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When analyzing a project, the Eden Labs team looks for projects that do something unique or do it much better than its competition. Quality projects should be able to explain complex ideas simplified to their audience. In addition, projects that rely heavily on a broad user base have to have an incentive for the first ten people to join the network before a million users is ever achievable. No project will succeed if it requires a million participants to bring any value to its users.
VeChain is a platform designed to enable enterprise-level scalability. It utilizes blockchain technology for a range of use-cases but focuses primarily on IoT, supply chain, and data management. VeChain realizes that true decentralization inherently requires tradeoffs; as such, VeChain looks to minimize the tradeoffs. Its consensus mechanism, “Proof-of-Authority,” designates 101 masternodes to approve transactions. All masternodes, called “Authority Masternodes,” must be vetted through a KYC process by the VeChain Foundation before they can participate in consensus. VeChain utilizes a dual token system, supporting both VET and VTHO. VET acts as the main token for smart contract transactions and governance. VTHO is a variable supply token used to pay for transaction fees. Many of VeChain’s decisions are tailored for large enterprises. They have high profile partnerships with large companies and have taken a friendly stance towards integrating with regulation.
Large enterprises have increasingly become interested in distributed ledger technology. VeChain has taken an enterprise-friendly approach focused on the supply chain and IoT market. The supply chain is one area that blockchain has clear product-market fit. Having an immutable blockchain that can track the journey of a product and all its different touchpoints could massively efficientize supply chains. It would be easier to determine the provenance of food, luxury goods, pharmaceuticals, and many other products. However, DLT platforms today have scalability and security issues that prevent their application from accommodating enterprise scale uses. There is also regulatory uncertainty surrounding DLTs that makes businesses hesitant. VeChain has made an effort to bridge these gaps. They have designed their blockchain to be highly scalable, with a focus on regulatory compliance. They also have a strong list of partnerships. This will allow them to tailor designs specifically for their partners and gain insight into the challenges facing current supply chains.
VeChain is an Ethereum fork that has been modified to accommodate business needs. For consensus, they use a “Proof-of-Authority” system that has a rotating group of 101 masternodes that secure the network. They utilize a dual token system as their economic model. Their main token, VET, represents the right to use the blockchain and is executable in smart contracts. It is used to partake in governance, consensus, and to passively generate VTHO. VTHO is used to pay for fees and represents the underlying cost of using the blockchain. To qualify for consensus, participants must first pass a KYC verification with final approval granted by the VeChain Foundation. General voting issues such as electing committee members or technical parameters are based on a combination of token balances and KYC status.
Tech Analysis –
VeChain is an Ethereum fork that uses the Ethereum Virtual Machine (EVM), with a modified consensus mechanism that allows for higher throughput. VeChain has a strong focus on governance and digital identification but is implemented in a centralized fashion. It uses a dual token system as its economic model, with the VET token acting as its store of value.
VeChain uses a novel governance hierarchy to drive decision making on VeChain. Sitting at the top are the stakeholders who have voting authority. Stakeholders’ voting power is based on the amount of tokens they control and whether they have passed a KYC verification and been approved by the VeChain Foundation. Stakeholders vote on a variety of issues, but the most important one is the election of Board of Steering Committee members.
The Board of Steering Committee is the governing body of the VeChain foundation. It sets the overall strategy and oversees the VeChain foundation. They are also in charge of selecting leads for each operational unit of the Foundation (Technical, Operational, PR, Regulation Committee, & Compensation). There is a two-year fixed term for each board member. The VeChain Foundation is a nonprofit entity responsible for the development and advancement of the VeChain ecosystem.
VeChain uses a Proof of Authority (POA) consensus mechanism for approving transactions and state on the protocol. There are 101 masternodes who, at a minimum, need 25M VET and KYC approval to be part of consensus. With this implementation, all identities are public. This is a deliberate choice as masternodes that act malicious or censor transactions will suffer reputational harm and can, at any time, be replaced. VeChain uses a deterministic pseudo-random process (DPRP) and the concept of active/inactive status to determine who among the 101 group of producers are eligible to approve transactions. Although this is a semi-centralized consensus mechanism, this implementation supports high throughput. Current estimates allow for 10,000 TPS. There is currently a 10 second block time, but this can be modified via the governance process.
VeChain uses a dual-token system. VeChain has studied other blockchains and has seen their shortcomings. Mainly, as the token increases in value, the cost of using the blockchain increases. Given the volatility in crypto, this can make using the blockchain both unpredictable and expensive, two factors that prevent large-scale applications.
The two tokens in this implementation are VeChain (VET) and VeThor (VTHO). VET represents the monetary worth of VeChain. It is used for the governance process and is needed to create smart contracts. VTHO is used to pay for transaction costs on the network. VTHO is generated based on the amount of VET that is held and is similar to the NEO/GAS relationship. The main difference is that VTHO is designed to have a relatively stable price that trades within a narrow range. In this scenario, Authority Masternodes algorithmically control the value of VTHO. Exactly how this will work is unclear — especially given the recent volatility of VTHO. However, VeChain founder has said that VeChain will control the cost of smart contracts per VTHO, effectively stabilizing the value. The motivation for giving VTHO to VET holders is to maintain a predictable transaction cost on VeChain. The VeChain Foundation has used many econometric forecasting assumptions in their model and they plan to continuously test these inputs until they can predictably forecast transaction costs.
