GenesysGo: A low-profile yet important infrastructure service provider in the Solana ecosystem

Original Title: "GenesysGo: the crucial infra provider on Solana you don't know about"

Authors: Allen Zhao, Mustafa Yilham, Henry Ang & Jermaine Wong, Bixin Ventures

Original Compilation: Evan Gu, Wayne Zhang, Bixin Ventures

Introduction

GenesysGo is a blockchain infrastructure provider on the Solana network. They have three core businesses, which are:

1. Shadow Operators, the RPC (Remote Procedure Call) layer
2. Shadow Drive, a decentralized data storage layer
3. Shadow Cloud, a decentralized cloud computing platform

In this study, we will first introduce its various businesses, then detail the token economics, and analyze the reasonable value of the $SHDW token.

Shadow Operators

Remote Procedure Call (RPC) nodes act as traffic controllers, enabling effective communication between Dapps and the blockchain they reside on. RPC nodes on Solana handle the same traffic as validators and provide additional traffic necessary for service data queries. In this case, these RPC nodes are often overloaded, leading to a poor user experience, especially when using Dapps that rely on free RPC services.

Moreover, reports have indicated that Infura and Alchemy have restricted access to data on the Tornado Cash smart contract, making the demand for a fully decentralized RPC layer more urgent than ever. However, as of today, there are only two fully decentralized RPC providers in the market, Pocket Network and Ankr, while the rest exhibit varying degrees of centralized operations (including GenesysGo).

While a set of decentralized RPC nodes is important, there is currently no economic incentive for operators to run a node independently. This difficulty provides an opportunity for Shadow Operators.

GenesysGo has developed a smart contract that allows RPC service fees to be paid directly in USDC to its users, whereas previously, Shadow operators received $SHDW. This change ensures that the operational costs of Shadow Operators can be priced in fiat currency, unaffected by the volatility of the $SHDW token.

GenesysGo offers three RPC services: one free service and two monthly subscription services, priced at $325 and $795 respectively, with all revenue from fees going to Shadow Operators. Shadow Operators are required to stake 10,000 $SHDW tokens as collateral when providing services, and if downtime occurs, they may face penalties (staked tokens may be forfeited) and need to replenish collateral to receive USDC rewards.

The current setup of 27 operators remains, who initially joined the GenesysGo team. This scale will persist at least until they achieve self-sufficiency through user traffic. It is believed that in the future, once the demand and economic benefits of Shadow Operators are further validated, more individuals will join their RPC network, contributing to the project's further decentralization.

The Demand for High Throughput, High Reliability, and Decentralized Storage

The Shadow Drive

Data on Solana can be stored in three ways:

1. Validators and RPCs, which store about a week of ledger history data
2. Google BigTable storage
3. Third-party storage, such as Arweave and Filecoin

While Arweave and Filecoin are the most commonly used third-party storage solutions, they are incompatible with Solana; both have their storage costs paid in their respective tokens rather than SPL native tokens, and the throughput of both chains cannot keep up with Solana, leading to multiple transaction failures. These issues have made it clear to developers that integrating them on-chain would be cumbersome.

Google BigTable, given its vast global network as infrastructure, can provide a reliable alternative, but users must rely on certain trust assumptions that the data stored on Google is censorship-resistant. Compared to decentralized storage alternatives, its services are also more expensive.

So what is Shadow Drive, and why should it be the decentralized data storage solution?

Shadow Drive is an adapted version of an open-source software defined storage program called Ceph, which has the following advantages:

1. Open-source: Over 179 repositories, 10,000 forks, and tens of thousands of community support
2. Resilient and adaptable: There is no single point of failure that could lead to data loss, and it can be integrated with smart contracts to protect stored data from malicious attacks
3. High performance: The cluster is so fast that it can fetch, store, and serve real-time requests for a completed block before propagating the next block
4. Scalable: The largest cluster ever successfully stored 10 billion unique objects, making it suitable for Solana's rapid block times (1.46 million blocks at the time of writing)
5. Efficient mapping algorithm CRUSH: It allows data locations to be distributed at the byte level

Then, the GenesysGo team directly integrated it with a historical proof mechanism, passing on-chain events for consensus among the Solana validator network, thereby proving the persistence and integrity of stored data. Additionally, Shadow Drive is a single platform providing solutions for data storage, uploading, and serving. In contrast, Arweave uses Bundlr to speed up uploads, but this method of providing data storage further complicates the user experience.

