Analysis of Raiden Network – Scalable Transfers for Ethereum - Crush Crypto

Analysis of Raiden Network – Scalable Transfers for Ethereum

Summary

  • Project name: Raiden Network
  • Token symbol: RDN
  • Website: https://raiden.network/
  • Raiden Network explanation page: https://raiden.network/101.html
  • Hard cap: Undetermined due to nature of Dutch auction (public crowdsale ICO contributors own 50% of total token supply)
  • Conversion rate: Total supply of token is 100 million RDN
  • Maximum market cap at ICO on a fully diluted basis: Undetermined due to nature of Dutch auction
  • Bonus structure: None
  • Presale or white list: Whitelist needed if contributing more than 2.5 Ether
  • ERC20 token: Yes
  • Crowdsale date: October 18, 2017 around 3pm UTC (please refer to Raiden’s website for the most up-to-date information)
  • Token distribution date: 1 week after the end of ICO

Note: Raiden follows a Dutch auction method to value the project. Please refer to their blog post for more details about the auction.

Video summary (video is 10:01 long):

Project Overview

What does the company/project do?

Raiden is a payment network built on top of the Ethereum network. The goal of the Raiden project is to provide an easy to use conduit for off-chain (i.e. not on the Ethereum blockchain) payments without the need of trust among the involved parties.

This is done by broadcasting transactions on the blockchain only during settlements, and not at each individual transaction between the two parties.

It works similarly to a bar tab, in that you only pay the total to the bar when you are done for the day, instead of going through the whole payment process each time you purchase a drink. Each “bar tab” is called a channel.

By using off-chain payment channels instead of settling on the blockchain for each transaction, parties in a channel can send money or tokens back and forth nearly instantly, in high volume, and without fees until settling the net amount on the Ethereum blockchain when the parties decide to close the channel.

Any particular channel is one to one (Alice to Bob for example), but the channels can be linked together to form a network, so users can pay anyone within the network. The picture below shows that even though F has a channel only with A, but anyone in the network can pay F by interacting with the channel involving A.

Raiden payment channel

Since only the two participants have access to the deposit in the payment channel's smart contract, payment channel transfers are immune to double-spending attacks, making them as secure as on-chain transactions.

Here is a video demoing the developer preview (video is 2:55 long):

How advanced is the project?

Raiden network is an open source project, developed primarily by a company called Brainbot Technologies. From the GitHub repository, the project has been under development since September 2015, or not long after the Ethereum blockchain was live.

A simpler version of Raiden called µRaiden (pronounced “micro Raiden”) is currently being deployed in the Ropsten testnet. µRaiden allows users to make micropayments directly between each other. Further, the payments work in just one direction.

The milestones of the Raiden project can be found here: https://github.com/raiden-network/raiden/milestones. The project has been delayed for a while – initially, the team said that the MVP was likely going to launch in March.

What are the tokens used for and how can token value appreciate?

There are two kinds of fees in the Raiden Network – protocol level fees and peripheral fees. Peripheral fees are paid for in RDN tokens.

Protocol level fees are necessary to keep the payment channel network balanced. Nodes will use fees to prevent their channels from being depleted over time. These fees will be comparatively small and be denominated in the token that is transferred in the channel.

Peripheral fees will be payable to services in the network that, for example, assist with finding a path with sufficient capacity or services that provide channel monitoring services for offline users. Users running these services themselves will not need to pay these fees but can earn them instead. 

The Raiden team expects that over 95% of all nodes on the network will be light-clients who are happy to pay tiny fees for the convenience of not having to run the full stack of services. It is expected that most dApps will use a light client, so Raiden transactions via those dApps will incur a fee that is payable in RDN tokens.

As most users will not run a full node, they will need to pay RDN to participate in the Raiden network. Therefore, the more usage the Raiden network has, the more valuable RDN tokens should be.

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Team

As mentioned above, Raiden is developed by Brainbot Technologies.

According to the GitHub repository, there are around 8 frequent contributors to the project.

The bios of key members of Brainbot Technologies are listed below:

Heiko Hees, Founder & CEO – core developer of Ethereum since March 2014. Previously founder of PediaPress and Die Firma GmbH.

Oliver Bünting, Consultant – previously director of CryptoCoins Consulting Ltd.


Opportunities

  • Since it is a highly anticipated project, the Raiden Network will probably have large usage right off the bat. Very few ICOs can claim to do the same.
  • This project moves Ethereum forward in helping to solve the scaling issue. The use case of Ethereum can be greatly expanded with the introduction of Raiden.
  • Network effect is present. The more people use the Raiden Network, the more channels there are, and the more efficient the network will be. If the Raiden Network becomes very large, potentially the vast majority of the Ethereum transactions can be shifted off-chain, making Raiden Network very valuable.

Concerns

  • The project has been delayed by over half a year – we are not sure when it will actually be finished and rolled out.
  • Raiden Network is more useful in some cases than others. It is not intended to support large value transfers, for example.
  • If other similar scaling solutions are developed, users may prefer to use other solutions that don’t charge a fee. The picture below shows some of the other scaling solutions (both on-chain and off-chain) for Ethereum:
Ethereum scaling solutions

Source: Fred Ehrsam


Conclusion

Overall, we are neutral about the short-term potential and believe the long-term attractiveness of this ICO depends heavily on the valuation of the project. 

This project has received a lot of criticism because of their decision to go the ICO route. Most people were expecting to be able to use Raiden for free.

However, let’s say Raiden was a stealth project instead of a publicized (and highly anticipated) one, and one day the team announces that they can help fix the Ethereum scaling issue by charging a small fee, we believe most people would gladly pay the fee and enjoy the scaling solution.

Here is a short video explaining the auction mechanism for RDN (video is 1:42 long):

Our thoughts of the tokens for short term and long term are as follows:

For short-term holding

Neutral. The Dutch auction format will prevent any unmet demand by design, which makes this project not a candidate for the short-term.

For long-term holding

In the long-term, we are not surprised to see RDN tokens being a top-10 most valuable token because of the expected heavy usage. Currently, the number 10 token has a market cap of $181 million (based on circulating token).

We believe RDN tokens can offer ICO participants enough long-term upside potential when the fund raised is below $75 million, giving the project a fully-diluted market cap of $150 million.

Based on the token sale page, it looks like the $75 million (or around 250,000 Ether) hard cap valuation should occur around October 27.


For more information about the ICO, please visit the following links:

Website: https://raiden.network 

FAQ page: https://raiden.network/faq.html 

Blog: https://medium.com/@raiden_network 

GitHub: https://github.com/raiden-network/raiden/ 

Subreddit: https://www.reddit.com/r/raidennetwork/ 

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