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🤔 What is Vechain ?

Vechain is a blockchain-based traceability solution for supply chain management. It tracks what happens with products at each stage of supply chain and records it on blockchain.

Buyers come to know what happened with their product as it makes it way from factory to their hands. Whereas, companies can monitor and improve their supply chain processes.

💡 Vechain token system

Vechain ecosystem has 2 tokens:

Vechain(VET)

It is used for:

  • Masternodes: Nodes have to stake VET tokens to become master nodes(working of nodes will be discussed subsequently).
  • Participate in governance: Nodes have to stake VET tokens to take part in Vechain governance.
  • Generate VTHO: Holding VET tokens generate VTHO tokens. VTHO tokens are generated at the rate of 000432 VTHO per day per VET.

VeThor Power(VTHO)

It is paid as fees to record transition on Vechain blockchain. Just like ether is burned as fees in Etherium blockchain to make transaction, similarly VTHO is burned in Vechain to record transaction on Vechain blockchain.

🚀 Origin of Enjin

Sunny Lu founded Vechain in 2015.

Sunny Lu earned Bachelor’s degree in Electronics & Communications Engineering. from Shanghai Jiao Tong University in Shanghai, China in 2002.

In 2010, Lu became the CTO and Organizations & Project Manager of Louis Vuitton, China.

The team launched Vechain as VEN blockchain on Etherium mainnet in 2016. They sold 1 billion VEN tokens and raised $20 million during crowd sale in 2017.

VEN blockchain rebranded to Vechain and launched their own blockchain in 2018. VEN token were also swapped to VET tokens at the rate of 1:100.

😌 What problems does it solve ?

Challenges faced in supply chain management are:

  • Fraud – Counterfit products:
    • Results in loss of revenue to the original brand.
    • Customers are cheated.
    • Knock off products like makeup and skincare when applied can cause serious problems.
  • Information asymmetry: Sellers have more information than buyers about the product they are selling. They know the actual price of their product and try to exploit the buyers to the maximum. This results in market failure, as the price cannot be set by actual supply and demand.
  • Copyrights: It is very time-consuming and expensive for creators to enforce copyright laws and track usage of their work.
  • Inefficient data collection: 
    • World has become more connected and supply chains have become more complex. Most supply chains pass through several countries and have many stages. Data is recorded in different languages and isolated databases that are not interoperable.
    • It is not possible for companies to analyse this data in its present form to improve supply chain processes like storage, delivery time etc.

Blockchain solves trust issues. Vechain uses blockchain to record information at each stage of supply chain. This helps companies to ensure quality control and trace products at various stages of supply chain.

Vechain is a flexible platform that can be customized to suit needs of businesses in various sectors:

  • Luxury goods management system
  • Cold chain logistics solution
  • Medical and healthcare solutions
  • Vehicle maintenance solution
  • Track carbon footprints

🤖How does it work ?

Toolchain

Toolchain is a blockchain-based SaaS platform. Enterprises use it to rapidly build and deploy Vechain solutions in their supply chain management.

Proof of Authority(PoA) Consensus model and Vechain Nodes

There are two types of nodes in Vechain ecosystem:

  • Authority nodes: 
    • Vechain protocol has set max limit of authority nodes to 101.
    • They validate and build blocks on Vechain blockchain.
    • Process for registering as authority node is as follows:
    • Nodes also have to stake at least 25 million VET tokens and deploy hardware(to validate blocks) to become authority nodes
    • 70% is burned and 30% of VTHO transaction fees is given to authority nodes to validate transactions.
    • They also receive voting rights in proportion to their staked VET.
  • Economic nodes: 
    • They do not take part in validating blockchain transactions and do not require special hardware.
    • Have to stake at least 1 million VET tokens to become economic node.
    • They generate VTHO tokens at a faster rate and are given voting rights in proportion of VET staked.

Proof-of-authority is more centralized than other consensus mechanisms like: proof-of-work and proof-of-stake, but has much higher throughput and low gas costs. This is required to track billions of products through numerous stages.

How does the process works ?

  • Company uses Vechain toolchain to customize Vechain as per their needs.
  • Sensors like RFID, NFC or QR codes are embedded in each product manufactured by the company. This gives a unique ID to each product and are used to track information at each stage of supply chain.
  • Sensors on products record information as products make their way through the supply chain. The information can be recorded automatically using sensors or logged using IOT devices.
  • Customers can access this information to track product life cycle as it makes its way from the factory to their hands. Whereas companies use this information to improve their supply chain processes.

⚙️ Working Demo

Some examples of companies using Vechain to improve their supply chain management:

  • Recolte:
  • Knowseafood:

🏛️ Governance

Voting rights of various stakeholders in Vechain ecosystem are:

  • Authority masternodes: 40%
  • Economic nodes: 60%

These stakeholders with voting rights select board of steering committee.

