Hello Friends,
Today we are taking a look at the ICON ICX coin. ICON is a very exciting South Korean venture that plans to act as a unifying fabric for different blockchain communities, allowing them to interact while maintaining their autonomy. It is a highly ambitious project on the same plane as Ark.
As always, we are looking at the coin, ICX, and not the larger business model because that is what you are investing in. This article is for the hardcore trader, crypto geek, and interested bystander alike. It isn’t investment advice. As always, buying a coin is a market based decision that changes based on conditions. I am not telling you to buy the coin or stay away from it. I am helping you understand it.
I recommend you do independent reading on ICON and its ICX coin before you read this article, as I won’t bother explaining the intricacies of the ICON system. This is about the ICX coin, what it does, what could cause demand, and what could cause the coin to be dumped/destroyed on mass.
A major issue you might have to consider is how much you believe in the Efficient Market Hypothesis in crypto, and how fast it works if you do. We won’t cover that because it is highly debatable and theoretical. You should know that even Efficient Market Hypothesis adherents know that the market adjustments it causes can be sudden and absolutely brutal to the common investor. I am not sold on the Efficient Market Hypothesis in crypto myself, but its validity does not affect this analysis.
Basic Outline: The ICON Republic, Its Communities, And The ICX Coin
The ICON system is fantastic in that it allows Communities to be almost completely independent. Unlike the Globalist tones of the whitepaper, the system is the opposite of Globalism. Each Community has near autonomy, in that it can have its own currency and sets its own rules, even its own consensus algorithm. Likewise, ICON allows the flexibility to create Communities in various different countries with various different laws and regulations for crypto companies.
Connecting all these different communities is the decentralized ICON Republic blockchain. This block chain uses ICX Coins. On top of this blockchain, third parties can create DAPPs that can interact with Communities and one another, or just be standalone operations. So we can now outline where ICX tokens are used: on the ICON Republic blockchain, when communities interact with one another, when communities interact with the ICON Republic, when communities interact with DAPPs, and when DAPPs interact with each other. The most important thing to note is that the ICX coin is not needed within Communities.
A great example is the hospital and insurance scheme outlined in the whitepaper and on ICON’s website. Watch the YouTube video again for a refresher (again, ignore the Globalist overtones, it is just bad marketing):
The way they present the scheme, the Hospitals and Insurance companies are separate Communities in ICON. This means the ICX coin is put to use whenever Insurance Communities interact with Hospital Communities. However, this isn’t necessarily the case, as American Readers know. Some behemoths like Blue Cross would translate their entire network onto the blockchain as one Community, meaning that the ICX token would not get near the use. When you analyze what should happen to the ICX price as Communities are added, you always need to keep this in mind. All interactions within a Community do not require the ICX coin, so even a very large partnership could have little long term affect on the value of ICX tokens.
The ICON Republic is governed by representatives from the Communities called C-Reps. The most important function that C-Reps do for our purposes is determine the yearly increase in ICX coins. They can grow the pool of ICX coins up to 20% a year. It could be 0%, but it could be 20%. So, when thinking about the long term return of holding this coin, just know that the coin could be hit by 20% inflation each year.
These are the fundamentals. First we will look at major problems within the system. Then we will look at the major growth potential of the coin thanks to a surprisingly low market cap.
The Return of Bancor: Pump-And-Dumps and Arbitrage Issues
The ICON Republic unsurprisingly interacts with its communities via Smart Contracts. What is surprising is that the designers chose to use the Bancor protocol and its flawed Bancor pricing equation. First, read my overview of Bancor here: @roosterred/why-bancor-unless-it-changes-will-be-pump-and-dump-nightmare-for-investors
Now, ICX itself does not have this Pump-And-Dump problem as its relationship with Ether is determined by the the ICON Republic. However, it faces several other issues related to the Bancor protocol. The first is changes to the price of Ether. Steep increases in the price of Ether mean that holders of ICX may on mass destroy their coins via the contract. The reason for this is that the contract is suddenly worth more than the coin itself, so everyone, bot or human, is going to sell the coins back to the contract, destroying them on mass.
The second, and arguably greater concern, is that Ether is not a stable currency right now. It honestly does not make monetary sense to tie your currency to an unstable one. Think of the Hospital and Insurance example. If the value of Ether in Won (krw) decreases 15% in a single day, which is not that uncommon, then the Hospital Community who received ICX from the Insurance Community feels cheated. For the ICON ICX system to work, price stability in terms of fiat is of upmost importance, and using the Bancor protocol makes ICX much less stable in terms of fiat. It is a huge flaw. And I have no problem calling this a flaw.
All of these problems are compounded when we look at the coins of the Communities in the ICON system. They have to be tied to ICX to use the SmartContract exchange. If ICX is being destroyed on mass when Ether increases, what do you think will happen to these ICX-backed coins? It is organized chaos. Huge swings in values will suddenly strike every ICX-backed coin. Now read my Bancor paper again. Every issue affecting Bancor-backed coins will affect ICX-backed coins.
People who don’t understand the Efficient Market Hypothesis will claim it solves these issues. We aren’t going to debate the Efficient Market Hypothesis here. However, the Efficient Market Hypothesis supposedly only works because actors, humans or bots, act to make the market more efficient. This can be brutal on the common investor. Creating a coin that is guaranteed to further tilt the playing field towards savvy traders and arbitrage bots has political ramifications. ICX could quickly be known as a scam coin for the everyday investor because the everyday investor can’t interpret its sudden price changes.
A Low Market Cap: The Possibility of Very High Returns
I am going to assume the worst here because the whitepaper and ICON website both use very strange wording when outlining the ICO and the number of ICX coins being issued (possibly shady marketing, but maybe just bad). ICON says it is issuing 150,000 ETH worth of coins in the ICO. It does not specify if this includes the coins being issued to its foundation, team, etc., so I am going to assume it doesn’t. Most other white papers are crystal clear in this regard. So, I am assuming ICON is going to claim a 300,000 ETH market cap if it sells out its tokens in the ICO.
Even 300,000 ETH is small for what ICON hopes to accomplish. Let’s say that ICON is successful, but only successful in Korea, and only as the connecting fabric of Korea’s healthcare sector. That is still potentially billions of dollars in transactions done through ICX each year. This fits a high risk, high reward coin. This valuation seems honest. Gains of 10x, 20x, or even more are possible in the long run.
I hope you found this helpful! Tip me 10% of What You Make or Save Using This Information (Whichever is Greater)!
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Your friend,
RoosterRed
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*Note: I usually have to correct grammar mistakes in my articles, so this will likely slightly change. It is usually little, inconsequential mistakes like “their” instead of “there”. *