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This fundamental analysis is part of this week’s paid newsletter from Crypto Consulting Institute, providing market insights, actionable trade signals, and fundamental analyses. For more information, visit: https://www.cryptoconsultinginstitute.com/newsletter
Alice is the CFO of a large corporation. She’s always on the lookout for ways to streamline processes and increase efficiency within the company. One day, she hears about a new technology called the blockchain. She dives deeper into smart contracts and realizes they could help supply chain management.
After some research, Alice decides to try it and implements a blockchain solution for tracking the movement of goods through the supply chain. At first, there were some growing pains as the company adjusted to the new technology. But over time, Alice starts to see real benefits.
The blockchain solution allows for greater transparency and accuracy in tracking the movement of goods, which means that the company can more easily identify bottlenecks and inefficiencies. It also allows for better collaboration with partners and suppliers, as everyone can access the same, up-to-date information about the supply chain.
As word spreads about the success of the company’s blockchain implementation, other enterprises start to take notice. They begin to see the benefits that Alice’s company is experiencing and want to adopt blockchain technology for themselves.
Before long, the use of blockchain in supply chain management has become the industry standard. Alice is hailed as a pioneer, and other companies follow in her footsteps, implementing blockchain solutions to improve their operations.
Blockchain adoption for enterprises is a foregone conclusion once real-world businesses showcase their success. It starts with a single company, like Alice’s, recognizing the potential of the technology and taking the leap to adopt it. Once the benefits become clear, other enterprises follow suit, and it becomes the new normal.
Casper is a sharded layer-1 proof-of-stake blockchain built from scratch with the primary value proposition of facilitating enterprise adoption of blockchain and smart contracts to support business operations.
In this FA, we will go into depth on the fundamentals of Casper, discuss the implications of Casper’s technology for enterprises, explore use cases that bring businesses closer to tokenization, discuss the challenges for enterprise adoption and explore our investment thesis for $CSPR.
Casper is a layer-1, sharded proof-of-stake blockchain built for enterprise adoption. It is built from scratch with the researched and peer-reviewed Correct by Construction model, from which Casper derived its name. The advantages of Casper CBC are ensuring the liveness and safety of the Casper blockchain. When blocks on the blockchain conflict, it can often lead to network outages, as seen in Solana outages in the past.
A key component of this is the Highway protocol, allowing for differentiating finality thresholds between nodes using mathematical proofs. Simply put, nodes can reduce the requirements to finalize a transaction, attend to lower-value transactions as a result, and increase their finality threshold when attending to high-value transactions to ensure the safety of digital assets and maintain liveness. One way this is achieved is by executing a transaction after consensus is achieved on the Casper blockchain. In addition, the Highway protocol finalizes blocks like Directed Acyclic Graph (DAG) technology, and it utilizes what’s known as the “LMD GHOST fork choice rule,” which is the same method Ethereum 2.0 is implementing to scale consensus, the result of which is increased throughput and reduced latency on the network.
The architecture of Caspers blockchain offers advantages that are distinct to enterprises. Casper is the first upgradeable smart contract platform. This feature enables enterprises to make ongoing updates to their products on Casper or correct bugs in their code. There is added importance to this feature in releasing permissioned smart contracts onto the Casper Network. While Casper is permissionless and largely decentralized — enterprises can utilize smart contracts with limited access. This is an important feature to keep sensitive enterprise data and functions private.
Weighted key management is an important feature for enterprises when assigning access to technology built into a permissioned network. As the name implies, sets of keys have greater authority to execute transactions of a particular nature. The ability to change or alter the weight of a set of keys is appropriate for HR and employee access privileges.
Secondly, Casper’s WebAssembly (WASM) SDK enables standard coding languages to be converted into blockchain languages. Currently, estimates for the number of active web3 developers vary widely. According to a 2019 survey by Fundamentals, the number of active web3 developers was estimated to be around 900,000. However, other estimates suggest that this number could be as high as 4 million.
If we consider a developer report published in January 2021 by Stack Overflow, the total number of web2 developers is estimated to be around 28.9 million, which we can reasonably predict is much higher.
This is an important consideration for future developer activity on Casper. As an overview, WASM is a low-level assembly-like language that can be compiled to run on web browsers. WASM can run code written in multiple programming languages such as C, C++, Rust, and others, and it is designed to be faster than JavaScript. WASM also offers memory safety, portability, and the ability to run on multiple platforms.
