An independent review of Elrond (ERD)

Elrond well positioned for strong growth amidst turbulent markets

Company Overview

Elrond has created a novel architecture through two key innovations; 1) adaptive state sharding technology and 2) Secure Proof of Stake (PoS) consensus. This protocol will enable a scalable ecosystem embedded with interconnectivity while maintaining the decentralisation, security and fairness features of a public blockchain. Test results have reflected a 1000x increase as compared to existing solutions currently in the market with an average throughput of 30,000 transactions per second (tps), 5 seconds block time and negligible fees.

Since Elrond’s inception, the project has made notable progress both technically and business developments. Currently, the network is in the transition from testnet to mainnet, which will occur across several phases. In this report, we focus on several key updates and highlight price catalyst for Elrond (ERD) tokens.

Report Highlights

Picolo Research conducted a fundamental and technical valuation on Elrond previously (Jul 2019), more information can be found in the link here. In this report, Picolo will highlight several updates and developments of Elrond Network and provide an investment thesis on Elrond (ERD) Tokens. Here are the highlights of the report:

• Target price of $0.00248, representing a 48% upside

• Early staking rewards the key driver

• Significant technology and business developments from IEO to present creates a strong foundation for the platform

Birds-Eye View

Thematic Views

Upcoming mainnet launch with staking rewards to create significant tailwinds — Many reports predicting an outlook for 2020 have cited staking / yielding tokens as a thematic proponent going into the new year. Our internal research analysis further substantiates this point as investors are slowly waning away from price volatility, and are seeking to rebalance their portfolio towards passive, stable income tokens.

This trend is becoming popular amongst major exchanges, as they have been rolling out support for more staking tokens, in turn transferring yields back to end clients. Notably, Binance, Coinbase, and OKEX had close to zero staking products at the beginning of 2019 to providing over 20+ options at the end of 2019. More importantly, this benefits the projects in its entirety by keeping value within the network, simultaneously offering users to play their part in the system. For a start, Elrond has successfully fulfilled its first 3 of 10 waves for pre-staking (~$2.5m USD locked) since the bootstrapping process began on 31 Dec 2019.

Elrond bootstrapping phase 1- staking yields

Successful Testnet performance to boost confidence for Mainnet launch — Elrond has been consistently working hard in developing and ensuring their protocol is robust. Their Virtual Machine has proven to be the fastest against its competition across different benchmarks.

Virtual Machines (VM) Comparison

Aside from benchmarking tests, the team took the testnet to the next level, deploying the “Battle of Nodes” campaign. To put it simply, it was a battle against the blockchain, to emulate real-life conditions, and to solve the imperfections of their protocol. Over the past few months, many participants within the community had participated and contributed to improving the protocol, leading to a huge success of the campaign. Several of the stats can be found below.

The results show the efforts displayed by the team and community is commendable. Our analysis has shown Battle of Nodes to be an accurate indicator for gauging technical readiness, developer competency and community engagement. We believe the team will continue to leverage on this momentum to develop Elrond’s mainnet, eventually enhancing the value of the network.

Partnerships & strategic investors to propel platform adoption — In the previous research report, we listed 7 partnerships formed before Elrond’s IEO. Similarly, this time around, the firm has taken business collaborations up a notch and has formed an additional 16 strategic partnerships in a span of 6 months. The most notable partnership comes with the integration of ERD tokens on Samsung’s blockchain wallet, which will enable a global potential user base access to Elrond’s Network.

We have broken down the partnerships into 5 categories (table below) to improve the clarity of how each partnership attributes value to Elrond. Highlighted in bold showcase the new partnerships formed since our previous report.

Elrond has created a well-balanced partnership ecosystem, emphasising collaborations in various aspects, each creating its value to the different parts of the business. The team’s strategic approach towards this made us believe that Elrond is well-positioned to generate holistic network value going forward. Further information on partnership details can be found in the Appendix below.

Roadmap Updates

Community Engagement Statistics

Valuation — Staking Yields & Returns Potential

Our research analysts incorporated several assumptions and methodologies to analyse the potential returns of ERD token. The valuation thesis is derived from two aspects: 1) returns potential based on early staking rewards, and 2) relative valuation of comparable projects.

For the former, Picolo took a deeper dive into the returns of tokens that have announced staking using Binance exchange as a proxy. T-30d pre-prices were taken to take into consideration the price before news of staking were announced. Return on Investment (ROI) was calculated against the T+30d ATH price to determine the maximum returns observed during this period. Two observations were made:

  1. A higher staking yield tends to correlate with higher returns
  2. 2. The higher the proportion of tokens staked in the network will provide greater price appreciation

For a 7% — 14% staking yield, we observe returns between 10–110% within a 60d period. Two projects, in particular, Harmony and Fetch, which also had IEO on Binance launchpad, displayed returns between 40–60%. Given the similarities between Elrond and the aforementioned projects, coupled with their superior early staking yield that is 2–3 times its peers, we believe ERD has the potential to outperform with higher returns between 50–80%. Community Engagement Statistics

Binance Staking Products and ROI

Valuation Valuation — Relative Valuation

Our relative valuation (RV) made use of several comparable projects within the sharding sector, using the Volume / Market Value multiple (Vol/MV) to determine where ERD should be trading against its peers. Through the analysis, we derived a relative value of $0.0022 per token, which represent a 31% upside to ERD current price.

Conclusion

Overall, both methods exhibit upside bias towards ERD token price. For the former approach, our analysts also took into consideration that the team has announced its staking intentions on 18 Dec, however, we are convinced that the market has not fully priced in the upside potential. Our relative valuation further justifies the thesis, suggesting that ERD is currently trading at a discount against its peers.

