KEEP Token Analysis
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What is Keep?
Keep uses the power of zero-knowledge proofs to secure data in an open-source world. Zero-knowledge has proven to be useful for transactions as seen with Zcash. They ensure transaction privacy by making the information contained in a transaction truly secret while verifiable. Keep uses side-chains and sophisticated operations to solve one of blockchain’s main problems for adoption, security. Currently, enterprise is unable to use blockchain for what it is due to its open source nature. Their solution is to bring privacy infrastructure to market on the Ethereum public network, allowing adaptation for other public blockchains and cross-blockchain use.
Tokenomics
$KEEP is a fine example of a work token. A work token is a type of utility token that’s main purpose is to provide a service to the network. This is different from the other two main categories of tokens, store of value and securities. $KEEP gives participants the right to perform for the network. The probability of work being delegated to a certain participant is proportional to the number of tokens staked as a fraction of total tokens staked by all service providers.
This type of model increases the price of the token as adoption increases. This is due to an increase in revenue from Keep’s service and service providers willing to pay more per token for the right to earn a portion of the growing cash flow.
This type of tokenomic model tends to result in stable linear growth as opposed to erratic changes in price due to speculation. This is because utility tokens are valued at a multiple of the operating cash flows that the system generates rather than as a fraction of revenues paid to service providers. As a network grows and matures, it will de-risk and ultimately increase the terminal value. This results in total token value growing super-linearly relative to transaction throughput.
This tokenomic model also rids the developers the need for consistent token distribution. Because end users don’t ever need to purchase the token. Service providers seeking yield on underutilized computing/storage/bandwidth resources will figure out how to make money on underutilized hardware relatively quickly. Third-party service providers will emerge for work token-based staking protocols and allocate participants’ resources to the most profitable network.
Scaling the network with this model also works naturally. If the demand for Keep token grows 10x, a service provider would need 10x amount of resources to provide Keep’s service. In the case that the service provider is not able to afford the resources needed, they are able to sell their tokens for 10x of what it was worth when acquired while giving other people with the resources to participate in the network. Another option is to lend out tokens to a third-party, allowing them to provide the resources while receiving a percentage of the profits for being the token provider. Either way, the token holder is not limiting the network by holding the tokens without putting them to work if they are unable to do so. This allows efficiency in both the token price and network.
Potential Improvements
Price Discovery Model
One factor that Keep is vulnerable to is speculation. Developers at Livepeer, who also rely on a utility work token, have proposed a solution for price discovery. Their model goes:
- Protocol progresses in rounds.
- Worker nodes advertise their price for some unit of work, which will get locked in during the next round.
- During the final X% of a round, the minimum price offered by any worker node is locked in. The effect of this is that all nodes have the option of matching the minimum offered price.
- Users offer the maximum price they’re willing to pay. All worker nodes who have offered a price less than or equal to this offered price are considered for the job, and work is distributed to them in proportion to stake.
This auction-like market creates a new potential problem. The network risks capacity planning issue where users may all offer only the lowest possible price, except a single or very few nodes at that price won’t be able to handle the full capacity. This is also solve-able but a little complex to implement. The capacity issues could just be passed down to the users. They will determine through observation that they need to offer a higher price for their job to be picked up and completed in short order.
Monetary Policy
There is an alternative to protecting $KEEP from extreme volatility and speculation other than a passive, free-market approach. The Geeq project uses an automated monetary policy (AMP) where it slowly expands the tokenbase as its token price goes up to generate a fiat cash reserve that will be used to support the price if it should ever start to decrease. The AMP creates additional supply of tokens in bull markets and additional demand in bear markets.
If Keep were to adopt this and $KEEP price ever begins to fall, a Fiat Stabilization Reserve (FSR) account would automatically starts buying back a predetermined, publicly known, number of tokens and places them in a Token Stabilization Reserve (TSR) account which would remove them from the circulating coinbase.
This mechanism would allow Keep to generate revenue higher than the AMP spent purchasing the tokens. This is because AMP buys at lower prices on the way down while an equal number of tokens are sold at all prices on the way up. Buy low, sell high. This would create a cushion for drastic volatility that could put the entire network in jeopardy.
Strengths
Consistent Development
Successful projects are built on consistency and persistence. Keep is one of the few projects who build a strong foundation of developers, founders and supporters. They have been consistent in their core development, having updates to their code almost every day. This can be seen in their open-source code on Github. They have 11 contributors and 76 repositories under the Keep name. Figure 1, provided by Santiment, shows a graph of Keep’s development activity with their token price for the month of August. They have been named one of the top 10 most active projects in the blockchain space for the month of August. This was mainly due to their new release of tBTC.
