The next 100 million crypto investors.

Health, Wealth, and Happiness

November 7, 2022

“Until you change how you get things done, you’ll never know what works best.”

― Roy T. Bennett

In today's issue: Helium is one of the best use cases for blockchain we've seen. It's a P2P wireless network that runs on hardware called Helium Hotspots (pictured right).

As you connect your Hotspot and traffic data through the network, you're rewarded with crypto tokens called HNT.

There are two ways to invest in Helium: run the Hotspots to earn HNT (they call this "mining") or buy and hold HNT directly.

What's the long-term outlook on Helium from an investor's perspective? Read on to find out.

Must Read

Today's most important story for crypto investors.

Investors Withdraw Millions From FTX as Binance Begins Liquidating FTT Token (Decrypt)

The stablecoin wars are heating up.

As we predicted, the crypto industry will be in fierce competition over the coming months to establish stablecoin supremacy.

Binance, which has been gradually phasing out support for stablecoins outside its own BUSD, recently ended support for competitor FTX's FTT stablecoin.

The stakes are enormous. As our recent guest Byron Gilliam pointed out, stablecoins are essentially money market funds that don't have to pay interest. The issuer gets to keep the money and invest it, turning said funds into digital banks.

Investor takeaway: Expect to see more of these moves as exchanges gradually require customers to use their in-house stablecoins. For stablecoins not tied to an exchange (e.g., USDT and USDC), the long-term winners will likely be the ones with the most cross-chain support and the most user trust.

How to Invest in Helium, the Decentralized 5G Network

by Ben Burn

Summary: Helium is a rare (maybe the only) example of a Web3 product addressing a traditional use case in direct competition with some of the world’s biggest companies. It has an innovative business model, big-name investors, and a history full of hype.

This article cuts through the nonsense to outline:

What Helium is
Helium’s bold plans to enter 5G networking
The two ways you can profit from Helium
Whether now is the right time to invest

Helium: Real-World Web3 Use Case

Helium is a self-described “network of networks” for transferring data. Helium’s decentralized model is based on:

Hotspots: These are wireless routers that anyone can run to "mine" (or be rewarded in) HNT tokens in exchange for handling network data and/or verifying that other Hotspots are online. These Hotspots are similar to Wi-Fi routers and run via open-source technology, so you can either buy one or build one yourself.

A blockchain as the network’s financial backbone. Most importantly, Helium’s blockchain supports the crypto used within the network and keeps track of how much should go to each Hotspot. Helium’s first blockchain was native, but in September 2022, Helium migrated to the Solana Layer 1 blockchain.

The Move from IoT to 5G

Helium’s founding team of Amir Haleem and Shawn Fanning (yes, the Shawn Fanning behind Napster) has pivoted several times since launching Helium Inc. in 2013.

The first business model was to build a decentralized network for the Internet of Things. As IoT devices required less power and bandwidth than 5G applications, the idea was that people could power this network through connecting P2P hotspots like wireless repeaters.

When they found it was hard to get users to buy, configure, and maintain Hotspots, their first pivot was to add crypto. They created their own blockchain and HNT token in 2019. While the supply of Hotspots has grown enormously (see a real-time map here), the demand to use the network by IoT manufacturers has been slow.

Helium's most recent pivot has been to add decentralized 5G networking into the mix, which should greatly expand the demand for the network. This pivot has involved overhauling Helium’s governance structure and introducing two new crypto tokens: IOT and MOBILE. The idea is to make Helium a platform for running any sort of decentralized telecom network. That’s why Helium now calls itself a “network of networks.”

Helium’s New Governance Structure and Tokens

Helium’s new governance structure gives each Helium network its own decentralized autonomous organization (subDAO) and Decentralized Network Token (DNT). The 5G subDAO’s DNT is MOBILE and the IoT subDAO’s is IOT.

The Helium DAO oversees the subDAOs and uses HNT as something like a “reserve currency.” MOBILE and IOT can be exchanged for HNT, but not vice versa.

Burning HNT remains the only way for network users to acquire Data Credits, which are the only payment items accepted for customers who want to transfer data across any Helium network.

Helium’s Struggles with 5G Competitors

In the race to bootstrap a decentralized 5G network, Helium has a considerable lead over its most serious competitor Pollen. As of early November 2022, Helium has over 6,500 Hotspots in its 5G network and has added over 1,200 during the last month. Pollen has a total of just over 2,000 Flowers (Pollen’s term for nodes). Both Pollen and Helium entered the 5G networking space in early 2022.

Helium has a head start in credibility. Helium pioneered the overall concept of decentralized wireless (DeWi) in 2019, and the founding team had already raised significant venture funding prior to that. More recently, they raised over $200 million from Tiger Global and FTX Ventures to enter 5G networking.

If the size of Pollen’s 5G network eventually overtakes Helium’s, it may be due to Pollen’s 5G focus and simpler operating model. Pollen launched into the 5G space and Helium has pivoted into it from IoT. Pollen uses only one token (PCN) and is not yet governed by a DAO. Helium uses multiple DAOs and tokens.

Helium’s toughest 5G competitors, however, are going to be established telecom heavyweights like AT&T and Verizon. These companies may be slow, but Helium is on their turf now, and the big players won’t give up their market shares easily.

Profiting from Helium

There are two main ways you can profit from Helium: running a Helium Hotspot or investing directly in HNT.

