Helium's (HNT-USD) ambitious plans to expand their network offerings beyond their low-data, low-power Internet of Things (IoT) network, dubbed "The People's Network", is in full swing, as they recently announced a partnership with T-Mobile for their 5G network, Helium Mobile. Will this be the next major shift in mobile technology since the iPhone? Let's dive in.
Before we dive into the Helium/T-Mobile partnership, let's discuss the many moving pieces over at Nova Labs, the rebranded startup that operates all Helium networks with a mission to make it easier to build connective device networks. The highest level change is that Nova Labs is restructuring to become a "network of networks"; Helium started as a standalone blockchain powering the IoT, their flagship product that has shown incredible growth despite only being powerful enough to operate devices like trackers and sensors, but not powerful enough to operate mobile devices. The blockchain established a "proof of coverage" consensus mechanism, currently operated 3,500 validators and approaching 1,000,000 hotspots. This was a proof of concept that a decentralized connected device network, albeit a very simple version, could be applied to much border use cases like 5G, WiFi, VPN, etc. Thus, in order to scale they have established a "network of networks", run at the highest level by the Helium DAO network which will provide a high-level governance structure for each subDAO network.
The second major change is that Nova Labs has decided to assign tokens for each subDAO network. The flagship IoT network will utilize the IoT token while the 5G network will utilize the Mobile token. So what happens to the original HNT token? It will still exist as a reserve-style currency operating the network and will be held within each subDAO's treasury. IoT and Mobile token holders will be able to redeem their tokens for HNT from these respective treasuries, but this is a one-way street (HNT cannot be redeemed for either IoT or Mobile). There is currently no tradable market for IoT or Mobile tokens, which can only be earned by operating a hotspot on their respective networks. See image below for additional clarity on the new structure:
The third major change is the proposal to move the Helium networks from their standalone layer 1 blockchain to Solana (SOL-USD), which overwhelmingly passed on September 22nd. According to a blog post from the Helium Foundation, "Solana offers significant benefits to Helium that include, but are not limited to, scale, community, and composability. Proof-of-Coverage and Data Transfer Accounting will be moved to Oracles". This will scrap their novel "proof-of-coverage" technology that secured the Helium blockchain network, leveraging data oracles instead.
Nova Labs understood early that scaling a 5G network and competing directly against the likes of AT&T, Verizon, and T-Mobile would be difficult, to say the least. Unlike the very affordable hardware needs to operate the low data IoT network, a 5G network would require a significant investment from individual hotspot operators; current 5G hardware rigs are selling between $2,600 and $5,700. Instead, Nova Labs will leverage the T-Mobile network for all voice calls initially, while data transfers will leverage the Helium 5G network where available and the T-Mobile network where it lacks coverage. Over time, the hopes are that the Helium 5G coverage will replace the T-Mobile coverage and be able to handle a significant portion of voice calls and data. According to the Helium 5G website, plans for the lowest data plan of 1GB/month will cost users $5/month, but beyond that the pricing is still TBD.
Currently, Helium's 5G network has approximately 5,000+ node operators, growing over 60% in the last 30 days, all operating within the United States. You can see their IoT network and 5G network on their well-designed block explorer page.
The changes occurring at Nova Labs and the Helium ecosystem are necessary in order to properly scale. Helium is looking to create a multitude of networks that can connect many types of devices, which means they need to have the ability to scale to a massive level. Recognizing that their own monolithic blockchain would not be able to scale properly is a strength of the Nova Labs management team to be able to recognize faults in their current approach and make the necessary changes.
Their funding is also a significant positive from an investment perspective. Their most recent round of funding, series D, provided $200M in additional funding at a $1.2 billion valuation. Their current market cap is approximately half of this valuation value at around $593 million. Crypto VCs that have backed the project over multiple seed rounds include: Google Ventures, Andreessen Horowitz, Tiger Global, Khosla Ventures, Multicoin Capital, and Union Square Ventures.
Helium has also been able to demonstrate real network growth with their flagship IoT network as they approach one million hotspots, and hope to do the same with their 5G network as they already have over 5,000 5G Radios in the U.S.