When we consider that Casper operates a Solidity Compiler (CASPiler) designed to translate Solidity into Rust (the same programming language as Solana and Near), it appears that Casper is uniquely positioned to attract Web2 developers into the blockchain space. Ultimately, Casper is focused on being developer friendly and could potentially have a larger pool of future developers to onboard. While solidity remains the most popular language on blockchain as Ethereum maintains dominance in developer activity, it can inhibit new Web2 developers looking to build in the space.
Interestingly, Casper has several comparative advantages to Ethereum 2.0 and future iterations regarding their tech stack. CBC Casper enables the broadcasting of transactions after a block has been finalized. Simply put, this means that blocks on Casper do not operate on an auction (gas war bidding) system like Ethereum; this enables a predictable and consistent cost basis to execute transactions while eliminating front running.
While third-party WASM compilers may enable developers to translate solidity-based code, they are often not integrated features of the respective networks.
By utilizing a DAG-like data structure, Casper CBC ensures that when a disagreement between nodes occurs, the network can continue reconciling disputed blocks in branches without congestion, and the remainder of the network is uninterrupted. Sharding, in this context, is thought of as the creation of a new DAG branch when a certain optimistic confidence threshold is not met (inactive or malicious nodes) that would require a proportional amount of the network to agree to the validity of a transaction. This data structure allows a deviation from the “longest chain rule,” whereby a node must sync with a blockchain’s entire history and experiences downtime when there’s a disagreement between nodes.
The ecosystem is still in its infancy, with several significant enterprise partnerships like IPwe, IBM, Fuzhou region in China, Hyperledger (ISO20022 and ISO15022 settlement), Metis (DACs and Middleware), Hera (Tokens backed by gold), et al.
Despite the unique value proposition and developer-friendly environment, activity on Casper has been far from impressive. However, with the upcoming Casper 2.0 upgrades and the announcement of a $25M developer grants program, we may see a significant uptick in developer and user activity.
An essential function that will bring together the last five years of effort to create an enterprise-friendly blockchain is tokenization.
In previous FAs, we mainly explored tokenization specific to digital assets, with a handful of real-world examples. Here we wish to touch on the tokenization of derivatives, functions, concepts, and real-world assets.
“Tokenization is the process of replacing sensitive data with unique identification symbols that retain all the essential information about the data without compromising its security. Tokenization, which seeks to minimize the amount of data a business needs to keep on hand, has become a popular way for small and midsize businesses to bolster the security of credit card and e-commerce transactions while minimizing the cost and complexity of compliance with industry standards and government regulations.” — Ben Lutkevich
When you hear the quip that “everything will be tokenized,” it’s no exaggeration. Sensitive data can be tokenized to protect individual data sets through a cryptographic hash function. That tokenized data exists in a distributed ledger tech, which is essential to distinguish between DLT and blockchains.
Examples of Tokenization:
- Payment Processing: Tokenization is a secure way to process payments, replacing sensitive credit card numbers with a randomly generated token. This token is then used to authorize payment transactions.
- Secure Data Storage: Tokenization stores sensitive data such as Social Security numbers and bank account information. A token represents the data, making it much harder for hackers to access the original data.
- Fraud Prevention: Tokenization helps to reduce fraud by making it much harder for criminals to access and use stolen credit card numbers.
- Mobile Payments: Tokenization is used in mobile payment apps to securely store payment information on the user’s device, such as credit card numbers.
- 5. Access Control: Tokenization controls access to systems and databases by providing users with secure tokens instead of their actual usernames and passwords.
The token becomes the exposed data point, and a smart contract, or “vault”, becomes the repository for that information that can only be accessed by those that own the necessary access token.
We can see that SWIFT, the world’s largest traditional financial technology provider, has conducted proof of concept studies in tokenization. SWIFT is positioning itself as an intermediary between TradFi and DLT/Blockchains where the tokens would be hosted.
Several other experiments involve tokenizing illiquid assets, transactions, and data. This differs from today’s standard in that personal information is stored on a centralized database which can be vulnerable through multiple points of access, such as vulnerabilities in the codebase, compromised passwords, backdoor access for third parties, identity fraud in credential recovery, etc. Owners of that data control an immutable token to grant them exclusive access.
We know that the tokenization of equities is inevitable. There are too many intermediary layers for average folks to access stocks and derivatives. Being able to tokenize stocks on-chain leads to deeper and more accessible liquidity.
Conversely, Boston Consulting Group estimates by 2030, the tokenization of global illiquid assets could reach $16 Trillion to as high as $68 Trillion.
The tokenized market is estimated to be 10% of the Global GDP by 2030.
But why is this relevant in this FA?
Casper is seeking to position itself as a tokenization platform that stores traditional data, securities, currencies, etc., into tokens. Enterprises require zero-value transactions for operational purposes, particularly in transferring and granting access to sensitive information, such as a driver’s license or passport.