Click here for a more detailed explanation of the Shadow Drive architecture.

Overall, Shadow Drive offers cost-effectiveness and ease of access, specifically optimized for Solana's processing speed and reliability, thus providing a smooth user experience.

Decentralized Cloud Computing Environment

The Shadow Cloud

Shadow Cloud is a recently launched service by GenesysGo that offers decentralized cloud computing services at lower prices than traditional centralized providers like Amazon and Microsoft. The directed acyclic graph (DAGGER) built by the GenesysGo team technically supports Shadow Cloud, using DAG as L1 distributed ledger technology to handle large data structures. The Shadow Cloud testnet environment will be launched and run at the Solana Breakpoint conference, where developers can try it out. Currently, there is limited public information, and more details will be shared during the conference.

Token Economics

GenesysGo conducted an NFT sale on November 3, 2021, selling 10,000 NFTs at a price of 2.5 SOL when SOL was approximately $220. The IDO began on January 3, 2022, raising $52 million, with the TGE price of $SHDW being around $1.73.

Details of token stakeholders:

Major events regarding token supply:

1. As of October 31, approximately 82.5 million of the 130 million sold NFTs remain in the NFT staking contract. This accounts for 48.5% of the total supply.
2. The first unlock of NFT releases will be completed by January 2023.
3. Seven million tokens under strategic reserve will be lent to Alameda for market making in Serum and Orca pools. The loan term is three years, with options to purchase multiple batches of tokens at undisclosed different prices, all of which are significantly higher than the IDO price of $1.70.

Demand for $SHDW will come from:

1. As a storage fee token for storing data on Shadow Drive
2. As collateral for Shadow Operator nodes

Shadow Drive

According to Metaplex, 15 million NFTs have been minted in the past year. Assuming each image is approximately 50MB on average, this requires 750,000GB of decentralized storage space. Under the assumption of immutable storage space, this allows us to estimate a lower limit demand of 187,500 SHDW tokens per year; however, if the storage space is variable, with 750,000GB SHDW locked as storage rent, then this number would be the upper limit.

Another strong use case is storing Solana's historical state, which grows at a rate of 4PB of data (4 million GB) per year. This leads to an expectation of 1,000,000 SHDW tokens being staked under the assumption of immutable storage, while under the assumption of variable storage, 4,000,000 SHDW tokens will be staked each year, which should be the upper limit of demand.

Putting these two prominent use cases together, we can infer that there will be a potential demand of 1,187,500 - 4,750,000 SHDW tokens annually.

In other words, the potential demand for storage fees for storing data on Shadow Drive is 0.69% - 2.80% of the total annual supply of SHDW.

Shadow Cloud + RPC

According to GenesysGo, there are currently 27 shadow operators. Given that operators need to meet the staking requirement of 1,000 SHDW to qualify for SHDW rewards and fee sharing, we can infer that 270,000 SHDW will be removed from circulation.

The team also stated that they envision a network of "thousands" of shadow operators that could power the RPC network and Shadow Cloud.

Assuming there are 1,000 operators, this would translate to 10 million SHDW locked as collateral, reducing the SHDW supply by 5.88%.

Conclusion

Overall, the economic model of the token is designed to be utility-driven. Two types of users have demand for the token:

(a) Those seeking storage solutions through Shadow Drive

(b) Shadow operators wishing to contribute computing resources in exchange for income

From the perspective of (a), as long as Shadow Drive provides a storage experience comparable to traditional cloud storage at a lower cost, it will attract more users in business development and education. As the number of users increases, the demand for storage and tokens will also rise.

From the perspective of (b), as long as the income from computing for Shadow RPC, Shadow Cloud, and Shadow Drive exceeds the costs incurred by operating Shadow Operators, we can expect to see an increase in demand for Shadow Operators. This will increase the amount of SHDW locked as collateral, a process similar to purchasing ASICs for mining.

In terms of supply, we expect stable supply after the second quarter of 2023. There will be no further token supply beyond the remaining NFT releases. At that time, the total supply will be fully stabilized and driven by the aforementioned utility.

We will continue to monitor the team's dynamics at key points, especially the development of Shadow Cloud and its impact on the SHDW ecosystem.