This investment research report is issued by CoinMeng Research Institute, and its contents are for reference only and should not be used as investment advice or investment basis.
The data in this report is as of 2021/5/26, and may differ from the actual situation at the time of publication, please verify by yourself.
Brief description of the project
Kusama is built by Poca team, as the Canary Network of Poca, with basically the same technical architecture as Poca, with an independent economic model and governance system. All kinds of innovative technologies and functions will be deployed on Kusama first, and then transferred to the main network of Poca after stable operation.
2.1 Design Concept
Kusama is Poca’s “Canary Network”, a term derived from the coal mining industry where miners put canaries into the mine to detect carbon monoxide and other toxic gases and alert miners before going down the mine. Applied to technology development, Kusama is an experimental development network designed for Poca’s main network with the mission of “Expect Chaos”, which allows Poca teams to deploy on Kusama to discover vulnerabilities and send out warnings before launching new technical solutions. Third-party developers can also deploy their products on Kusama for testing first, and then migrate to the main network for official launch after they can run stably.
Many public chains have public test networks, such as Ether’s Ropsten, Kovan, Rinkeby network, etc. The tokens on these test networks are valueless, and there is no reliable economic model, so it is impossible to run a token-based governance system.
Kusama is different in that it is a public chain similar to Poca’s code but relatively independent, issuing KSM tokens and building an independent economic model, allowing the Poca team and third-party developers to test all aspects of the technology in a real economic and governance environment, where Poca’s innovations will be implemented on Kusama first (e.g. Kusama’s parallel chain slot auction will precede Poca). This also means that Kusama is not only a test network, but also a prior network for the main Poca network. Of course, Kusama’s mission is not only for wavecard testing, but also to develop its own ecosystem where third-party developers can keep their products in the Kusama network instead of deploying them in the main wavecard network, enjoying the superior access and flexibility of the Kusama network over the main wavecard network.
2.2 Technical Architecture
The technical architecture of Kusama is similar to that of Poca in that they both adopt heterogeneous multi-chain architecture and realize cross-chain ecology in the form of relay chains connecting parallel chains, so that chains can interact with each other to reach a high degree of scalability.
In simple terms, the core technology architecture of Kusama mainly consists of Relay chain and Parachain. Relay chain is the main chain of Kusama, and there are many slots in the relay chain to insert parallel chains. Parallel chains are individual block chains with independent architectures that can communicate with each other through relay chains and are protected by the consensus of the relay chain for security. The number of slots on a relay chain is limited, and parallel chains need to participate in slot auctions to gain access to the slots.
In addition to the initial relay chain, there are also child relay chains, which are parallel chains of the parent relay chain, and the child relay chains can also have their own parallel chains, which allows the Kusama network to extend indefinitely. In addition, external blockchains (e.g., Ether) can also enter the Kusama network through the Parachain bridge.
Parallel chains connected to a relay chain can communicate across chains via the XCMP protocol, which is described in detail in section 2.3. There are four node roles responsible for maintaining the secure operation of the Kusama network as it processes cross-chain transactions.
Collector: collects transaction information from each parallel chain and packages it into blocks to be verified.
Validator: pledges KSM tokens to verify the information provided by the collector and validate the blocks on the parallel chains.
Phisher: monitors the behavior of the verifier and reports to other verifiers if they find mischief.
Nominator: pledges KSM tokens so as to nominate their trusted verifiers to perform the verification work.
The following is a brief overview of the division of labor between these 4 node roles.
When a transaction is generated on the A parallel chain (e.g., a user transfers assets from the A parallel chain to the B parallel chain), a collector on the A parallel chain collects the transaction to generate a block to send to a verifier on the A parallel chain. Validators on each parallel chain are assigned by the relay chain at regular intervals, using BABE consensus to ensure random and unpredictable assignment as much as possible.
The verifier will verify the block and related data provided by the collector, and if the block conforms to the state transition rules of the parallel chain and all transactions are valid, it will be signed and broadcast to other verifiers for verification. When enough KSM tokens have been pledged by the verifier and nominator, the transactions in the block will be executed.
The phisher continuously collects blocks from collector nodes and verifies the validity, and if an invalid transaction is found in the block, the phisher will submit a report. If it is subsequently confirmed that the phisher’s judgment is correct, the phisher is rewarded and both the relevant collector and the verifier who performed the signature are penalized (by deducting the pledged KSM tokens); if the phisher’s judgment is incorrect, the phisher is penalized.
2.3 Cross-chain communication
Kusama uses the same XCMP cross-chain communication protocol as Boca, and a simple queuing mechanism based on Merkle trees to ensure correctness of cross-chain transactions. Specifically, the cross-chain communication of parallel chains is divided into the following two cases.