Not every use of a token is a transfer of wealth. Tokens like NFTs can access enterprise smart contracts with weighted key management. In theory, this is achieved with what is known as a soul-bound token. This fundamental feature disables soul-bound token transfers, making it impossible to decouple it from an authorized account. However, weighted key management within a hierarchical enterprise can disable or increase the access of a soul-bound token.
Inside a DLT/Blockchain database, zero-value transactions can be issued that mint tokens to manage inventory, human resources, employee payments, and proof of ownership for non-tangible/illiquid assets such as intellectual property.
IP is particularly interesting to Casper, a notable example of the tokenization of ideas. IPwe is a significant partnership of Casper. The arrangement involves minting IP Patent NFTs. Boston Consultancy Group expects the IP market to reach a $3 trillion valuation by 2030. The appeal of using IP Patents with NFTs is in authorizing the use of IP and collecting royalties on-chain for its use, limiting the occurrence of IP theft or improper remuneration.
Tokenization using blockchain/DLT also solves many accounting problems for businesses of all sizes. Without revealing sensitive details, enterprises can have each value transaction recorded and visible on a blockchain/DLT in real time. One example may be purchasing inventory to replenish the stock in a supermarket or recording enterprise transactions that would otherwise be tax-deductible.
Big institutions like SWIFT are attempting to force their way to protect their middleman status. Still, if you have been keeping up with our FAs, you already know full well that blockchains/DLTs are messaging systems that just happen to host tokens that are derivative of assets with an underlying market value.
You would notice that in many cases, we are equivocating blockchains and DLTs as they share very similar functions when it comes to tokenization.
But what sets them apart is who has control over the network.
DLTs, such as XRPL and Hedera Hashgraph, are fully vetted and approved at the validator level. Not anyone with the necessary resources can simply participate in validating the network of their volition — this is the critical element that sets DLTs and blockchains apart.
While the likes of SWIFT appear to be playing catch up as, by their own estimates, the volume of tokenized assets could reach $24 trillion by 2027. Yet truly decentralized and permissionless blockchains that can play a part in facilitating tokenization constitute a significant threat to their monopoly.
Reviewing the regulatory landscape in the graphics above, it is worth noting that the world’s largest economy, the United States, still relies on the Howie Test to assess whether a piece of technology can be classified as a security. Indeed, much of the proposed legislation seems to set apart assets like Bitcoin as a commodity given that the price action does not derive from managerial effort and the network is sustained through decentralized participation; shutting down a mining company takes only the hash rate from the network and counterintuitively (for those seeking to shut it down) increases reward potential for those able to sustain operations.
What is particularly interesting is that they appear to be the only jurisdiction recognizing that tokens can be classified as a non-security when there is no direct managerial effort to sustain operations. Granted, there are efforts by global regulators such as the FATF and BIS to ensure that regulators determine who gets to validate a DLT (we have discussed in previous FAs, but for a change, I have provided an Appendix section with raw notes from recent studies into regulation from both entities).
While still a work in progress, Casper allows registered enterprises to access a public blockchain and deploy private smart contracts. According to the Casper 2.0 roadmap, they will soon be able to deploy the private side chains of Casper. From a regulatory perspective, Casper is positioned to achieve compliance even if validators must be registered and approved by regulators. An enterprise can achieve compliance with its own private smart contract network independent of Casper’s regulatory status. Currently, there is a validator limit of 100 for the public chain. As they scale their validators, the network will be increasingly decentralized.
Centralized regulators admit that interoperability is essential for these tokenization systems to function on DLTs. As such, with the right layers of smart contracts in place, it is unclear how monopolies could exclude decentralized and permissionless blockchains. Tokenization platforms of traditional enterprises will likely be a highly competitive market.
At the time of writing, $CSPR had surpassed 100,000 holders.
Validators and delegators have locked up 8.6B $CSPR tokens. The overall inflation rate is cited elsewhere at 8%, but with compounding, it is closer to 10.4%. Only a governance vote can change the inflation rate.
Currently, $CSPR is required to pay gas for transactions on the network and secure the network through validator nodes. There are no burning mechanisms currently in place.
$CSPR was at an all-time high of $1.33 at the token launch, given inadequate supply and liquidity. The increased circulating supply from releasing vested tokens had nuked the price. However, the steady increase of delegators in the network positively indicates that users prefer to stake their $CSPR than speculate on it.
Casper appears well positioned to facilitate enterprise adoption of blockchain technology to support their operations. This is in stark contrast to DLTs such as XRPL, where their communities often latch on to any indication that enterprise activity is about to increase on their network, However, this is usually in the context of large entities like central banks exchanging value cross-border.