In order to establish its position as a supply chain management solution, VeChain is manufacturing its own RFID and NFC chips. They are manufacturing a variety of sensors to account for humidity, temperature, pressure, position, etc. These physical sensors will be attached to products to securely track them on the blockchain.
Each chip has a built-in asymmetric encryption algorithm whereby the private key is generated within the chip and protected from being accessed externally. There are one time tags that are broken if tampered with. The RFID chips are given an ID registered on the VeChain blockchain where each operation is recorded.
VeChain has designed a unique architecture that theoretically scales to 10K TPS, enabling large scale applications. VeChain is a fork of Ethereum that uses the EVM, allowing developers to build third-party applications. While VeChain’s goal is to forecast the cost of using their blockchain through VTHO reliably, there are many questions about how this will work in reality. VTHO has already failed to maintain a relatively stable price, and there are no indications this will change from the VeChain team. Creating a stablecoin by itself is an ambitious endeavor and combining that with developing a blockchain does not seem realistic.
VeChain has a fundamental belief that total decentralization or total centralization are not optimal solutions. They have designed their blockchain to integrate aspects of both. While this will allow for better performance, it risks trending towards complete centralization. The Foundation can handpick whomever they want as block producers and remove them at will. In this system, VeChain has an incentive to choose people who share their beliefs and can prevent those who do not from participating.
VeChain believes the benefits of their architecture outweigh the risks. There is almost no risk of hard forks, governance and changes can be implemented quickly, and large-scale applications can be administered from day one. The VeChainThor blockchain has integrated IoT capabilities and hardware which will allow it to adapt to many IoT applications. This will enable both enterprises and developers to come in and create IoT ecosystems within VeChain. The verdict is not yet out on whether this will drive actual usage but for now, VeChain is an extremely compelling architecture that should be explored further.
6/15 – TPOC, initial VeChain design
11/15 – TPOC approved, VeChain v0.1 development started
6/16 – VeChain v0.1 launched, 1st business case to go-live
9/16 – VeChain v1.5 launched, VeChain dashboard, iOs app go-live
11/16 – VeChain v2.0 launched, more smart contract templates
5/17 – VeChain v3.0 initiated
11/17 – VeChain Foundation 1st Steering Committee and advisory board formed
12/17 – VeThor and economic model preview published
Q218 – VeChainThor Blockchain Launch, VeChain Wallet with VeThor Forge Function
Q418 – VeChain Crosschain, Sidechain Technology
2019 – VeChainThor Ecosystem Expansion
VeChain does not have a detailed roadmap, and overall development has not been as transparent as other projects. Other than sidechain technology and ecosystem expansion, there are no roadmap details for the future. While it would be beneficial to have more detail, VeChain has met roadmap deadlines before. They launched their mainnet and token swap on time in Q2 ‘18. It will be necessary to monitor their website and social media channels as their deadline for sidechains approaches.
Token Acronym: VET (VeChain) & VTHO (VeThor)
Token Type: Dual Token System. VET is used for the creation of dApps on the platform and for governance. VTHO is used to pay fees and smart contract transactions. Holding VET generates VTHO.
Circulating Supply: 55,454,734,800
Total Supply: 86,712,634,466
Marketcap: $689,590,116 USD as of 9/25
Marketcap at ICO: $62M
41% – Public Sale
9% – Private Investors
23% – Enterprise Investors
5% – Co-founders, development team
12% – Continuous operation and technological development
10% – Business case development
VeChain issued 1B tokens in its ICO. 132M were refunded and burned under the audit of a third party institution. There is a 1:100 token swap on the VeChain mainnet.
Intrinsic Token Value – As usage of the system increases, the value should accrue to the VET token. The twin-token system ensures that VTHO, the stablecoin, will have a high velocity as it is used for transaction fees. VET, the primary token, will have low velocity and will increase in value as usage increases. There is a huge incentive in the VeChain ecosystem to hold the token, as it is needed to participate in the governance process, create smart contracts, and become a masternode. The larger amount of VET that is owned the more VTHO that will be generated. This will reduce supply as businesses will want a say in the future direction of the platform and will want to earn passive income.
VeChain ran a reasonable ICO given the vision of the project. Although $62M is a high valuation, there were similar projects which either raised more or were valued much higher once freely traded. VeChain has since ~10x in regards to marketcap, signaling that the public market still believed there was value to be extracted given the progress VeChain has made. Had VeChain removed their hard cap they would have probably raised substantially more than $62M. The VeChain token model gives a clear value proposition in the defined architecture. As users leverage the token for various roles in the protocol, the value of the network and price should follow.
