ICON 2024: Charting a Course for Expansion Through a Strategic Merger and Revenue Consolidation

Dear ICON Community Members,

Happy New Year!

We have just concluded an eventful year and have much to look forward to in 2024. Over the past year, we successfully tested and validated ICON’s general message passing layer (xCall), demonstrating its readiness for broader adoption. Through a significant integration with Cosmos Inter-Blockchain Communication (IBC), ICON facilitated the cross-chain launch of Balanced, the first user application to utilize ICON’s interoperability layer, on Archway.

We are now at a crucial turning point in ICON’s history. After dedicating many years to building a robust and comprehensive framework of interoperability—a cross-chain optimized layer 1 protocol (ICON Network), an interoperability protocol (BTP), and a general message passing layer (xCall) compatible with all existing interoperability protocols—the time has come to aggressively scale by increasing adoption for ICON technology and growing revenue.

But as the oft-cited analogy between the internet and TCP/IP suggests, there are inherent challenges to selling technology that operates behind the scenes. While the value of the internet is widely recognized, the value of TCP/IP, which enables the internet, often goes unnoticed. This is why we need a user-friendly product that clearly demonstrates the value of interoperability technology through its immediate usefulness to end users. Balanced can be that product for us.

Our key focus for 2024 is to position Balanced as a leading decentralized finance (DeFi) protocol and in so doing, drive adoption for ICON technology and generate revenue for the network. To achieve this, we must rapidly grow ICON’s interoperability network (already in progress), list a wider range of high-demand cross-chain asset pairs, and further enhance user experience through well-funded liquidity pools and added security.

Let us go into more detail below.

I. Expansion through Merger

Our first step is to merge with Balanced. This strategic alignment presents an unparalleled opportunity to accelerate the adoption of ICON’s general message passing layer (xCall) by leveraging the intuitive appeal of a user-facing product. Furthermore, the merger allows us to implement an economic framework that aligns cross-chain expansion efforts with revenue generated for the ICON network through the consolidation of revenue streams.

For detailed terms of the proposed merger, please read this Balanced Forum post. For more on revenue consolidation, read on.

II. Revenue Consolidation

A. Adopting ICX as the Balanced Protocol Token

A crucial aspect of our future is to consolidate revenue streams to enhance the value captured by ICX. Because Balanced is built on ICON and powered by ICON’s general message passing layer (xCall), every cross-chain transaction generates both ICON Network transaction fees and xCall usage fees. Both fees are already used to purchase and burn ICX. In addition to these two revenue streams that put deflationary pressures on ICX, we propose adding a third by adopting ICX as the protocol token for Balanced (for more details of BALN buyback, please read the Balanced Forum post).

Under the proposed terms of the merger, all fees generated through user activity on Balanced will be deposited in ICON’s public treasury, of which no less than 50% will be used to buy back and burn ICX while the rest gets reinvested into the platform (e.g., funding research and development).

B. Purchasing Network-Owned Liquidity (NOL)

A proposed purchase of network-owned liquidity* on Balanced will create another source of revenue, while also serving the dual purpose of increasing user confidence in the platform so that Balanced can grow into a leading DeFi protocol optimized for native swap experience.

*Network-owned liquidity for the purposes of this post will refer to assets owned by ICX holders and deposited into liquidity pools (LPs) to generate trading activity and fees.

III. Making Balanced Successful

With projections of DeFi market capitalization surpassing USD 200 billion by 2030, capturing even a small fraction of this market could generate significant returns and lead to greater sustainability. To achieve this, Balanced needs to establish itself as one of the top cross-chain DeFi protocols.

A. Ensuring Network Owned Liquidity and an Emergency Fund

Delivering an optimal user experience relies on competitive interoperability technology and the utility offered by the platform. We have already demonstrated the competitiveness of ICON’s general message passing layer (xCall) by pioneering the use of IBC to connect chains outside the Cosmos ecosystem. Ongoing integrations to increase asset availability and liquidity seeding at launch are essential for enabling efficient native swaps on Balanced. Similar to the Foundation’s provision of seed liquidity for the sARCH/bnUSD pair upon Balanced’s launch on Archway, sustained liquidity funding will be necessary during the initial stages of Balanced’s expansion.

To promote safety on the platform, we propose allocating funds to an emergency fund. This fund will secure user assets in the event of hacks and exploits. It will also foster user trust as we expand Balanced across multiple chains.

B. Strategically Allocating Emissions for Economic Growth

To finance strategic investments aimed at increasing activity on Balanced and expanding its user base, we propose increasing monthly emissions from 3 million ICX per month to 5 million ICX per month.

The entire increase in emissions will be dedicated to expanding Balanced cross-chain. The current node staking rewards and Contribution Proposal System (CPS) allocation will remain unchanged. See below for a chart of proposed emissions, as well as brief explanations of each proposed allocation:

Network-owned Liquidity: This will be deposited as liquidity on the Balanced DEX at the discretion of ICON Validators. For example, if validators want to supply more liquidity in the sICX/bnUSD pool, they will vote to do so. Specific mechanics will be discussed prior to implementation if this proposal is approved, but governance will be by validators.