If there is a common node between two parallel chains, messages are collected through collectors and can be transmitted directly from parallel chain A to parallel chain B. If there is no common node between parallel chains, inter-chain communication needs to be done through relay chains, and each parallel chain block in the network generates a list of messages to route to blocks in other chains, which are called exit queues. After routing a message, it goes to the entry queue of the parallel chain, and the parallel chain processes the entry list in order. A verifier on the relay chain is responsible for transferring the transactions from the parallel chain’s exit queue to the target chain’s entrance queue to complete the transfer of messages.
2.4 Slot Auction
Kusama’s parallel chain slot mechanism is similar to Polka. A parallel chain built based on Substrate needs to participate in an auction to obtain the slot lease and usage status to formally become a parallel chain of Kusama.
Roughly speaking, a parallel chain project owner needs to choose the slot lease period (1-8 lease periods, each lease period is 6 weeks) and then pledge KSM tokens (i.e., bid) to participate in the auction, and theoretically, the more KSMs pledged, the easier it is to get the lease. If the slot is successfully auctioned, the parallel chain can be officially deployed on Kusama after the lease period starts, and at the end of the lease period, a new auction needs to be participated to renew the lease. The pledged KSMs cannot be circulated during the slot lease period, and the pledged KSMs will be unlocked and returned at the end of the lease period.
The Kusama slot auction is a “2+5” two-stage auction. The first two days are a normal auction, where the higher the bid (the more KSMs pledged), the more advantageous it is, followed by a 5-day “end period”, where a random block height is selected as the real auction end time, and the highest bid wins at that moment.
Kusama slot auction also has a “Crowdloan” mechanism, where the parallel chain project owner can use Kusama’s built-in Crowdloan to crowdsource KSM tokens from the community to participate in the slot auction. Instead of transferring KSM to the project owner, community users will transfer KSM directly into the auction campaign through Crowdloan, and these KSM will be returned to the user at the end of the lease period of that parallel chain, or if the auction fails, then it will be returned at the end of the auction.
Kusama’s goal and expectation is to be able to provide 100 parallel chain slots, and the target number may be subsequently increased through the deployment of sub-relay chains. At this stage, the number of slots that Kusama network can support is relatively small, and not all of these slots will be used for auctions, and some of them need to be reserved for public interest parallel chains and parallel threads (Parathreads).
Public interest parallel chains: mainly used for public use at system level, they do not need to participate in the slot auction and become Kusama’s parallel chains directly. For example, Statemine, the first parallel chain on Kusama, is a public interest parallel chain, which is a token issuance platform supporting both homogenized tokens (FT) and non-homogenized tokens (NFT).
Parallel threads: With the same API and functions as parallel chains, it can be understood as a “pay-as-you-go” parallel chain. To become a parallel thread, you only need to pledge a small amount of KSM as a deposit, and pay KSM tokens as a fee according to the block when the project application needs to make status updates. This is more suitable for projects that have tight budget and the application itself does not need frequent status updates.
2.5 Governance mechanism
The Kusama network has a decentralized governance mechanism. Users holding KSM tokens can initiate or vote on proposals to decide various matters of the platform, such as changing network parameters, registering or cancelling parallel chains, and using treasury funds.
Kusama’s governance process is that users initiate a proposal by pledging KSM tokens, and other users can also pledge KSM tokens for the proposal, which will enter a queue with a maximum of 100 proposals in the queue after it is initiated. A referendum will be held every 7 days, and the proposal with the most KSM tokens pledged will be selected as the referendum proposal, and all KSM token holders will be able to vote on the proposal. If the vote is approved, the decisions in the proposal will be implemented after an 8-day waiting period.
Kusama adopts a “separation of powers” governance scheme, which is divided into three divisions: the Referendum House, the Board of Directors, and the Technical Committee.
Referendum House: It includes all KSM token holders. Its powers include initiating proposals, voting on proposals, applying for membership in the Council, and electing Council members.
Council: 13 members elected by KSM token holders, elected every 24 hours. Its powers include electing members of the Technical Committee, rejecting referendums, initiating quick referendums, and overseeing the Technical Committee.
Technical Committee: mainly composed of technical team members and developers, elected by the Board of Directors. Its main role is to determine the importance of each proposal and to work with the Board to determine if a quick referendum is needed for urgent events.
To summarize, in the Kusama governance system, a referendum can be held in the following 4 situations Only one referendum can exist at any given time, except for emergency proposals.
The proposal with the highest number of pledged KSMs initiated by the House of Referendum.