Team and Leadership
Team has a strong representation from PwC, an audit, consulting, and tax services company. PwC is also a partner of VeChain.
VeChain has one of the larger teams in cryptocurrency with 150 employees spread globally over five different offices. They have assembled an experienced team with strong backgrounds in business and consulting. Two of their C-Level executives were consultants at PwC, a company VeChain also has a partnership with. VeChain has taken their hiring process seriously and has employees with impressive backgrounds. While not the defining factor, their relevant experience will allow them to execute on their ambitious project. VeChain is focused on actual use cases and does not necessarily have the ideological – decentralize everything – underpinnings that led to the birth of projects such as Bitcoin and Ethereum. This is obvious in VeChain’s business decisions. Instead of depending on an open source community, they are focusing on hiring and actively forming partnerships with many companies.
VeChain has a high-profile list of advisors and partners. Bo Shen is a distinguished member in the cryptocurrency investing world. His company, Fenbushi Capital, has been very active in early-stage protocols and only invests in blockchain related projects. Jim Breyer is on the board of Facebook and Circle, two companies that are beginning to seriously integrate blockchain. While it is not clear their exact role in VeChain, they have industry experience that spans decades. They will be able to help VeChain navigate any issues that come up in the future and position VeChain to a player in the blockchain space.
Partners and Investors
DNL GL – global operating company that provides audit and certifications services. Provides these services in the maritime, renewable energy, oil & gas, and healthcare industries.
PWC – Big Four auditor that provides accounting, consulting, and legal advice to companies worldwide.
Gui’an Government – Gui’an is a city in China, located next to Guiyang, the capital city of Guizhou Province.
Directed Imported Goods (D.I.G) – Government sponsored wine importer owned by the Shanghai Waigaoqiao Free Trade Zone Development subsidiary
BitOcean – provides an ATM based solution for buying and selling cryptocurrencies
Draper Dragon – sector agnostic early-stage fund focused on innovative technology in China
VeChain has assembled a high profile team, advisors, and partnerships. They have built relationships with top tier consulting companies and enterprise businesses. Their two high profile consulting relationships are PwC and DNV GL. PwC is a “Big 4” auditor looking to transform their internal services and help its clients adopt new technologies. They plan to focus VeChain integration in Hong Kong and Southeast Asia. DNV GL is a global quality assurance and audit company. Their initial use cases will be targeted towards the food and retail industry.
VeChain’s boats relationships with enterprise clients and governments. Two examples are Directed Imported Goods (D.I.G) and the Gui’an government. D.I.G is a government owned wine importer, responsible for over 30% of China’s wine imports. They plan to use VeChain to authenticate and trace winery data from producers. Gui’an is an area in China granted preferential treatment by the Chinese government to focus on smart-city development. Gui’an plans to use VeChain to provide a blockchain based information system to collect and analyze administrative data, offer privacy protection of data, and reform business registration.
The verdict is still out on whether this will create actual usage of the platform, but initial signs have been encouraging. At times, partnerships in crypto can be overhyped, but for VeChain partnerships are particularly significant. They are targeting large businesses as their primary group of users, so having close relationships with them is a benefit. Most of the brands VeChain has partnered with have a real need for supply chain and IoT improvements that blockchain can provide. VeChain also has a significant partnership with the Chinese government in the region of Gui’an. If VeChain can work alongside these companies, it can expand the entire ecosystem to include some significant players.
Marketing and Social
List metrics for:
Twitter – 103K
Facebook – 4.5K
YouTube – 5.2K
Reddit – 53.5K
Medium – 8.4K
Telegram – 30K
LinkedIn – 1.8K
VeChain has a professionally branded website and is highly active across all social media platforms. Each of these platforms has a large following, and it is clear that this project has captured the interest of investors. The VeChain team posts multiple times per week with relevant news and have admins responding to questions from their community. VeChain, however, has censored seemingly legitimate criticisms of their project on Reddit. They were also caught artificially upvoting posts on Reddit and encouraging members of their community to do the same. This led to r/Cryptocurrency banning any mention of VeChain for a month. Manipulating social media status is unhealthy for any project and speaks to negligence on their part. Compared to other high profile projects, it is tough to find any negative articles about VeChain. While this could be due to its quality, it is also possibly due to manipulation. Every project has strengths and weaknesses that must be analyzed by the community transparently.
Red Flags –
VeChain brings an architecture focused on enabling actual use cases. The market includes strong players such as IOTA, Waltonchain, CP Chain, and Wabi but it is unlikely to be a winner take all market. VeChain has put together a solid team with accomplished advisors and investors. They have also made significant inroads into large companies and governments. Given this, they are poised to become industry leaders in their space. Now that their mainnet is launched, it will be crucial for VeChain to start delivering on their partnerships. There are legitimate concerns regarding their level of centralization and Eden Labs finds their manipulation on Reddit and blogs of particular concern. This is a big red flag and it will be critical to see if they engage with a higher level of professionalism come 2019.
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Disclaimer: This is not investment advice, merely our opinion and analysis on the project. Do your own research.