The notion of enterprise adoption in cryptocurrencies is often focused on value storage and exchange, not value creation.
Value creation occurs through productivity and utilization, a more genuine measure of adoption. Ironically, that is seen through zero-value transactions that interact with smart contracts on a network. As opposed to zero-value transfers, which tend to “cook the books” for embellishing network activity, we have previously stated in our XRP FA that this was quite a widespread phenomenon. Much of the market is still locked into the notion of value transfer as the sole use case for blockchain and arguably fails to see the bigger picture.
Regardless, business operations on-chain give enterprises exposure to other market participants within the ecosystem. For instance, think back to our Chainlink FA, where the utilization of price oracle feeds, and Keeper contracts require the project to pay an ongoing fee in $LINK.
In a blockchain ecosystem that facilitates business operations, it is plausible that IBM’s partnership and use of Casper would facilitate on-chain payments to AWS to maintain the upkeep of their servers that host their data (or utilize ALEPH or Akash as a decentralized cloud storage provider). Let’s say hypothetically that Cisco builds its point-of-sale systems on the blockchain. An enterprise may pay a fee directly to Cisco for its POS technology, and utilization would accrue a cost that would be settled through smart contracts. Suppose we were to get creative within the emerging capabilities of Casper. In that case, IBM may seek to obtain patents from Intel to permit the manufacturing of their proprietary GPU processors in their computers and pay an ongoing royalty to Intel. Further, Casper’s partnership with Hyperledger protocol, which seeks to unify open-source blockchains to assimilate to an interoperable ISO20022 standard, positions Casper well to facilitate enterprise adoption, particularly in the context of the above hypothetical.
Of course, this is a hypothetical beyond the current capability of an enterprise blockchain. Still, it is entirely viable that blockchain could facilitate enterprise activities in an interoperable blockchain/DLT-based economy, all while maintaining concise accounting on a public ledger without exposing sensitive information. But the implications of enterprise adoption are profound as value is brought onchain to facilitate business operations.
You may ask, why hasn’t this happened yet?
As we discussed, regarding regulations, there is still a lack of clarity regarding what levels of compliance are required for an enterprise to operate on-chain. Furthermore, the size of a business presents an issue in implementation.
If you are a small business that provides a service to your local community, there are far fewer barriers to implementing a blockchain enterprise solution at a proportionate scale. If you’re a multinational enterprise, you not only await clarity in all the jurisdictions you operate in, but you likely have thousands of employees and existing systems that need to transition into the change. Organizational change takes an incredibly long time to implement, and it is often in proportion to the scale of the enterprise and the required changes. Furthermore, businesses require smart contracts tailored to their specific use case. Similar businesses may lose their competitive edge by adopting a one-size-fits-all approach.
Why Casper is well-positioned as an enterprise blockchain is the capability to upgrade smart contracts deployed on their blockchain and Casper’s WASM capabilities. A limitation to enterprise adoption of general-use blockchains is the immutability of contracts on the network and difficulty getting the yolk back inside the egg. Enterprises need to be cutting-edge and constantly evolve to maintain their competitive advantage. Further, as previously mentioned, a significant talent pool is inaccessible to Web3 ventures. While some sources state there are at least 800,000 active Web3 developers, there are up to 32M Web2 developers. WASM is a powerful tool to translate common programming languages into programming languages that are commonly required for Web3 DApps and blockchains. We have spoken on SDKs at lengths in previous FAs, and reducing the barriers to entry for developers in Web3 is a prerequisite for adoption.
On the flip side, there are several considerations before letting the bulls out of the pen.
First, upgradeable contracts and mutable NFTs are highly suitable for enterprises — but not for retail investors and average users. While there are advantages to correcting bugs in the code and making upgrades without having to undergo a migration or redeploy contracts, it introduces a significant trust vector. For enterprises, there would be reputational damage to malicious smart contracts. Still, for anonymous developers, the same risks of exploitation exist on Casper, similar to DApps on alternative networks. In addition, immutability is a prerequisite feature for many retail investors who value the principles of blockchain. In this sense, it is difficult to imagine that Casper will be competitive in the retail DeFi and NFT space.
Secondly, the $CSPR token currently lacks utility, and inflation may suppress price action. It is standard that a blockchain has a native token to pay gas fees for transactions and reward validators that maintain the network. There is no burn mechanism to counter the ongoing 8% APR. Value creation, as hypothesized above, and ongoing partnerships will need to bring an annual 8% growth to the network. Fortunately, a significant portion of circulating $CSPR is delegated and locked in validator nodes, for investors tracking staking and unstaking activities on the Casper blockchain explorer would likely predicate their investment behaviors.