Proposals initiated as part of the passage of a previous referendum.
Proposals approved by unanimous/majority vote within the Council.
Emergency proposals initiated by the Technical Committee and approved by the Council.
In the referendum voting process, a new concept was introduced to prevent too few voting participants from influencing the decision making: “Adaptive Quorum Biasing”, which makes it easier or more difficult to pass proposals. Specifically, the Kusama referendum will have different adoption methods depending on the subject of the proposal and the circumstances.
Proposals initiated by the House of Referendum: Use Positive Turnout Bias (PTB). When the turnout is low, a large number of yes votes are needed to pass the proposal, which means that it is more difficult to pass. When the turnout increases to 100%, it becomes a majority yes to pass.
Board-initiated proposals that are passed by unanimous internal votes: use Negative Turnout Bias. When the turnout is low, it takes a large number of negative votes to reject the proposal, which means that it is easier to pass. When the turnout increases to 100%, it becomes a majority no vote for rejection.
Board-initiated proposals with internal majorities: Use simple majority approval. Regardless of the turnout, a proposal is passed if more than 50% of the votes cast are in favor of it; conversely, a proposal is rejected if more than 50% of the votes cast are against it.
2.6 Status of Development
Statemine, the first parallel chain on Kusama, is now online. The auction of parallel chain slots will be opened in the near future, which will be a milestone for the development of Kusama and the whole Polka ecology. The following chart shows the projects that will participate in the Kusama slot auction (as of May 18, 2021), as compiled by PolkaProject.
In terms of community buzz, Kusama is hot with 67,000 Twitter followers and 3,294 Discord group users. On the Kusama mainnet data, as shown in the chart below, the chain has generated only 1 million transactions with nearly 100,000 active accounts.
Kusama is also exploring the NFT space. This year, Kusama co-organized the world’s first crypto art exhibition with Block Create Art (BCA), Asia’s first crypto art platform, at Ullens Center for Contemporary Art (UCCA) in Beijing on March 26 and at Jinghua Art Space in Shanghai on April 9, with the theme “Virtual Niche: Have You Ever Seen Memes in the Mirror? -Virtual Niche: Have You Ever Seen Memes in the Mirror”.
2.7 Comparing with Poka
Kusama, as a test network of Poca, has a technical architecture, code, and logic that is very similar to Poca, but also differs in the following points.
Governance and iteration speed: Kusama has faster governance and version upgrade iteration speed in order to meet the testing requirements. The voting time for the Poca referendum and the implementation waiting period after the vote are both 28 days, while Kusama’s voting time is 7 days and the implementation waiting period is 8 days, which is 4 times faster. This is good for the fast development of the platform, but it also means that the nodes on the chain need frequent version upgrades.
Security and stability: Kusama, as a first test network, will introduce more radical and innovative technical solutions before Poca, and will perform frequent version upgrades, which means its security and stability are not as good as Poca.
Access threshold: Both Kusama and Polka’s parallel chains need to participate in slot auctions to enter the ecosystem, but in comparison, KSM’s pledge cost is lower and more suitable for startup teams with less capital strength, while Polka, which is more stable and has a higher threshold, is more suitable for large projects with strong capital.
Kusama is part of the Poca ecosystem, and its team members are aligned with Poca and backed by the Web3 Foundation, whose core person is Poca founder Gavin Wood, a PhD in computer science from the University of York in the UK, who is also the chairman of the Web3 Foundation, a former co-founder and CTO of Ether, and the developer of the C++ version of the Ether client prototype. He is also the Chairman of Web3 Foundation, a former co-founder and CTO of Ether, the developer of the prototype Ether client in C++ and the author of the Ether Yellow Book, and the inventor of the Solidity smart contract language, the PoA (Proof of Authority) consensus mechanism and the Whisper protocol.
In addition, Poca has two co-founders who are also the founders of Kusama. Among them, Robert Habermeier has an R&D background in blockchain, distributed systems and cryptography, and is a long-time member of the Rust community; Peter Czaban is the Technical Director of the Web3 Foundation, responsible for supporting the development of distributed technologies, and has worked in the defense, finance and data analytics industries, where he was responsible for mesh networks, distributed knowledge bases, quantitative pricing models, machine learning, and business development.
Since Kusama is part of the same team as Polka and Kusama is the first test network for Polka, there is no fundraising, but rather KSM tokens are distributed to early investors of Polka in a 1:1 ratio, and KSM tokens can also be obtained by participating in the test network taps (this method is currently discontinued).