ICON Insurance Fund: This will be stored in the form of ICX and will be used to compensate damaged parties in the case of an exploit of ICON, Balanced, or any other product critical to ICON’s infrastructure. Releasing these funds will be at the discretion of validators. Unless released, these funds are locked and non-circulating.

Liquidity Mining Incentives: This will be given as rewards to community liquidity providers on Balanced and allocated in a similar fashion to how Balanced allocates its BALN emission currently. Specific mechanics will be discussed prior to implementation if this proposal is approved.

bnUSD Savings Rate: This will be given as rewards to users that lock bnUSD. This increases demand for bnUSD, which will increase Balanced revenue from increased trading volume and purchasing yield-bearing assets (e.g. government bonds) with bnUSD backing.

ICX Emissions Comparison

C. Low-Impact of Emissions

It’s worth noting that the majority of the proposed increase in emissions is retained by the network itself in the form of network-owned liquidity. If this initiative is deemed ineffective, the network could vote to withdraw this liquidity, burn ICX, and remove the emissions allocated to this initiative. The value from the new emission is not lost or extracted from the network, but rather, allocated toward revenue-generating (icx-burning) activities.

Additionally, since this value is retained, there will be a point when the new emission for network-owned liquidity is no longer necessary. The network-owned liquidity is permanent (unless voted to be removed by governance), therefore, emission to grow network-owned liquidity will no longer be necessary once we reach a point that supports a sustainable amount of trading volume with minimal slippage (~$2-3M per pool). This may take several years to achieve based on several factors such as trading activities and ICX price.

Mitigating Inflationary Risk Through Growth

Closing Thoughts

Our comprehensive roadmap, which includes merging with Balanced, consolidating revenue streams, and strategically injecting capital, paves the way for a transformative era for ICON. This approach not only expands our cross-chain capabilities, but also strengthens the value and stability of ICX. By focusing on creating a robust platform that generates revenue, we position ourselves to take advantage of emerging opportunities in the blockchain space, driving growth and innovation throughout the ecosystem.

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EDIT: Updated my proposal after more thought in order to keep staking rewards pretty much consistent with what they are now.

I like to call the concept described above “economic enshrinement”, and strongly support this strategic direction. It gives both communities such a clear narrative and clear focus of what to build. Using IISS to incentivize a network-owned, revenue-generating application that also showcases ICON’s technology is the perfect use of network emissions.

I believe this direction would prove that the sum value of both projects working together on a shared vision is greater than the value of each of them separately. DeFi has a clear product-market fit, and ICON, by economically enshrining Balanced, certainly has a chance to carve out some market share.

I shared my thoughts in more detail on the Balanced forum, where the Balanced community will be discussing the merger component, but here’s some key highlights:

Benefits to Balanced

  • Access to new users through cross-promotional efforts with other chains as ICON builds network-owned liquidity in cross-chain assets and Balanced integrates other chains
  • Assistance in ongoing funding for development ensuring long-term development support for Balanced, enabling Balanced to build new features and improve/maintain existing ones
  • A purchase of BALN at a premium to market price in exchange for a more liquid token that is still tied to the success of Balanced
  • Ongoing incentives contributed by ICON Foundation and the ICON Network, or as I like to call “economic enshrinement”
    • Liquidity for sICX/bnUSD and cross-chain token pairs (e.g. sARCH/bnUSD) to increase trading revenue
    • Incentives to boost the yield on the bnUSD savings rate to increase demand for bnUSD, which enables Balanced to generate revenue from purchasing RWAs (e.g. US government bonds)
    • Incentives to provide liquidity on the Balanced DEX to drive LP engagement, increase liquidity, and increase trading revenue
    • Funding for an insurance fund to mitigate losses in the case of an exploit

Benefits to ICON

  • Access to new users through cross-promotional efforts with other chains as ICON builds network-owned liquidity in cross-chain assets and Balanced integrates other chains
  • Flagship user-facing product to pioneer ongoing utility of the xCall general message passing service, which generates additional fees that burn ICX
  • Minimum of 50% of the fees generated by Balanced will be used to buy ICX on the Balanced DEX and burn it
  • Balanced developers and designers will contribute to the growth and implementation of xCall, ICON products, and other ICON initiatives
  • The ICON community gets a user-facing application to rally behind and showcase xCall as a robust interoperability solution
  • The establishment of ICON as cross-chain liquidity hub through Balanced powered by xCall

Now having said all that, there’s one tweak I’d like to see on this proposal. I’d like to change the numbers to have network-owned liquidity be at least 50% of emissions, whether that be through cutting from CPS/staking rewards or by increasing emissions more. For comparison, Osmosis has inflation of 10.5% and Solana has inflation of 6%.

