A Conceptual Framework for the HNT Token
“I’m an HNT man” — Daniel Plainview circa 2020
If you’re involved in any capacity with the Helium network, then you’ve undoubtedly been faced with the task of explaining it to the uninitiated. As a patron, I’ve dealt with this numerous times and at some point, I need to explain what the hell that little device is that I want to put in someone’s apartment.
Each time I’ve done so, I’m able to spot the exact moment during this bit when the eyes of the onlooker begin to glaze over, signaling the battle is lost.
It’s not the concept of a wireless network, people can understand that.
It’s not the IoT aspect, most people understand that.
But once you start talking about the ever-so-nebulous Helium token (HNT), that’s when people get tripped up. More often than not the conversation is some variant of the following:
Hotspot owners get paid in it, so it’s a cryptocurrency?
> Well no because it’s not used as money per se.
But it gives users upside, like equity?
> Yea but it doesn’t give any voting rights in a company or claim on cash flows
And you mentioned they’re used to access the network, so almost like AWS credits for wireless?
> Kind of, but they’re minted on a predetermined schedule and are traded on secondary markets
At this point, I try to save face on this crazy-sounding idea by establishing a semblance of legitimacy going with the cop-out — well they must be legit because look at their blue-chip investors: Khosla Ventures, USV, Google Ventures, Marc Benioff and some of the companies they work with: Nestle, Lime… you get the point. While I hate having to resort to that kind of signaling to prove something isn’t a scam, it really is difficult for people outside the realm of crypto to grasp how these systems work.
So if the People’s Network is to grow beyond this core group of passionate tinkerers and hobbyists there needs to be better storytelling to explain something as critical to Helium as HNT to the layperson.
After dozens of attempts, trying out various tactics and analogies, there has been one that seems to stick. And that is HNT as a digital oil. Now I know that’s been tried with the Ethereum community before dying out giving way to the ETH is money meme. But bear with me as I think it can be effective in explaining much of the nuance behind this new asset.
Oil for the Internet of Things
Like a West Texas oil rig, this hotspot performs its duties tirelessly to the Gold Coast of Chicago in return for that sweet sweet HNT
Anyone can wrap their head around the basic mechanics of a commodity like oil. It exists in limited supply, gets sucked out of the ground, and then is sold to be used for productive purposes. While somewhat of an oversimplification, HNT is fundamentally similar:
A certain amount is created every month to mimic the extraction process.
Like oil producers, hotspot owners expend energy and capital in order to receive this commodity.
Once it’s mined, it can be sold and put to productive uses.
In this case, rather than being refined into gasoline to power your car, it is “burnt” to create Data Credits (more on this later), which are used to access a low-power wireless network. This burning process permanently destroys the token much like gas in the car example.
Like all commodities, HNT’s price is determined by market forces — simple supply and demand. However, unlike in the oil world, there is no OPEC of Helium to come together and decide to restrict the supply (issuance is fixed at 5 million per month). Therefore, the primary driver of price is demand, both real and speculative.
Real demand comes from businesses that want their IoT devices to use the Helium network. Whether it’s micromobility devices sending their location, agrotech sensors relaying soil moisture, or art galleries monitoring temperature and humidity, as more devices come onto the network more HNT will need to be purchased from hotspot owners and burnt.
Speculative demand, on the other hand, comes from the belief that HNT will have substantial real demand in the future. It would be like purchasing oil in the 19th century with the anticipation it will be widely used and will, therefore, be sold for a higher price. Obviously a major difference being the highly experimental nature of HNT and the fact no one knows if the network will work at scale.
The fact that the price of HNT will fluctuate based on these forms of demand means it will likely be a highly volatile asset, particularly in the early days. If HNT were strictly analogous to oil this would create a problem since companies that require it would have difficulty projecting their costs into the future. Particularly in the absence of a robust derivatives market to hedge costs (But if there were we wouldn’t see futures trading negative like crude oil in April since there are no storage costs).
Luckily this issue does not exist thanks to an elegant solution utilized by Helium. It’s here that the analogy begins to deviate but hopefully, you now have a starting point from which to build from.
Burn and Mint Equilibrium (BME)
One gallon of gas will get a car so far, but 1 HNT is not constrained to the wireless coverage it can provide. This is due to the clever abstraction of the fluctuating price of HNT from the underlying service. Data Credits (DC) are the internal accounting measure of the system. One DC will always cost $0.00001 and entitle the user to send 24 bytes of data across the network.
Regardless of the price of HNT, this remains constant.
Let’s say a user wanted to send 1MB of data. They will need 416,667 DC ($0.416)
If HNT costs $0.10 they will need to burn ~4HNT
If HNT costs $0.20 they will need to burn ~2HNT
Depending on the market price of HNT more or less will need to be burned in order to satisfy a given level of demand. The balance between new HNT being minted and existing HNT being burned is what establishes the “equilibrium” in BME (described further in this post).
As more devices come onto the network requiring additional DC, then there will be increased demand for HNT which will result in additional burning until the price increases to its new equilibrium. At this point, the 5 million HNT created every month will have a higher U.S. dollar value and will thus be able to sustain the creation of more DC.
The Future of HNT
Despite launching less than a year ago, Helium has been one of the fastest-growing mesh networks in existence with over 4,000 nodes deployed in less than a year. This means that nearly every major city in the U.S. should have sufficient coverage to start supporting IoT devices. So far in 2020, the team has been focused on growing the demand side by making it easier for devices to connect to the Helium network. Major strides have been taken, particularly around work with publicly-traded Semtech to allow all LoRaWAN compatible devices to connect to the Helium network.
Now that the infrastructure is built out, devices can readily connect, and DC launch is imminent — the stage is set for Helium to be live in action. Once this occurs, it will be a matter of growing the People’s Network as a community. Finding ways to succinctly describe how it works will play a vital role in this growth. Hopefully, this mental model of HNT as a digital oil helps you think through how to contextualize it and transfer that knowledge to others looking to get involved.