Board of Steering Committee

The Board of Steering Committee is the governing body of Vechain ecosystem. Steering committee lays out critical strategies and selects functional committees:

  • Technical committee: Develops and tests new updates to Vechain protocol.
  • Operational committee: Prepares budget plan and deals with financial matters.
  • Public relation committee: Provides legal guidance and promotes Vechain.
  • Regulation committee: Responsible for ensuring compliance of all laws and regulations.
  • Compensation and nomination committee: Responsible for setting an appropriate incentive system for various participants in Vechain governance.

However, all stakeholders(economic and authority masternodes) vote on fundamental subjects that can have a significant impact on the overall ecosystem:

  • The election of the new Board of Steering Committee.
  • Fundamental change to the consensus mechanism.
  • Modification to the generation velocity of VTHO.
  • Other subjects that the Board of Steering Committee deem necessary for all stakeholder voting.

⚔️Competitors

However, none of the competitors has made as much progress and has as many partnerships.

🤑 How much money does Vechain have for future development ?

  • The team raised $20 million during ICO in 2017.
  • They earn revenue through:
    • Investing in startups building on Vechain.
    • Selling consulting services.
    • Develop and manage systems for enterprise clients.
    • Paid training.

👍 Tailwinds

  • Partnerships: They have partnered with several large enterprises in all sectors.
  • Competition: None of their competitors have made as much progress.
  • First mover advantage: They are one of the oldest crypto projects and have been through bear market. They have an excellent track record and have outlasted most of their competitors.
  • Switching cost: Enterprises spend considerable resources and time to customize Vechain to their specific needs. They will not migrate to other supply-chain solution without a strong reason.
  • Network effects: Every product is made up of several raw materials and parts. These raw materials/parts are produced by different companies spread all across the world. Hence, companies would want to choose the most common supply-chain platform to integrate their supply chain. This will lead to winner-take-all effect, where just one supply chain solution dominates the entire market.

☠️ History of hacks

Vechain foundation wallet was hacked in 2019 in which 1.1 billion VET tokens worth $6.53 million were stolen.

The hack was result of human error. The foundation has corrected its procedures to avoid such incidents in the future.

⚔️ Risks and Challeges

  • VTHO tokens are burned to conduct transactions on Vechain blockchain. Price of VTHO tokens fluctuates as per market supply and demand. Companies would not want to expose their supply chain systems to such unnecessary price fluctuations risks.
VTHOUSD Rates by TradingView
  • Many partnerships listed by Vechain were just proof-of-concept testing and have actually not manifested in any real wide-scale mass adoption.
  • Vechains records real-world data on blockchain at every stage of  supply chain. No one can tamper with the data once it has been recorded on the blockchain. However, there is a possibility that the human or sensor recording the data are being tampered with.
  • Cheap and fast transactions are a prerequisite for Vechain mass adoption. Cheap VTHO will cause the price of VET token to fall, whose primary function is to yield VTHO tokens. This might be a  major challenge/dilemma/negative feedback loop faced by Vechain: Price of VET being inversely correlated with Vechain market adoption.

💰 Tokenomics

  • VET token has fixed max supply of 86,712,634,466 tokens.
  • These tokens were distributed during 2017 ICO as follows:
    • Private investors: 9%
    • Enterprise investors: 23%
    • Crowdsale: 27.7%
    • Project team: 5%
    • Vechain foundation for operations and development: 22%
    • Vechain Foundation burned 13.3% of VET tokens

Supply schedule

Token Inflation

VET token does not have any inflation because VET tokens have a fix max supply, all of which is in circulation.

Demand pressure

Token’s price increases due to demand pressure.

Demand pressure on VET tokens will come from:

  • Earning VTHO: Companies will buy VET tokens to generate VTHO tokens to pay as fees for their supply chain operations.
  • Staking to become nodes: Many of these enterprises will also become economic and authority nodes by fulfilling staking requirements to earn more VTHO tokens.
  • Take part in governance: Many enterprises will buy VET tokens to take part and influence governance decisions of Vechain.
  • Speculators: They will buy VET tokens in hope of future price appreciation.

VET has a fix supply hence any increase in demand will result in price appreciation. 📈

Market cap

Supply chain management is a multi-trillion dollar market growing at an exponential rate which will only become more complex with rise of online shopping and globalization.

Vechain has tremendous room to grow even if some companies decide to use Vechain platform for supply-chain management.

🧐 Indicators to watch out for

  • Their YouTube channel is growing:
  • Their Twitter following is growing:
  • Number of transactions on Vechain have picked up:

👋 Final remarks

Vechain can take the liberty to compromise on decentralization to improve throughput of blockchain as they are not dealing with life savings, unlike bitcoin etc. Proof of authority consensus mechanism makes Vecahin faster and cheaper as nodes are not competing with each other to solve random puzzles.

It is one of the oldest crypto projects which have undergone bear market and come out stronger on the other side. The team has already done the heavy lifting and made a fully functional product. All that remains is to scale and improve the existing ecosystem.

😊 Do further research

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