Here’s what I propose:

Proposed Metrics ICX USD
ICX Value 1.00 $0.25
ICX Total Supply 990,451,000 $247,612,750
Monthly Emission 5,678,910.00 $1,419,728
Annual Emission 68,146,920.00 $17,036,730
Annual Emission (%) 6.88%
Proposed Annual Budget ICX USD Allocation %
Staking & Validator Rewards 32,369,787 $8,092,447 47.50%
CPS 1,703,673 $425,918 2.50%
Network-owned Liquidity 30,666,114 $7,666,529 45.00%
Liquidity Mining Incentives 0 $0 0.00%
bnUSD Savings Rewards 681,469 $170,367 1.00%
ICON Insurance Fund 2,725,877 $681,469 4.00%
Total 68,146,920 $17,036,730 100.00%

EDIT: Updated my proposal after more thought in order to keep staking rewards pretty much consistent with what they are now.

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  1. Balanced will make a greater contribution to ICX incineration.
  2. We will produce 24 million more ICX every year.

It’s a contradiction

What I mean is that the additional amount of ICX supplied seems to be too much.

I think we need to first discover the advantages of using Balanced instead of other exchanges.

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I am a proponent of any strategic course that centers around bringing value to $ICX holders.

  • Last years we only had the burn of ICX through L1 fees (1)
  • The xCall tech built out in 2023 adds another burn mechanism (2)
  • This proposed merger would add another burn mechanism through trading fees (3)

Also seeing the benefits of a succesful Balanced app that fully utilizes xCall, which helps to further bring the xCall technology to the attention of external teams/projects/dapps looking to expand their own respective use-cases cross-chain.

Furthermore, I can also understand community members who may argue with the proposed increasing of emissions and strategic allocation of these emissions.

It is worth noting that the majority of the proposed increase in emissions is retained by the network itself in the form of network-owned liquidity. The proposed increase would be 24,000,000 annual, of which 87,5% (21,000,000) would get locked into network owned liquidity, which in turn assists in increasing Balanced usage (deeper pools = more trading = more ICX burn)

@Yeol do you think that the increased emission could be offset by Balanced managing to grow and achieve a sufficient DeFi market share + its success helping other apps to adopt ICONs cross-chain (xCall) infrastructure? One could argue that only 3% (1,200,000) would need to be offset, as the rest is locked up in network owned liquidity and an insurance fund.

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I agree with that, but the more important question is how to bring users from the dominant exchanges.

Why should you trade on Balanced? I think specific ideas about this come first

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Absolutely! I think a number of ideas are mentioned by @BennyOptions_LL above and in the Balanced Forum:

  • Access to new users through cross-promotional efforts with other chains as ICON builds network-owned liquidity in cross-chain assets and Balanced integrates other chains
  • Ongoing funding for development (…) enabling Balanced to build new features and improve/maintain existing ones
  • Ongoing incentives contributed by ICON Foundation and the ICON Network

But yeah, future growth and giving users real reasons to trade on Balanced go hand in hand. The network owned liquidity contributing to deep liquidity on cross-chain token pairs could be another reason for users from different ecosystems to trade confidently on Balanced moving forward

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yeah,what im thinking and its very questionable for the future for me, that’s because we have more usecases and more potential of burning higher amount of icx we should increase the inflation? for example if lets say in the future we able to burn 30million icx in a year the team will come and say we need more inflation? how icx will become deflationary? i think we all understand thats impossible right?you cant produce 60million extra tokens and expecting to become deflationary unless you become a market leader which is unlikely realistically speaking.

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Save for the 2% allocated towards the bnUSD savings rate and liquidity mining incentives, the entirety of the proposed increased emissions will be used to purchase network-owned liquidity on Balanced and to set up an ICON insurance fund to cover user funds in the case of hacks (which will be kept in ICX and locked).

The expectation is that with sufficient liquidity we can position Balanced in the top ranks of cross chain DEXes that offer native swap functionalities. More activity on Balanced will create more revenue, which will lead to more purchase and burn of ICX, so Balanced success is directly tied to deflationary pressure on ICX.

If this plan does not work out, the entirety of new ICX issued through the proposal can be used to buy back and burn ICX–the emissions will belong entirely to the community and be governed by community vote (ownership for network-owned liquidity lies with the voters, not the Foundation).

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Did you read this section below Jaba? Happy to answer questions if it’s hard to understand. The plan is for emissions to largely stop, then the network will have amassed enough network owned liquidity to support constant burning.

On top of that, as @helloelise mentioned, almost all of the new emissions are retained by the network and can be withdrawn and used to burn ICX. So as soon as the emissions even burn a little ICX, it is already a net positive.

Imagine this, we emit an extra $100 of ICX, which is converted to sICX/bnUSD LP tokens. Then we get $5 of trading fees to burn ICX. Then ICON decides it wants to withdraw the liquidity and cancel the program. So it withdraws $100 of sICX/bnUSD, then burns $100 of ICX. The total burned is $105 (fees + withdrawn LP), while the total extra emission was $100.

Ofc, the goal would be to NOT withdraw the liquidity and allow it to constantly burn ICX over time. This is an example to show how it’s a net positive on the “balance sheet” of ICON.

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