Neutron: The new Inter-Blockchain DeFi Core of the IBC Ecosystem

February 5, 2024

INTRODUCTION

Celestia\modulars blockchain thesis → It’s a fundamentally new way of scaling blockchains. For reference: Manta saved >99% in fees by using Celestia for Data Availability instead of Ethereum (more info on this here).

Future outlook → thousands of rollups that use Celestia for data availability, a base layer for a new scalable ecosystem of rollups.

$TIA has been pumping because it is the only liquid exposure to the modular narrative, with no unlocks for a full year.

If the modular narrative continues to grow at a similar rate, VC money will likely seek exposure to Celestia or any high-quality modular projects, with Celestia potentially becoming the next Cosmos hub. We should pay attention to key projects being developed in the modular ecosystem, such as Dymension and Neutron.

NEUTRON

Project overview

Neutron aims to be the leading smart contract blockchain in the IBC ecosystem and a primary gateway for the Cosmos network connecting to other systems through bridges (primarily Ethereum and modular world). It is specifically created to be the top choice for deploying interchain smart contracts.

Neutron enters the modular world through Nexus: From its Website:

Built by contributors to Neutron, Hyperlane and Mitosis, Nexus leverages IBC and Hyperlane’s Modular Security stack to unleash liquidity flows between Cosmos, Ethereum and the Modular ecosystem. It enables the fast and secure transfer of assets to and from any rollups : Arbitrum, Manta, Eclipse, etc. Cross-chain applications can swiftly integrate with and tap into the liquidity of any domains across the Cosmos and Celestia ecosystems.

So basically, Neutron is offering settlement for Celestia rollups and can be viewed as a higher beta bet of $TIA given it’s positioned to interoperate between Ethereum, Celestia and Cosmos ecosystems.

Smart contract applications and rollapps built on Neutron are able to scale across a growing network of 50+ interconnected networks via IBC (both Cosmos and EVM chains).

Currently a chain with one the highest IBC volumes on Cosmos, above chains like Injective, dYdX, or Kujira.

An interesting fact is that it has established a strong alignment with the ATOM community and IBC ecosystem by sharing 25% of transaction fees and MEV (Miner Extractable Value) revenue with the Cosmos Hub.

Ecosystem

Neutron launched a grant program allocating 20M NTRN tokens (2% of supply) for funding innovative dApps on the network. Some notable dApps with strong existing user bases and networks effects are also building on the Neutron, including:

Lido: Lido contributors published a framework for bringing the liquid staking protocol to Cosmos via Neutron.
Mars Protocol (cross-chain money market): Here the collaboration between both
It has also partnered with different projects within the cosmos economic zone, including: Catalyst, Pulsar Finance, Amulet Finance, Duality, Astroport and Shogun.

Tokenomics

MC: $385M (Rank #150)

FDV: $1.3B

TVL: (DeFiLlama): $50M

Circ. Supply: 278.68M (27,87%)

Max Supply: 1B

Unlocks: No notable unlocks till June 2024 for major stakeholders including the team, investors, and advisors. Monthly unlocks of 1.67M tokens (0.17% of Max Supply) allocated to liquidity bootstrapping. This could be, as Chiraag mentioned a couple of times, “a bullish unlock” as it will help increase liquidity depth and enable whales and institutional investors to bid up the token with size. I might be wrong here.

Token Utility:

Gas Currency for dApps: NTRN is used to power decentralized applications on the network.
Governance Participation: Users can bond NTRN to voting vaults for governance activities.
Base DeFi Asset:

– Pairs with tokens in liquidity pools and yield vaults.

– Used as collateral in money markets.

– Functions as a payment currency for DAOs on the network.

Inflation:

The Distribution Module in the network manages the flow of tokens from various sources like transaction fees, MEV-Tendermint bids, and dApp revenue shares. It allocates these tokens according to specific rules. Here’s how it works:

Cosmos Hub Share: 25% of all collected tokens go to the Cosmos Hub as a payment for Replicated Security.
The rest of the NTRN is burned (deflationary asset).
Feef collected in different denominations than NTRN are allocated to the DAO’s Reserve, supporting network growth and operations.

Token distribution:

Treasury: 27.00% of the TS → Is liquid and controlled by governance.10% of supply was voted to be transferred to Foundation.
Reserve: 24.00% of the TS → with unlocked based on onchain activities, the more activity the faster the tokens vest and vice versa.
Team: 23.00% of the TS
Investors: 11.00% of the TS
Airdrops: 7.00% of the TS
Liquidity Bootstrap: 5.00% of the TS
Binance Launchpool: 2.00% of the TS
Advisors: 1.00% of the TS

Vesting Schedule:

Source: https://cryptorank.io/price/neutron-ntrn/vesting

Fundraising

On June 21, 2023, a Seed Round raised $10M at $0.09 per token (15.39x ROI).

A total of 110M tokens (11.00% of TS) were sold.

Investors: Leading the round was Binance Labs, Delphi Digital (Delphi Labs), CoinFund, LongHash Ventures, Semantic Ventures and Nomad Capital.

Bullish Fundamental Factors

Potentially undervalued considering its fundamental role within the Cosmos DeFi ecosystem. Compared to its competitors (ATOM, TIA, SEI, and INJ), NTRN has a lower valuation despite offering interesting features.
Neutron is set to provide settlement services for Celestia rollups, it acts as a primary bridge partner for $TIA liquidity and its integration is significant in the modular landscape of DeFi.

There are no major unlocks scheduled for any stakeholders for over six months.

NTRN is listed on several major CEXs, including Binance.
Attractive tokenomics, there is no inflation in the system and the tokenomics are deflationary, with 75% of fees being burned.

Bearish Fundamental Factors

A potential new wave of modular blockchain protocols is on the horizon. These emerging protocols might overshadow the currently limited attention Neutron is receiving.