HNT is the native cryptocurrency of the Helium blockchain. It is used to reward those who maintain, validate and provide coverage for the network. It is also burned (destroyed) to create Data Credits, which are used to operate devices on the network. When the network is fully operational, HNT and Data Credits function together in a Burn-and-Mint equilibrium. Let’s explore what this all means.
HNT Tokenomics
There is a max supply of 223,000,000 HNT, which means that is all that will ever be created and exist. There is no pre-mine of HNT, which means all HNT has been mined and distributed (issued) organically since the inception of the network.
HNT issuance halves every two years, as explained in HIP20. This creates scarcity as the network grows, which should protect the token price and keep stakeholders incentivized to protect, operate and grow the network.
- 5,000,000 per month until Aug. 1st, 2021
- 2,500,000 per month until Aug. 1st, 2023
- 1,250,000 per month until Aug. 1st, 2025
- etc.
- etc.
HNT issuance is divvied up to incentivize different functions of the network.
Less than 35% of the distribution goes to the Helium team and Investors to incentivize them to act as caretakers of the blockchain, enacting any community-proposed improvements (HIPs) as the project matures and help secure the network.
Miners that transfer data over the network are allocated 30% of the distribution of the tokens, with this percentage gradually increasing over time. It is important to note that this 30% is simply a cap, with HNT rewarded at a 1:1 ratio based on data sent. Since data transfer is so affordable and the network is so young, most of the tokens in this allocation are rolled into incentivizing Proof of Coverage, acting as additional incentive for building out the network in the early days.
Less than 29% of the distribution goes to Proof of Coverage, which is essentially rewarding hotspots talking to each other, which proves they are providing coverage. These rewards increase when a hotspot has more witnesses and when those witness are far away and spread out, but is scaled down if the hotspot is too close to other hotspots and/or the hotspot is talking to other hotspots that are in a cluster themselves. This an oversimplification but it incentivizes hotspot owners to create a large uniform mesh (vs. a tight mesh) net over a geographical area. More information on this incentive structure can be found here.
Lastly, a static 6% of the token distribution is allocated to the validators, which are vital in keeping the network secure and operating smoothly. People can gain access to this 6% of the distribution by staking their HNT, which will allow them to earn proportional rewards of their stake in their staking pool when the pool is elected to a Consensus Group.
The Burn-and-Mint equilibrium (BME)
One day the network will stop minting tokens, but all parties listed above must still be incentivized to perform their duties. This is where BME comes into play. In a simplified explanation, when people use the network to operate their IoT devices, they use Data Credits. In order to acquire Data Credits, they must spend or burn HNT, which removes HNT from the circulating supply. Remember, the max supply is 223,000,000 HNT, which means this “burned” HNT can be “recycled” and reintroduced into the supply to incentivize network stakeholders. This reintroduction into the supply is called Net Emissions. Net Emissions are capped to protect the supply-and-demand sensitivity and can be adjusted over time as network economic dynamics change.
Learn more about Net Emission specifics here, and BME models here.
Data Credits
Data credits are the nuts and bolts of devices actually using the network. If you run a business that sells Husband Tracking Pocket Knives, you would first purchase HNT through an exchange or private vendor. You would then spend (burn) the HNT to acquire the appropriate amount of Data Credits to cover the estimated GPS data periodically sent across the network (via the hotspots) from your pocket knives to the wife’s phone. Data Credits are always set to $0.00001, so you don’t necessarily care about the price of HNT, because you can always buy a fraction of an HNT token if your data usage calculation, and thus your Data Credit need, is lower than the market price of a single HNT token.
Learn more about Data Credits here.
The Elephant in the Room
Data Credits are so cheap and the network use is so modest, how does this justify the comparative price of HNT being so high? This is a valid question and I can only give my personal opinion.
If you have been around cryptocurrencies for a while, you may have noticed that the value of many tokens are based on extrinsic value. People give the token value, there is a limited supply of said token, and thus the token gains a ranking on CoinMarketCap/CoinGecko. Sure the token may have cheap and fast transaction fees, but the bulk of the given value is based on very little real utility, other than a store of value, and more on the idea of the coin itself. The meme coin market embodies this dynamic.
Then you have coins like Ethereum, which have more intrinsic value and used all the time primarily in the form of gas fees (Gwei) to move crypto assets from one place to another. The value of Ethereum is based on speculative pricing of increased network usage. The larger the Ethereum ecosystem, the greater the demand for ETH, as ETH is a fundamental cog in decentralized applications (dapps) built on the Ethereum blockchain.
I see BME token prices as a hybrid of speculative pricing of future network use with the accompanying utility factor, combined with the simple dynamic of valuing a coin and giving it value. People involved with Helium and building “The People’s Network” value the project and the mission, and thus give HNT value. By implementing a limited supply of HNT and providing mechanisms for removing liquidity from this limited supply via staking, the price of HNT can remain attractive to incentivize those who choose to devote time, energy and resources to help build and operate the network. This price and price movement can also draw in outside investors who are purely looking for an investment play, which further drives up the price of the token.
I too recognize the elephant, but I sleep very well at night knowing that pure network utility plays just a fractional role in the price of cryptocurrencies, yet a major role in project longevity. The beauty of crypto-projects and the blockchain revolution is that passionate ideas with grassroots communities can realistically fund projects with resources that few can only dream of in the traditional pre-IPO world.
Helium is powered by one of these passionate, grassroots communities – and HNT is not its idol, but rather its darling, inspiring a legion of builders to come together and do what they intrinsically do best – build. 🎈
Oh, darling of mine, where have you been?
– The Chainsmokers