Helium Hotspot Mining

When evaluating the potential profitability of a Helium Hotspot, there are three key considerations to make:

First, two types of crypto rewards are up for grabs:

Proof-of-Coverage rewards, which are named after the proof of coverage blockchain consensus protocol developed by Helium. You can earn these by running a Hotspot and increasing the coverage of a Helium network. To maximize PoC rewards, you want to place your Hotspot somewhere with a good line of sight to other Hotspots. The higher the better; rooftops or antennas are ideal.

Data transfer rewards, which you earn when your Hotspot handles data transmitted on a network. More traffic handled means more crypto rewards. To maximize data transfer rewards, you want to place your Hotspot somewhere not too close to other Hotspots. This way, your Hotspot handles relatively more data.

Together, these two reward types create a rather ingenious incentive system for network growth that's distributed, but not too distributed.

Second, PoC rewards per Hotspot fall as a network grows. That’s by design. The point of this type of reward is to encourage network growth up to a point where it provides adequate coverage. After that, further growth is not necessary.

Third, only network demand can potentially keep your Hotspot profitable after your PoC rewards tail off. It's in every Hotspot owner's best interest to have as many people using their Helium network as possible.

How have these considerations played out for Helium Hotspot owners so far?

The possibility of earning PoC rewards has certainly served its purpose to expand the network, which has exploded in size over the last three years to nearly one million Hotspots as of this writing.

Source: Helium Foundation

There has been, however, surprisingly (even disastrously) little network demand. According to Helium Foundation statistics, users transferred under $2,000 worth of data in October 2022. This monthly figure has been notoriously low since the IoT network launched in 2019.

The price of a Data Credit is fixed at $0.00001, for a total of $1,761 in demand for October 2022. (Source: Helium Foundation)

Because supply is high and demand is low, many Hotspot owners have been disappointed in their earnings:

Average monthly earnings for a Helium Hotspot. (Source: Forbes via Helium API)

Most crypto value investors will thus give Helium mining a pass.

A Helium Hotspot can earn lucrative PoC rewards in the short term as new networks are built (note how the early adopters above did well), but without network demand, the Hotspot will be a depreciating asset over the long term.

There is certainly an opportunity to cash in on the mad rush for Helium 5G Hotspot PoC rewards, but that’s probably not the type of opportunity a long-term investor is looking for.

A more conservative approach to Helium mining would be to wait for network usage to pick up before thinking about a Hotspot as a tool for earning slow and steady data transfer rewards. It's not as exciting, but it's less risky.

You can also reasonably expect prices for Hotspots to fall in the future, just like prices do for every technology product. Helium 5G Hotspots currently run from about $200 up to $5K, depending on specs (see current prices here).

For the time being, assuming you like Helium as a long-term play and aim to hang on to any HNT you accumulate, you're likely better off putting the money you would have spent on a Hotspot directly into HNT.

Investing in Helium's HNT Token

As of this writing, the price of HNT is hovering at 52-week lows. Is it time to buy?

Price of HNT (Source: CoinMarketCap)

In the short term, Helium’s compelling story and impressive crypto pedigree might be enough to give the HNT price a decent short-term boost, especially as the overall market picks up.

In the long term, however, increasing network demand is going to be the key driver behind HNT price growth.

Currently, Helium is pushing hard to increase demand for its 5G network. A crypto value investor will note three key aspects of this push.

First, huge demand for 5G can mean huge demand for HNT.

Per the Ericsson Mobility Report, there will be more than a billion 5G data subscriptions around the world by the end of 2022, and 90% of all American data subscriptions will be 5G by 2027.

Can you imagine what the price of HNT would do if even a modest percentage of those 5G subscribers were burning HNT to pay for their plans?

That’s a big reason Helium has moved into the 5G market. The question is whether the team will manage to get a significant piece of it.

Second, Helium has just launched a mobile virtual network operator with T-Mobile.

A mobile virtual network operator (MVNO) is a telecom service provider that buys services from another operator and resells them to end users. In August 2022, Helium entered such a deal with T-Mobile to launch Helium Mobile.

Users will automatically connect to the Helium 5G network where its coverage is good and to T-Mobile’s where it isn’t.

That makes Helium Mobile an easily understandable product that can drive network adoption among people who don’t necessarily care about crypto. When they're available, subscription plans will start at just $5/month.

Interestingly, Helium Mobile subscribers can choose to be compensated in MOBILE for sharing the network performance data they create.

Third, there is significant uncertainty as to whether MOBILE (and IOT) will play nicely with HNT.

As outlined earlier, Helium’s move into 5G has been accompanied by the introduction of a new governance structure and two new tokens (IOT and MOBILE). Economically, it's still unclear what this shakeup will mean for HNT.

The unknowns include:

IOT and MOBILE holders can stake their tokens within their respective subDAOs for various purposes like receiving HNT from the Helium DAO. This mechanism introduces an element of competition between the subDAOs.

No secondary markets exist for IOT or MOBILE. At the moment, buying HNT is the only way to potentially profit from Helium without mining.

MOBILE and IOT are redeemable for HNT, but not vice versa.

Thus, owning HNT may not guarantee you a share of the potential value upside of the Helium 5G network as this value may go to these secondary tokens.

Investor Takeaway

At the moment, we would avoid putting significant funds into HNT or running a Helium Hotspot. Helium’s new tokens and DAO-based governance structure raise too many tough questions.

That being said, it’s hard not to root for the crypto underdog going up against telecom juggernauts for a share of a cutthroat market, especially an underdog with hundreds of millions in venture funding from well-known investors. It might be worth a small speculative investment in HNT... Just to be part of this story.

Moving forward, it’s worth watching Helium's statistics on Data Credit spending. This figure serves as a “canary in the coal mine” for Helium network demand (i.e., whether Helium’s push into 5G is working or not).

ICYMI