beta bet of $TIA given it’s positioned to interoperate between Ethereum, Celestia and Cosmos ecosystems
• Next gen DeFi hub via innovative primitives for LSDfi, MEV democratization, and ‘integrated’ cross-chain dApps, making it a premiere controller chain whereby users interact with dApps on external chains via IBC and Interchain Accounts
• Renowned investor base that will enhance thought leadership and distribution (Binance and Coinfund leads) along with a proven team for execution (ex. P2P and Lido team)
• Clear value accrual for NTRN–embedded revenue share via non-NTRN tx fees, MEV bids, select dApp revenue share distributed to NTRN dao treasury
• Hard money dynamics–deflationary via 75% of network fees denominated in NTRN are permanently burnt, no inflation given shared security and a hard cap of 1B total supply, high velocity as the main transactional currency in dApps (e.g., money market collateral, NFT price denominations)

Fundamentals of Neutron

1st smart contract chain to use Replicated Security of the Cosmos Hub

Neutron stands out as a highly secure cross-chain smart-contract platform that merges the robust security associated with a top 10 blockchain by staked capital, with cutting-edge cross-chain infrastructure. Smart contract applications and rollapps built on Neutron are able to scale across a growing network of 50+ interconnected networks via IBC (both Cosmos and EVM chains).

Stats: currently the highest IBC volume for a generalized SC chain and well positioned to claim the top spot in the near future. https://mapofzones.com/zones?columnKey=ibcVolume&period=30d

Alignment with Cosmos Hub and value accrual back to ATOM

The Cosmos Hub is able to remain credibly neutral whereby smart contract computations are offloaded to the Neutron Hub. By launching as the first consumer chain within the Replicated Security framework, Neutron achieved the following:

• Attained the highest level of security in the Cosmos ecosystem right from its launch date
• Established immediate alignment of incentives with the ATOM community by sharing 25% of transaction fees and MEV (Miner Extractable Value) revenue with the Cosmos Hub
• Positioned itself as the preeminent permissionless smart contract chain of the Cosmos that will work in synergy with the rest of the IBC ecosystem

Neutron to demonstrate the power and sophistication of Cosmos modules IBC, Interchain Accounts and Interchain Queries

The Interchain Transactions module oversees the generation of IBC Accounts and the execution of interchain transactions for CosmWasm smart contracts. The existing implementation enables a smart contract to register multiple interchain accounts on a remote zone using an existing IBC connection and execute transactions with multiple messages on a remote zone. Some examples include cross-chain liquid staking, swaps, and leveraged yield strategies.

Interchain Transaction Example: Interchain Lido

Interchain Lido is an interchain transaction application whereby users can deposit any IBC ecosystem asset into a Neutron smart contract, which is then automatically transported and staked to the native chain; the user will receive the liquid staking derivative on Neutron to then use in various DeFi apps, unlocking untapped liquidity in Cosmos and while enhancing UX in the process.

Interchain Transaction: Cross-chain Swap/Dynamic Pool Rebalancing

A host of unique cross-chain transactions are enabled by querying external network states via Interchain Queries (ICQ) for informing actions on the Neutron network, making it a prominent controller chain in Cosmos.

• Airdrops: Distribute tokens based on remote conditions such as staking balances or trading activity
• Oracle: Retrieve price feeds for exotic assets not supported by traditional web3 oracles by query remote dexes
• Membership: Provide privileged access to a DAO or dApp to holders of specific NFTs on Stargaze or other remote networks.

Ecosystem

Neutron launched a grant program allocating 20M NTRN tokens (2% of supply) for funding innovative dApps on the network. Some notable dApps with strong existing user bases and networks effects are also building on the Neutron, including (non-exhaustive):

• Lido (Liquid staking derivatives platform)
• Mars Protocol (cross-chain money market)
• Catalyst (cross-chain swaps between Neutron and other Catalyst-enabled chains)
• Pulsar Finance (cross-chain portfolio management platform)
• Amulet Finance (self-repaying loans)
• Duality (hybrid AMM — order book)
• Astroport (AMM)
• Shogun (intent-centric cross-chain market making protocol)

NTRN Token

Supply dynamics & distribution

Token Distribution

Source: cryptorank.io

Vesting Schedule

Source: cryptorank.io

No notable unlocks till June 2024 for major stakeholders including the team, investors, and advisors. Monthly unlocks allocated to liquidity bootstrapping will help increase liquidity depth, enable whales and institutional investors to bid up the token with size.