However, the main question is where does the value accrue after all of these changes? Does the value accrue at the HNT token level, or will the value accrue with each sub-DAO's token (i.e., Mobile or IoT)? Do the tokens work synergistically and this is a rising tide that raises all boats scenario, or do the tokens dilute or cannibalize the value of each other? This is still to be determined.
With the transition to Solana, we know that there is no longer the need for Helium validators, and thus the 6.85% HNT emissions to validators will now shift to the rewards pool, making it more lucrative to operate a subDAO hotspot. The announcement of a Solana-enabled cell phone actually makes practical sense now, leveraging the Solana blockchain and potentially leveraging Helium Mobile for their coverage, while the Solana cell phone itself could become a hotspot for a given Helium network, could provide the first real shakeup in the cell phone world since the invention of the iPhone.
HNT's current inflation rate is approximately 20%, with a halvening distribution rate every two years. See the image below for the token distribution schedule, current circulating supply is just over 125 million tokens which puts HNT between year 3 and year 4:
To reduce the impact of inflation, HNT holders need to either be operating a hotspot and/or staking their HNT in order to generate a partially offsetting yield. But from a fundamental level, it is nearly impossible at this point to derive any sort of intrinsic value to HNT, Mobile, or IoT given all the significant changes and the potential for additional changes down the road. It is best to keep it simple to formulate an investment thesis for HNT:
HNT is down over 90% from its all-time highs which presents an enticing entry point. Helium has a proven track record via the continued growth of their IoT network. The Helium Mobile 5G network has already established a noteworthy foundation of 5G Radio hotspots given the capital requirements to operate. Lastly, Helium's ability to scale moving forward given the new DAO/subDAO structure and transition to Solana create the ingredients for something potentially massive here.
There will now be, at minimum, two new tokens in the Helium ecosystem in IoT and Mobile, and likely more to come as more networks launch as subDAOs and operate using their own tokens. The subDAOs retain an HNT supply in their treasury for their token holders to redeem their tokens for HNT if they so choose. Each subDAOs treasury receives HNT tokens based on their DAO Utility Score which is detailed on Helium's GitHub page. The Treasury reserve creates natural buy pressure for HNT.
Ethos matters. The many promises of blockchain technology are that individuals can finally have digital ownership of their data, and individuals can be the ones who benefit from our own data instead of the current structure where our internet activity and habits are the product for the likes of Google (GOOGL), Facebook (META), etc. Part of the way Helium structured their 5G network is that users can CHOOSE to contribute their network activity data in return for compensation. This should not be overlooked from an investment perspective, as this puts power back in the hands of the individual and provides a potential yield to users of the network, which can be used as an onboarding tool.
While the investment potential is massive, it is very difficult to determine where the value will accrue. Will value accrue at the subDAO tokens (i.e., IoT and Mobile), at the DAO token level with HNT, both, or neither? Additional clarity is needed here.
The move to Solana is a massive shift to the existing Helium structure. The scrapping of Helium's native blockchain to move to Solana, and therefore scrapping proof-of-coverage and using oracles instead, creates an entirely new mechanism for operating the various Helium networks. There may be significant hiccups in the transition process. Additionally, it should be noted that Solana is not without their own decentralization and network outage issues as well.
Crypto regulation should be on the minds of all crypto investors. One major concern for Helium is that the only U.S. exchange HNT is listed on is BinanceUS. This could be foreshadowing of Helium being dubbed a security by the SEC in the future.
The potential for decentralized connected device networks is massive, and Helium is a well-funded project with various networks in development and possesses the potential to scale and onboard additional device connecting networks. Helium is well positioned to be the first-to-market on this concept at scale. However, the move to Solana will be a massive undertaking and creates too many unknowns in the short term. Additionally, the question behind which token within the Helium ecosystem will actually accrue is still unknown. A small, speculative allocation to HNT is warranted to gain exposure to the massive upside of Helium if they do successfully scale their 5G network, but we recommend a HOLD until the Solana transition is complete and there is greater clarity around token value accrual.
Side Note: this is potentially a massive win for Solana and could be the next big blockchain use case beyond decentralized finance (DeFi) and NFTs. If Helium gains real traction with their 5G network, and the Solana blockchain proves they can handle the network demand, this would be very bullish for Solana.
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