4.1 Basic Information
Token name: KSM
Total amount issued: Initial total of 10 million KSM with 10% annual inflation
Token use: governance; pledge to participate in slot auctions; node pledge; pay transaction fees
There is a Treasury (Treasury) in the Kusama network, and the funds in the Treasury come from the following.
(a) Node penalties: verifier nodes committing evil will result in forfeiture of pledged KSM tokens, part of this amount will be rewarded to the whistleblower and the other part will flow into the Treasury.
Transaction fees: a portion of the transaction fees for each block is awarded to the block verifier and another portion goes to the treasury.
Partial inflation: The inflation rate of the first year of KSM is designed to be 10%, which is rewarded to the nodes that pledge KSM, corresponding to an ideal pledge rate of 50%. That is, if 50% of the total KSMs are pledged, then all the inflated KSMs will be rewarded to the pledged nodes, and if the pledge rate is less than 50%, this will result in a portion of the inflated KSMs flowing into the treasury.
Parallel thread fees: When a parallel thread performs a state update, it pays KSM fees per block, part of which is rewarded to the verifier of that block, and the other part flows into the treasury.
The funds in the treasury are mainly used for ecological development. The expenditure of the treasury needs to be approved by the council, and after approval, it enters a waiting period (budget period), currently the budget period is 6 days by default, if all the funds are not spent within the budget period, a certain percentage of KSM will be destroyed for deflation (currently the destruction percentage is 0.2%).
Users can initiate proposals to propose spending to the treasury. To prevent users from abusing this feature, a pledge of 5% of the requested amount (currently set at a minimum of 0.067 KSM) is required as a deposit when initiating a proposal, which is destroyed if the proposal is not approved and returned if it is not.
According to the Treasury’s expenditure data, its funds are currently spent mainly on grants and tips. Grants are mainly for Kusama infrastructure development, marketing activities, etc. For example, Polkascan Browser developed by Polkascan Foundation has received 3 grants, and the Global Crypto Art Exhibition initiated by BCA has received 833 KSM grants, etc. Tips are mainly for rewarding community contributors, such as Tips are mainly used to reward community contributors, such as writing Kusama-related articles, producing Kusama images/videos/interviews, etc.
4.3 Pricing Information
Note: Information below is from CoinGecko
Current Price: $ 336.34
Current Market Cap: $3.016 billion
Market Cap Rank: # 45
All-time high: $ 621.71 (2021/5/18)
All-time low price: $ 0.876572 (2020/1/14)
On-line CEX: Coinan, Firecoin, OKEx, etc.
In terms of technical architecture, Kusama is the hottest blockchain scaling solution and cross-chain solution in the market, just like Boka. But as a new player in the public chain circuit, it cannot compare with Ether in terms of infrastructure and ecological applications. In the future, it may be able to make its own ecology develop with Ether’s ecology by bridging to Ether.
Kusama is the first test network of Poka, which is responsible for helping Poka to explore the road, and both the slot auction and the latest technical solutions will be implemented before Poka. This means that all kinds of projects will be deployed to Kusama first, and some of them may eventually migrate to Boca, but due to the rarity and high cost of Boca slots, it is expected that many projects will stay in Kusama and become part of the Kusama ecosystem. So Kusama’s existence is not only limited to testing, but also an “affordable alternative” to wave cards for many startups.
In terms of barrier to entry, although Kusama is less expensive than the parallel chain slot auction for boca, it is still not a small fee. For this problem, Kusama provides several solutions for project owners: firstly, it is the crowd lending mechanism, for some hot parallel chain projects, project owners can set certain token incentive policy to promote community members to participate in crowdfunding; secondly, it is the parallel thread, which can enter Kusama ecosystem at a lower cost and pay as you go, without capital pressure; finally, for DApps without Finally, for DApp projects that do not need to develop independent parallel chains, Kusama has the same smart contract parallel chains as on Poca, such as Patract, and project parties can deploy contracts directly on such parallel chains to run.
The main risk of Kusama is instability. The technology of Kusama and Polka is extremely complex and may face unpredictable “chaos” in the future, which will appear on Kusama first, so stability and security cannot be guaranteed for the projects deployed on Kusama.
In terms of economic model, most of the KSM tokens have been released so far, and after the slot auction is opened, perhaps the actual circulation will be significantly reduced due to the large amount of pledge demand. the inflation rate of KSM tokens in the first year is 10%, and the deflation is mainly destroyed by the treasury, so you need to pay attention to the subsequent inflation risk.
As a unicorn project in the cross-chain field, the ecological development of Kusama and Boka has just kicked off with the launch of slot auction at present, and the future development status is still unclear and worthy of long-term attention.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/investment-research-report-kusama-ksm/
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