Having said that, we prefer to stride on the conservative front, taking the mid- end (65% potential returns) of the returns range we put forth from early staking rewards, and averaging it against the 31% potential returns derived from relative valuation. A price target of $0.00248 per ERD was obtained for a 48% upside potential.

Given these key drivers, Picolo Research believes that ERD is undervalued and is in a prime position for significant price appreciation, as investors seek to unlock greater value in the token. In light of the preceding, we recommend a ‘Spec Buy’ rating on Elrond.

Appendix

Partnerships

Samsung — Samsung blockchain wallet to integrate support for Elrond Token (ERD). This collaboration will enable Elrond to get direct exposure to Samsung’s customer base

Stake Capital — A financial instrument and service platform for DeFi and staking networks. Stake will offer Elrond staking services to users interested in contributing to their liquid staking pool

Stakefish — Stakefish will run Elrond validators on behalf of interested users who want exposure to Elrond network staking

Orion — A one-stop liquidity aggregator protocol linking exchanges. The platform will use Elrond’s blockchain and interoperability features for settlement and trading

Everstake — An institutional staking service provider for PoS assets with more than $1b in staking value. They will provide Elrond staking services for its customers

Tailpath — A flagship product of SupplyBlockchain, Inc, with a customer base in transport, logistics and supply chain. The firm will deploy Elrond’s blockchain via its mobile app

Cere Network — A CRM blockchain platform, which will adopt Elrond’s smart contract features for payment, escrow and identity services

Dokia Capital — A staking partner who will run Elrond validators through their professional platform

Band Protocol — Elrond will utilise Band protocol’s decentralise data oracle for Web 3.0

2Key network — A layer 2 solution that enables browsers to run blockchain nodes. The partnership will improve Elrond’s onboarding process to further generate adoption

Contentos — A media content platform allowing content creators to produce and distribute their content. Elrond first gaming dApp (CryptoBubbles) will benefit from this distribution

Binance Chain Alliance — A voluntary association of projects supporting Binance Chain Ecosystem

Matic Network — A collaboration between Elrond and Matic to build on future blockchain research

Trusted IOT Alliance (TIOTA) — An alliance among enterprises looking to leverage blockchain infrastructure to scale their IoT systems. Enterprises include BNY Mellon, Bosch, Cicso, KPMG, Siemens, Swiss Re

Xangle — A platform that provides comprehensive up to date token information to emphasise transparency, allowing better investment decision making. Elrond participated through a strict due diligence process with an independent report published

Chainlink — The partnerships seeks to amplify the utility and functionality of smart contracts, allowing them to interact with real-world feeds

Nash (formerly NEX) — A decentralised digital asset exchange (DEX). The partnership will explore the integration of Elrond blockchain and ERD into Nash, closing the gap between end-users and Elrond’s platform

typingdna — A behavioural biometrics company protecting users on how they type on keyboards. Elrond will integrate biometrics to further improve security

Smartbill — Fintech company providing SaaS services to SME for invoicing, accounting and inventory management. Elrond will explore potential integration of its platform to improve trust, transparency and traceability

features DSRL — A research lab with extensive experience across various distributed systems. The collaboration will focus on research-education themes on the applicability of blockchain technology

Netopia — An electronic payment processor in Romania processing more than $400m worth of transactions. The partnership would enable Elrond access to 6000+ merchants to accept ERD as a payment option

Holochain — A scalable distributed app with data integrity. The partnership will explore the potential integration of both platforms to boost technology performance Runtime Verification — A dynamic platform that analyses programs when executed, providing results and bugs detection. The partnership will work towards better research and development in formal verification methods.

About the Analyst

Lennard specializes in fundamental and technical analysis in digital asset investments. He became acquainted with blockchain, cryptocurrency and ICOs in 2016, and recently decided to take a meaningful step away from traditional banking to join this industry. Previously, Lennard spent 3 years with an investment bank in Forex and Debt Capital Markets. Prior to this, he also had entrepreneurship experience working with an e-commerce startup and a local social enterprise. Lennard completed the CFA program and graduated with a master’s degree in Applied Finance. He is fluent in English, Chinese with a basic in Korean.

Ratings Definition

Monitor — Continue observation until clarity of information is provided

Sell/ Avoid — Investment is associated with high risk of losing capital

Hold/ Neutral — To maintain current levels of position until the next updated release

Spec Buy — A speculative opportunity for investors with higher risk tolerance

Buy — A high conviction buying opportunity

Disclaimer

This report has been compiled by Picolo Research. Picolo Research is an independent provider of research on cryptocurrency and ICO’s. We have not been paid, nor mandated for this research report. The views expressed within this report are Picolo’s in its entirety.

The contents of this report and its attached documents have been prepared without taking account of your objectives, financial situation or needs. Because of that you should, before taking any action to acquire or deal in, or follow a recommendation (if any) in respect of any of the financial products or information mentioned in or downloaded from or through this website, consult your own investment advisor to consider whether it is appropriate having regard to your own objectives, financial situation and needs.

Whilst Picolo believes the information contained in this report is based on information which is considered to be reliable, its accuracy and completeness are not guaranteed and no warranty of accuracy or reliability is given or implied and no responsibility for any loss or damage arising in any way for any representation, act or omission is accepted by Picolo or by any officer, agent or employee of Picolo or its related entities. Picolo at all times reserves the right to at any time vary, without notice, the range of services offered by Picolo and its subsidiaries, and the terms under which such services are offered. The information in this report may have been used by Astronaut Capital (www.astronaut.capital) in making an investment decision. The information within this report is our own opinion only and is not to be used in making a decision for investment.

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