Finally, as mentioned above, while the blockchain tech stack for Casper is impressive on the consensus level that ensures liveness and quick finality, enterprise adoption is likely the more attractive investment thesis than belonging to the L1 narrative. While untold trillions of dollars will come onchain in the future to transition the global derivatives and equities market, tokenize the real estate market, and facilitate enterprise activities, it will take a long time. Tokenization will not become the norm overnight, but first-movers will indeed have an advantage.
So as an investor, where to from here?
In the immediate short term, a lot of “hype” has been built around upcoming announcements in mid-January. Messari reported expecting a Google partnership; however, there are no primary or secondary sources to verify this claim.
$CSPR is moving up an ascending wedge and forming higher highs and higher lows on the daily. Compared to the rest of the market, it appears to have underperformed in the most recent rally.
Based on an unconvincing RSI that reflects a loss of strength that is visually apparent by recent long wicks created from sell pressure, it appears that the 50D moving average will be retested. Should the 50D MA fail to hold up, the ascending wedge will be tested at approximately 0.0285. Losing 0.0287 would lead to a loss in structure and a likely revisit of 0.025.
However, based on anticipation around upcoming Casper announcements (which may be a “nothing burger”), I favor an upside scenario given there does not appear to be a great deal of “buy the rumor” behavior.
To see a continuation in market structure, $CSPR needs to break through the 0.786 fib level around 0.031, which will break the more recent down-trending market structure.
While we anticipate that 2023 may swing to the upside in a mid-term rally, we still expect some pain in the event we approach the Fed pivoting on interest rates, which historically is a precursor for global recessions.
With this in mind, $CSPR may present a short-term opportunity, but we recommend sticking to an aggressive take-profit strategy, particularly with the ongoing uncertainty in the macro.
As for long-term accumulation, $CSPR has, by and large, not shown significant deviations from around the 3c mark for the last two months. For this reason, $CSPR is in a good position for a long-term DCA accumulation strategy. Given that the $CSPR market cap is $310M, and the upside thesis under the fundamentals of enterprise adoption may see it convincingly exceed a $1B market cap in the future, one would not allocate heavily to $CSPR as a percentage of your total portfolio.
It could be a long hold, but we can predict the same will be true of Casper for enterprises as it is for cryptocurrency adoption in general; no one wants first, and no one wants to be last.
Boston Consulting Group, ‘Relevance of on-chain asset tokenization in ‘crypto winter’’, June 2022, https://web-assets.bcg.com/1e/a2/5b5f2b7e42dfad2cb3113a291222/on-chain-asset-tokenization.pdf
Casper Blog [Partnerships and use cases], https://casperlabs.io/blog
Casper Correct-by-Construction, ‘Introducing the “Minimal CBC Casper” Family of Consensus Protocols’, Nov 5th 2018, https://github.com/cbc-casper/cbc-casper-paper/blob/master/cbc-casper-paper-draft.pdf
Casper Docs, https://docs.casperlabs.io/
Casper Whitepaper, ‘Highway: Efficient Consensus with Flexible Finality’, Jan 19th 2021, https://arxiv.org/pdf/2101.02159.pdf
Casper Stats, https://casperstats.io/
Coinmarketcap, ‘What is Casper (CSPR)?’, April 2022, https://coinmarketcap.com/alexandria/article/what-is-casper-cspr
Cointelegraph, ‘The future of smart contract adoption for enterprises’, December 3rd 2022, https://cointelegraph.com/news/the-future-of-smart-contract-adoption-for-enterprises
Messari, ‘Casper the Friendly Enterprise L1’, Dec 24th 2022, https://messari.io/report/casper-the-friendly-enterprise-l1
Swift, ‘Connecting digital islands: Tokenised assets ’, October 2022, https://www.swift.com/swift-resource/251903/download
TechTarget, ‘Tokenization’, https://www.techtarget.com/searchsecurity/definition/tokenization
YouTube, ‘🚨CASPER CSPR NEWS UPDATE🤯🚨$24+ TRILLION TARGET OPPORTUNITY💥100X+ UNSEEN GIANT’, Jan 3rd 2023, https://www.youtube.com/watch?v=kPQy9oOQOsU
Youtube, ‘🚨CASPER CSPR NEWS UPDATE🤯🚨OVER 25 MILLION PATENTS ON CASPER💥ENTERPRISE MASS ADOPTION & MORE’, January 8th 2023, https://www.youtube.com/watch?v=OMnw4qAr6IU
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