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Crypto Categories: Identifying Infrastructure Applications

December 28, 2021

Read Time 4 MIN

Infrastructure application protocols are akin to B2B services commissioned by decentralized applications (dApps) and/or smart contracts, rather than end consumers.

In Sorting Out the Crypto World, we identified the need for a classification system for crypto coins and introduced the categorization scheme developed by MarketVector Indexes (MVIS), a VanEck subsidiary. This crypto categorization series will offer a closer look at several of these digital assets categories: smart contract platforms, media and entertainment (metaverse), DeFi and infrastructure applications.1 Here we explore infrastructure application protocols.

Understanding Infrastructure Application Protocols

A decentralized application (dApp) is an application whose backend code runs on a distributed computer network. Typically, dApps combine a smart contract with a frontend user interface, and generally support one or more of the smart contract protocols. For the purposes of MVIS’s crypto categories, infrastructure application protocols are akin to B2B services commissioned by dApps and/or smart contracts, rather than end consumers. We separate infrastructure application protocols into the following sub-categories:

  • Shared compute (Filecoin, Arweave): A network of computers working together to perform a specific task. Each participant (or computer) donates part of its processing power and/or other resources (eg. storage) to help achieve the task.
  • Oracles (Chainlink, Augur): Oracles provide a framework for smart contracts to fetch data not contained in the blockchain. They help connect off-chain external data, like the price of a stock or the winner of an election, to other open-source blockchains.
  • Scaling solutions (Polygon, OMG Network): A scaling solution is fundamentally a method of enabling a system’s expansion, such as improving efficiency and output, without hurting existing operations. In the blockchain space, a scaling solution typically takes the form of a so-called “layer-2” protocol, also known as sidechains and off-chain layers. These subsequent blockchains are typically built to be interoperable with and perhaps share the governance attributes of a larger smart contract platform, thus increasing transaction throughput.
  • Internet of Things (IOT) (Helium, IOTA): IOT is the concept of connecting any device to the internet or other connected devices. IOT infrastructure applications include those that collect and send information (sensors), receive information and act on it (3D printers), and those that do both.
  • Miscellaneous tools (Ocean Protocol, NEAR Network): B2B infrastructure application platforms which are marketed to blockchain developers but do not fit neatly into any of the above categories.

Valuing Infrastructure Applications

Infrastructure application protocols charge users transaction fees similar to other blockchains' tokenomics as discussed above. For example, the Chainlink protocol, a decentralized data oracle network, uses LINK as both a payments token and a work token. As a payments token, LINK is used to pay Chainklink node operators for providing oracle services. As a work token, LINK can be staked2 by node operators as collateral to provide oracle services, with node operators' staking rewards being reduced ("slashed") as a penalty in the case of mistakes or downtime. Filecoin, a competing data oracle, works in a similar fashion. Collectively, the current constituents of the MVIS CryptoCompare Infrastructure Application Leaders Index comprise $56B in market cap on a reported $190M in annualized revenues (as of last 30 days on 11/23/2021, does not include Chainlink)3. However, similar to the media & entertainment category, many infrastructure application protocols currently reveal limited data regarding their fees, users and assets secured. As infrastructure application protocols scale and enable functionality across multiple smart contract protocols, we expect the data availability and thus valuation visibility to improve.

MVIS CryptoCompare Infrastructure Application Leaders Index as of 11/22/2021

Token What Is It? Circulating Market Cap/ADV
Chainlink Decentralized oracle network that connects smart contracts on blockchains with the real world. Using a system of nodes and operators, it is able to answer data requests from smart contracts by collecting data from multiple sources and reconciling it to provide a single reliable piece of information. $16B / $320M
Polygon Layer-2 network designed to bring mass scalability to Ethereum and interoperability between other blockchains. $14B / $370M
VeChain Blockchain-based platform that records the truth of what happens at every stage of the supply chain. It combines physical tracking with blockchain records to keep tabs on real-world products from production to delivery, helping to prevent fraud and increase transparency. $11B / $160M
Filecoin Filecoin aims to store data in a decentralized manner. Unlike cloud storage companies like Amazon Web Services or Cloudflare, which are prone to the problems of centralization, Filecoin leverages its decentralized nature to protect the integrity of a data’s location, making it easily retrievable and hard to censor. $8B / $280M
Kusama Public pre-production environment for Polkadot that runs on an early unaudited release of the Polkadot blockchain. Kusama functions as a sandbox that allows any developer to test early versions of Polkadot projects in a live, realistic environment. $3B /$40M
Quant Network Blockchain operating system project that looks to facilitate interoperability between blockchains with the Overledger OS. $3B / $80M
OMG Network Layer-2 scaling solution for Ethereum aiming to achieve high transaction throughput at a lower cost leveraging the security of its underlying layer. $1.3B / $160M
Ren Open protocol that enables the permissionless and private transfer of value between any blockchain. Ren's core product RenVM, brings interoperability to decentralized finance (DeFi). $1B / $75M

Sources: Messari, A Deep Dive into Smart Contracts. Learn more about Smart Contracts — the… | by _kitchen | ThunderCore | Medium, Smart Contract Applications, Limitations and Future Outlook - Itransition, DappRadar.com, StateoftheDapps.com, Nonfungible.com, DeFi Beyond the Hype (upenn.edu), Cryptobriefing.com, TokenTerminal.com, Solscan, LINK Token Contracts | Chainlink Documentation

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DISCLOSURES

MVIS CryptoCompare Infrastructure Application Leaders Index is designed to track the performance of the largest and most liquid infrastructure application assets.

MarketVector Indexes (MVIS®) develops, monitors and markets the MVIS Indices, a focused selection pf pure-play and investable indices designed to underlie financial products. They cover several asset classes including hard assets, the internal equity markets, fixed income markets and digital assets. MVIS is the index business of VanEck, a U.S. based investment management firm and provider of VanEck ETFs.

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1 Smart contract are programs stored on a blockchain that run when predetermined conditions are met, and smart contract platforms are open-source blockchain software protocols that enable these programs. Media and entertainment (metaverse) protocols are tokens that are used to reward users for content, games, gambling or social media. Decentralized finance (DeFi) protocols are software programs that run on top of another cryptocurrency as a means to automate a financial service.

2 Staking is when someone contributes a portion of their tokens for use by the blockchain network for a period of time.

3 Source: TokenTerminal.com.

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