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.
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.
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).
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.
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.
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.
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.
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.
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.