The Bullish Case for BTP
As we’re merely months away from the official launch of ICON’s premiere technology, the Blockchain Transfer Protocol (BTP), I wanted to take a moment to reflect on what sort of actual impact that BTP will have on the ICX token, and how it could be ICON’s greatest weapon against inflation.
When designing BTP, the ICON team decided to take into consideration how ICX holders would directly benefit from BTP.
Of course, on its own, the existence of BTP should increase the overall number of transactions on the ICON network. At the most basic level, this is what everyone hopes for when the idea of “adoption” is mentioned. More people using the chain means more people paying transaction fees meaning more people need to purchase the underlying token in order to use the network. And of course, people buying means the price goes up.
If BTP enables more people to utilize the ICON network, then of course that’s good.
But even beyond that, BTP is creating a sort of blockchain infrastructure that could potentially serve as the pipes for the blockchain industry as a whole. If we are to believe (as it has been predicted) that ICON will soon connect more chains than any other blockchain, then transactions may not occur within ICON DApps (although I do believe BTP will bring in an increased amount of traffic and attention), but rather BTP would essentially run through ICON. In other words, ICON could potenteally serve as a sort of hub of all interoperable blockchain activity.
This is where BTP’s economic design comes into play.
Here’s how the ICON Foundation describes the proposed system:
When somebody transfers tokens through BTP, there will be a 0.20% fee charged to the user and sent to the Fee Aggregation contract. There will also be a minimum fee to block spamming of small transactions. All fees will be aggregated into a smart contract and auctioned off to ICX holders. For other types of services besides transferring tokens (e.g. NFT transfer where a 0.20% fee can’t work), the Service Contract developer may use their own fee system. More details on how to develop your own service will be provided as BTP governance processes are ironed out. It will likely be an off-chain IIP process.
The end result of this process is discounted token purchases for ICX holders. For example, let’s say the Fee Aggregation contract holds 1 ETH from fees, and on the market it’s 900 ICX for 1 ETH. ICX holders can start placing bids for that 1 ETH, and maybe the winning bid will be 800 ICX for the 1 ETH. This creates value for ICX, as it will be a token used to purchase other tokens at a discount. And this will be for all assets connected to ICON through BTP.
The ICX proceeds earned from auctioning off fees will be sent to the CPS to be reinvested into the network. When the CPS hits its cap, additional contributions get burned. So BTP will either be adding resources to ICON growth initiatives or burning ICX.
Let’s walk through what this means. We will start with a comparable system that is live today: RenVM.
If you’re unfamiliar with RenVM, it’s an interoperability solution that essentially allows you to lock your BTC in their contract, and mint a wrapped version of BTC on the Ethereum network.
While it’s not at the level of frictionless interoperability that ICON is seeking, it still gives a decent analogy of how much current volume moves through such a system.
The past several days, the total volume of the RenVM contracts has been around $20,000,000.
Let’s start by using that number as a comparison.
If $20,000,000 of volume flowed through BTP in a given day, based on how the auction system works, that means about $40,000 would be collected in fees.
Now, these fees (which would be comprised of a number of different assets) are placed up for auction, with the only mechanism available to purchase them being ICX.
If ICX is $1, that means 40,000 ICX would be burned per day (assuming we’ve reached the point where the CPS is full). It also means there’s potentially 40,000 ICX worth of buying pressure each day.
(Note: These volume figures are denominated in USD. So obviously, if the price of ICX were to increase, then fewer ICX will need to be burned. However, if the price of ICX increases, it’s likely that the crypto market as a whole has increased as well, meaning the amount of USD volume flowing through should be higher.)
For comparison purposes, when you factor the number of ICX transactions (and their corresponding fees), the amount of ICX burned is typically in the several hundreds per day.
So with the launch of BTP, we’ll potentially see the daily ICX burn increase by an approximate factor of 100 (again, assuming our volume is comparable to RenVM and the CPS is full at this point).
Now, I would argue that the volume that RenVM does is essentially a floor for what BTP can do (when you consider RenVM basically only operates within/adjacent to the Ethereum ecosystem, whereas BTP will operate much more broadly than that, along with the fact that BTP will function more seamlessly than RenVM).
What other possibilities are there?
Well, it’s hard to tell at this point.
But if you want to get more bold, let’s take a look at Ethereum.
According to The Block’s metrics, the Ethereum on-chain volume has been around $10 BILLION per day.
Now, we’re not going to see anywhere near that on BTP. But let’s say BTP was able to siphon off just 1% of that amount (and remember, BTP is going to operate on many chains!).
1% of $10 billion is $100 million.
With BTP’s 0.2% of fees, that means around $200,000 worth of ICX per day would be burned (again, assuming CPS is full at this point).
Again, with ICX at $1, that’s basically a 500x increase in the daily ICX burn.
Here’s where it gets really encouraging: the current ICX inflation per year is around 46,000,000 ICX (about 5.2% annually).
That’s a daily inflation rate of about 126,000 ICX per day.
That means if we ever get to 100m of daily BTP volume, ICX becomes deflationary, as we’d burn 74,000 more ICX per day than is generated.
But we don’t even need to get there. Based on these numbers, BTP needs to do about 60m per day of volume in order for ICX to become deflationary.
It’s hard to truly tell where our floor our ceiling could be when it comes to the amount of volume that BTP generates, so we’ll ultimately have to wait to see how it all plays out. In the meantime, I hope the breakdown above will give you a good understanding of how BTP activity translates into good things for the ICON network.
And in case you forgot, here’s what Scott Smiley said earlier this past Spring: “My goal is to have ICON connected to more blockchains than any other in the industry by the end of 2021.”