Helium set out to revolutionize ‘decentralized wireless’ networks but the users supporting this network are discovering that the later they signed up, the less revolutionary their compensation.
Investor Liron Shapira made waves on Monday when he embarked on a Twitter thread that poked holes in the business model backing the Helium Network. The gist of Shapira’s message was that the individuals who’d individually paid $500 or more to collectively install over 900,000 ‘Helium Hotspots’ aren’t seeing the financial rewards they were expecting—and possibly never will.
Helium Inc. (since rebranded as Nova Labs) began life in 2013 as an Internet of Things (IoT) network using the LoRaWAN (long range wide area network) protocol. Helium sought to expand the range of IoT devices to allow them to connect to the internet and geolocate themselves without the need for satellite hardware or cellular plans.
Originally, Helium wasn’t a blockchain-based company but a cash crunch (foreshadowing alert!) in 2017—which coincided with tokens like BTC and ETH undergoing unprecedented (and unwarranted) fiat price pumps—led Helium’s management to consider paying Hotspot users in something other than hard currency, particularly the kind they could create out of thin air.
A couple years later, Helium announced the launch of its own blockchain and the HNT token, which is how Hotspot users are now compensated (via a ‘Proof of Coverage’ mechanism that rewards nodes for proving that they’re delivering network coverage as stipulated). Their compensation may get a bump if HNT’s fiat value appreciates for any of the inane reasons that most utility-free tokens’ numbers go up.
Helium also introduced something called data credits (DC), which are created when HNT are permanently burned from the maximum supply of 223 million tokens (although there is a ‘net emission’ scheme that ‘recycles’ burned HNT once the original supply runs low). The DC, which are non-exchangeable and tied to a single user, can be used by entities to utilize the network’s bandwidth and pay blockchain transaction fees. Entities seeking to use more DC than they have can purchase (and burn) HNT from Hotspot users. So, the greater the demand for DC, the greater the value of HNT. Or at least, that’s the theory.
The Internet of (no)things
Early Hotspot users were quick to brag about the returns they were reaping from their participation in the network. But users who joined Helium following the early hype haven’t experienced the same outsized gains, in part due to the greater number of Hotspots in use diluting a finite reward pool.
Which brings us back to Shapira’s Twitter thread, which pointed to a new Helium overview by The Generalist. Among the more alarming aspects of this overview are the fact that Helium’s revenue in June was a mere $2.6 million, less than half its total in April, despite the network’s continued growth during this period. (Total revenue over the past 30 days has slipped below $2 million.)
DC usage stats appear even more alarming. If you remove DC usage associated with onboarding new Hotspots, asserting location and processing payments, Helium’s DC usage in June was only $6,561. So while Helium cites a veritable army of companies that are allegedly making use of its network, the data suggests none of them are actually using it all that much.
Shapira suspects that much of the revenue on Nova’s books is due to speculation on the value of HNT. Early on, some 35% of all HNT were “assigned to founders, investors and organizers who will manage blockchain governance,” although Nova insists this figure “changes over time to align incentives with the needs of the network.”
On Tuesday, Helium co-founder Amir Haleem attempted to rebut Shapira’s analysis, tweeting the rhetorical question of whether Helium is “a spectacular failure and proof that web3 sucks? I’d say it’s just getting started.” Haleem suggested that crypto bros “expand your time horizons” when judging success or failure.
If at first you don’t succeed, token, token again
Like nearly every ‘crypto’ coin out there, HNT rode 2021’s speculative bubble, beginning the year worth only around $1.30 then peaking at close to $53 by mid-November. However, as David Clayton-Thomas taught us, what goes up, must come down, and HNT traded as low as $8.50 this week.
In March, Nova raised an additional $200 million in a round co-led by Tiger Global and Andreessen Horowitz (a16z). The latter firm also led Nova’s $111 million funding round in August 2021, which was structured as a token sale.
a16z has a history of investing in projects of dubious utility that offer the chance to accumulate lots of tokens for very little. As former partner Katie Haun once said, “the majority of [a16z’s] funds are deployed in tokens.” So it’s likely a safe bet to say we know who was helping to pump HNT as its number went up and who contributed to its downward pressure once the bubble burst.
Nova Labs is now promoting the next phase of Helium’s evolution, which coincides with its plan to offer 5G connectivity. This ‘Chapter 2’ phase involves the launch of—surprise!—new tokens, including ‘MOBILE’ for compensating users who run 5G nodes. This will be followed by the new ‘IOT’ token in August, which will compensate non-5G Helium nodes for, er, it’s not all that clear. But hey, MORE TOKENS!!!
With Nova Labs promising to “accelerate the addition and growth of new network protocols in the ecosystem by enabling their own tokens, economics, and governance” and cautioning that achieving their vision “will require a multi-decade effort,” you can almost hear the fiendish giggles over at a16z as they plot their remorseless pump and dump schedule through 2050.
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