People's Coin Progress Update Q3/24

Hello dear Spacemesh community members,

Hope you had the chance to take some relaxing off time this summer. Let us use these lazy summer days to address some questions that seem to occupy our community’s collective mind, as they are being brought up repeatedly in our community server.

The “Pools”

Spacemesh’s first year after genesis has seen tremendous growth in demand for smeshing, and over 6EiB of space already committed to the Spacemesh network. However, as it turned out the majority of this space arrived via aggregation by few specific, sophisticated pool providers.

We understand the community’s concern and anticipation for our plans regarding pools. For instance, how do we reduce the share of the pools to under 50% of the smeshing pie? And how do we monitor the progress made in achieving this goal? To clarify these questions and to ease potential worries, we wish to reiterate our mindset and plans regarding this topic.

For the sake of argument, let us assume that within x months, the Spacemesh team is able to provide the following ambitious features:

1. Full PoST and ATX merge, incentivising uniting sparse identities.
2. Node manager and initialization software that will attract more users and businesses. Focused on ease-of-use for solo-smeshing with larger amounts of storage.
3. Open-source pooling software for any “operator”. This software will be marketed as being a prerequisite for offering pooling options in exchange for shrinking margins.
4. All the missing ingredients for a real, home-mining experience. These mainly conclude an initialization marketplace for people who do not have access to GPUs or have weak machines. Ideally, the services in this marketplace will be offered for $SMH instead of fiat currencies.

—

With the above in mind, let us also consider the question: under what conditions would the current stronghold of pools persist?

We would argue that due to the current price of $SMH, we do not expect a huge influx of new smeshers. Instead, there will only be the uniting of identities due to the incentive shifts caused by protocol updates. This will lead to a dramatic reduction in network load and a decrease in the hiccups encountered when running a node.

However, once the price increases again, the lucrativeness of smeshing would similarly increase — and this time around, potential smeshers would see multiple routes to efficient smeshing. These include smeshing directly or using cheaper pools. As such, more broadly speaking, we estimate that with every rise and fall in the price cycle, we will see:

1. higher $SMH prices and increased total storage commitments.
2. a reduction of pool share in the total network pie.

For rigor sake, let us try to disprove the above and describe the conditions that can keep pools as strong as they are now. To this end, let us consider several scenarios and extrapolate their repercussions:

● Spacemesh is not able to deliver on the required protocol/ software changes.

We are now in the implementation phase, with all the major research completed. Therefore, the required protocol changes are already in active development and pose significantly less of a challenge than the previous feats accomplished by the Spacemesh team.

Risk = Low

● Spacemesh will deliver, and prices will increase, yet it will not reduce the pools’ network domination.

This option means that, in the face of renewed interest, given the options for solo smeshing and/or additional safer/cheaper pool offerings, people would act ‘irrationally’ and choose current pool providers over the alternatives.

Risk = Very Low

● $SMH price or the Total committed storage will not increase materially.

In Spacemesh, the smeshers are the main source of supply on the selling side since they are incentivized to recoup operational costs. Now, strictly due to a hard-coded issuance schedule, fewer SMH are minted every passing day, causing the cost of smeshing per coin to gradually increase. As a result, the price that the smeshers would be willing to sell at, assuming the same profit margin, would also increase.

To such a slow and sustainable raise in price, let us also add the cyclic nature of the crypto industry and further catalysts from any additional development. Any of these reasons should suffice to turn the tide in the current division of network share.
Risk = Low-Medium

The “Dumping”

We never have anything to say about $SMH prices because complex systems are, by definition, unpredictable and we are but human beings. Nonetheless, we seek to clarify some matters that are important to the community: Larger pool providers and their clients (to whom rewards are distributed frequently) have had liquidity since a few months after genesis, and their appetite for selling (or lack of) was with us ever since.

However, something new has developed recently, and is, in our opinion, far more likely to explain recent downtrends. At the one-year mark, VCs/ Team/ Current/Ex-employees /Contractors et al. began to receive their distribution in one of the offered solutions:

1. Larger VCs and key teammates receive their distribution via protocol to on-chain vaults.
2. The vast majority of investors and optionees receive a monthly manual distribution of SMH from the development company’s on-chain vault.

Distribution #1 began immediately at the one-year mark (i.e., 14 July 2024), while distribution #2 (majority) received the first of 36 equal installments on Aug 14th 2024. While selling is not to be villainized, it is the most salient explanation for the price drop. Please remember it has been a long journey to bring Spacemesh protocol to where it is now, and over such periods an infinite number of twists and turns tangle and entangle

As for the development company, we too will need to begin selling at some future point, in order to finance our operations. Once relevant, we plan to do it based on a predefined and preannounced schedule (e.g., 1,000 SMH per day) over multiple years, regardless of the prevailing prices. No selling outside the defined schedule shall occur. This is perhaps uncommon for developers not to use their “inside knowledge” for arbitrages, but we feel the Spacemesh community deserves better.

So while we do not downplay the price signal, showing us frustration, with the current decentralization state of affairs, we feel strongly about our capacity and proficiency in dealing with this (incentives) problem, albeit respect the doubtful who want to see it with their own eyes first.

The People Coin Thesis

The Spacemesh protocol has a novel and unique capacity which has only just begun to reveal itself. These are early days, and we foresee a further unfolding of Spacemesh’s potential as our technology matures and our community grows over time.

We believe that after the full PoST merge and uniting of the vast majority of sparse identities, the current >6M ATXs will shrink to anywhere from 100K to 500K. And later, upon new smeshing options the next wave of price increase accompanied by ‘wave of home miners’ to see a different mixture of user types.

But if we leave the unpredictable future alone for one second, what has been already revealed, so far, is nothing to sneeze at:

Our main thesis of creating the most robust and nuanced value representation layer, bound to time on first principles (e.g. this t-shirt costs ME 3 days of smeshing), with the capacity to hold millions of concurrent nodes, has been validated. And now for the Spacemesh thesis to lose its eventual appeal, one of the following risks must materialize:

1. Spacemesh fails to become a highly decentralized and multi-node infrastructure, and as a result, does not emerge as the most nuanced value representation layer. Consequently, Spacemesh does not demonstrate any finer or more subtle distinctions.
2. Spacemesh succeeds in becoming the most decentralized/nuanced infrastructure, but this success does not make Spacemesh more useful or otherwise advantageous to its users.
3. “Unknown unknowns”

—

With all of the above in mind, we believe we have largely mitigated the first risk proposition, and proven that the second risk proposition is incorrect. In the emergent world of wick signal detection, where early detection of certain signals is crucial, there is no universe where such properties don’t pay off handsomely.

With regard to our thesis health-check, we remain 100% committed to utilizing our crypto infrastructure to serve the interests of the common people. We continue to feel beckoned to lower the barrier to entry for anyone interested in:

• Achieving financial sovereignty.
• Approximating the truth better.
• Combating monopolies, perverse incentives, and other such tragedies.

—

Thank you for your continued patience in allowing Spacemesh’s evolution to unfold. We plan to continue relentlessly serving our mission and making you proud in years to come.