Industry Support
Keep is providing a solution that the entire Ethereum blockchain needs if it wants to compete with the scalability of private blockchains. Enterprise is the name of the game and many industry participants know that. Therefore, when Keep introduced tBTC to DeFi many projects were on-board and showed their support. More than 40 partners have supported the tBTC, many of which are leaders in the space. DeFi giants Compound, Aave, and Uniswap are among the decentralized platforms that plan on integrating tBTC as their choice for their BTC-representing token.
They are also partnering with venture capitalist, mutual funds and advisors to move Keep forward. Having community support is crucial to surviving the early years as a blockchain project and Keep has built a solid foundation of support.
Weaknesses
Public Network Dependent
Keep is working on making public networks secure and somewhat private. Their development depends on these public networks which makes them vulnerable to government regulation, open-source development and institutional adoption. There is no clear way to minimize their risk but, as of now, their environment is setup for success.
Price Volatility
The Keep network depends on KEEP to hold its value or else providers will be reluctant to run it. This is because providers have two primary costs, storage and computation. Providers would not be the cause for major sell-off because they are the ones most likely to lose. Speculators would be the network’s biggest concern since they profit on drastic booms and busts. This makes them vulnerable to market conditions and would need to find a price-discovery mechanism or monetary policy to counteract this.
Opportunities
DeFi
Two thirds of the total market capitalization across all blockchains is held in Bitcoin. This means that this amount of wealth is inaccessible to many projects build on the Ethereum blockchain. Recently, the participation in decentralized finance (DeFi) has increase exponentially and it looks like this ecosystem is here to stay.
So far, the only solution for bridging the gap between bitcoin (BTC) and DeFi has been BitGo’s wrapped bitcoin (WBTC). This ERC20 token allows holders of bitcoin to trade in their BTC for WBTC for a 1:1 ratio. The token would then allow the wealth from bitcoin to participate in the DeFi space. The only problem with this solution is that the BTC is held by centralized custodians. This is limiting how many WBTC tokens can be produced and the amount of trustfulness the token provides.
Keep has developed a solution for a trustless bridge between bitcoin and DeFi. BTC holder can now safely convert their asset into an ERC-20 token with no sign-off needed from an intermediary. They have created TBTC to do exactly this. At launch, the latest version is fully audited, open-source, and insured, with unprecedented security measures in place.
Financial Industry
Keep has the potential to bring traditional banking as we know it to public blockchains. The reason why institutions that handle sensitive data like personal, financial and operational information are reluctant to join blockchain is because they are responsible to keep trusted information safe. Keep would allow banks, fintech, insurance and other financial sectors to fully integrate their operations on the blockchain.
Supply Chain
Blockchain’s best use case was thought to be supply chain management. This is because an open ledger and a consensus mechanism would bring multiple parties together without them needed to be trusted. Today, the supply chain industry is scattered and disconnected. Every party of interest have their own systems, their own validation process and their own interests. Apart from scalability, supply chain requires a secure system where certain information is withheld from other participants but can still be verifiable. Keep has the potential to bring all industries together to carry out their logistics without the full transparency that most blockchains have today.
Private- & Public-Cross-Chain
Keep aims to use secure multi party computation (sMPC) to maintain a share of provided secrets, such that the secret can’t be reconstructed without all nodes colluding. In later works, sMPC schemes will be used to build more feature-rich keeps. These keeps will enable operating private ledgers against public blockchains, or running third-party code trustlessly on private data.
Threats
ETH 2.0
There is much hope for Ethereum’s move from PoW to PoS but if it’s unable to deliver a scalability solution then the platform will lose reliability. Keep is working to create a cross-chain solution but their current focus is working on the Ethereum network. If Ethereum is unsuccessful in moving much of the ecosystem to their new consensus mechanism then keep, along with other projects will move to other networks that can deliver scalability. This scenario would cause delays in their development, essentially having them start from scratch.
Private Blockchains
Instead of using expensive PoW or other consensus mechanisms designed as adversarial network, private blockchains can use systems like RAFT to reach consensus.
Although a fork of Ethereum, JP Morgan’s Quorum is a private network that supports private contract state and messaging between network participants. Other major companies, Amazon, Microsoft and Facebook are also exploring private blockchains in order to benefit from the blockchain technology without exploiting their sensitive data to their competitors or bad actors.
These systems solve privacy at the expense of many of the benefits of a public blockchain- trustlessness, public accountability, censorship-resistance, and permissionless innovation. If late users don’t care to give up their data to major companies then Keep would lose market share for enterprise-level privacy solution. Why would companies bring their audience to a public or a competitor’s private blockchain when they can create their own?