Utility

• NTRN is one of the assets used to power dApps on the network as a gas currency
• Governance participation via bonding to voting vaults
• NTRN will be a base DeFi asset, used to pair with tokens in liquidity pools and yield vaults, used as collateral for money markets, and as a payment currency for DAO on the network, all serving to increase its velocity of money

Value Accrual

Transaction fees, bids from mev-tendermint, and any other flow of tokens (e.g., dApp revenue-share with the network) can be collected by the Distribution Module, which distributes them according to preset parameters. As a result, any stream of tokens to the Distribution Module will be partly shared with the Cosmos Hub, while the rest is either burnt (if NTRN) or sent to the DAO reserves for funding network growth and operations. NTRN tokens burnt make NTRN a deflationary asset. To summarize, protocol revenue (in the form network transaction, MEV, and dApp revenue share) is distributed as follows:

• 25% of the collected tokens are sent to the Hub as a Replicated Security payment
• The remaining NTRN tokens are burnt
• Other denominations are sent to the DAO’s Reserve

Thesis on NTRN as a Long Term Investment

The way I view the NTRN token is it powers the network which seeks to promote true cross-chain dApps and therefore next-gen cross-chain transactions via IBC, Interchain accounts, and Interchain queries. The approach Neutron takes is different from other chains which tend to focus on centering liquidity on their own chain and thus have not had much of a use for interchain accounts in a DeFi context. Neutron is fundamentally different in this regard as it strives to exercise the full potential of advanced Cosmos modules, where any developer can quickly spin up a cross-chain dApp in a permissionless manner while also using the large security budget of the Cosmos Hub.

Given its token dynamics of no inflation, hard capped supply, and enshrined token burning mechanism rendering it a deflationary asset, NTRN has the potential to quickly become the hardest money asset in the interchain. Neutron is also becoming a prominent piece in the modular ecosystem as it will offer itself as a settlement layer for Celestia rollups, while also interoperating with Ethereum and its L2s and the rest of Cosmos.

Catalysts for Token Price

• Competent team with proven ability to execute–founders successfully built Lido on Terra
• Strong investor base that can accelerate distribution and thought leadership; Neutron was co-led by Binance and CoinFund
• Listed on most major CEXs, including Binance
• Well positioned to be the epicenter of Cosmos DeFi and overtake ecosystem incumbents via promotion of cross-chain dApps, innovative DeFi primitives in yield and liquid staking (Lido for the interchain), primary hub of external large cap LSD assets such as wstETH.
• No major unlocks for 6+ months for any stakeholder, while liquidity profile of the token on-chain and CEXs will grow more favorable as unlocks for liquidity bootstrapping occur on a monthly basis till November 2024
• Neutron will be offering settlement for Celestia rollups as well as one of the main bridge partners for $TIA liquidity and dovetails as a prominent piece within the modular landscape
• Innovative oracle solution that leverages vote extensions to allow validators to attach price feed data to their votes. dApps can leverage the in-protocol oracle to ensure they rely on price data which the validator set has come to consensus over; this enables use cases such as:
• Sports betting: retrieve off-chain sports data to run trust-minimized on-chain betting applications
• Perps: list exotic assets by retrieving prices in consensus

Comps Analysis

NTRN is significantly undervalued based on its fundamental positioning within Cosmos DeFi and the advanced interchain composability modules it offers for smart contract dApps. The token is the cheapest out of all the other comparable major assets in Cosmos, and will not only rerate but likely outperform other majors in the ecosystem. I predict a minimum $5 price per token by Q1 2024 if the broader macro environment remains favorable for digital assets.

Risks

Longer term risks

• Ethereum main net and L2s continue to dominate and execute faster than Cosmos and other modular ecosystems
• Alternative monolithic chains such as Solana garner more attention and traction; monolithic scaling innovations win out vs the app-chain thesis
• Cosmos Hub governance/security risk (e.g. ATOM goes to zero or kicks Neutron off of ICS)

Shorter term risks:

• Broader macro environment unfavorable for digital assets, and liquidity dries up or concentrates in BTC and ETH
• Given Neutron is pioneering next-level cross-chain transactions, the network and dApps may be presented with unforeseen execution challenges in the beginning

Additional Sources:

https://forum.neutron.org/t/enshrined-infra-for-neutron-dapps/222

https://docs.neutron.org/neutron/modules/interchain-txs/overview/

https://genesis.neutron.org/?p=120

https://longhashvc.medium.com/why-we-invested-in-neutron-855b5af3a711

Disclaimer：

1. This article is reprinted from [@rpatel1443/neutron-the-premiere-controller-chain-d8510c8ed425">medium]. All copyrights belong to the original author [Rpatel]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
3. Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.