In this article I’m going to analyze PulseChain. A controversial project that hasn’t even launched yet. I’m going to evaluate it across 6 different categories and end with my price prediction. I hope you read the whole article before criticizing, because my goal here is to be fair and nuanced with my points.
For those of you who are not familiar with PulseChain, here’s a quick intro. On the highest level PulseChain is a layer 1 platform that supports Dapps, smart contracts, etc. It’s actually a fork of Ethereum, but it’s not your typical fork that only copies the code base. PulseChain copies the entire state of Ethereum 2. This means all the smart contracts, tokens, and account balances on Ethereum will also exist on PulseChain. If you hold LINK and USDC on Ethereum, you’ll also have pLINK and pUSDC on PulseChain.
PulseChain was started by Richard Heart, the controversial founder of HEX. He doesn’t really have the best reputation in the crypto world but this article is not about him, so I’ll evaluate PulseChain on its own merits without focusing on Richard.
Richard started PulseChain when he saw how people were fed up with all the problems that Ethereum faced. He set out to build a blockchain that would be fast, cheap, eco-friendly and decentralized. To accomplish this, he’s going to lower the block time to around 3 seconds. He’s also going to change the consensus mechanism from proof of work to delegated proof of stake. This means that there will be a limited number of validators who will run the network, just like what EOS had.
Obviously, this network will come with its own token. Its ticker symbol is PLS, and it functions just like ETH because you use it to pay gas fees on the network. PLS does have a maximum supply and it is deflationary. Because 25% of all gas fees are burned and the remaining 75% goes to validators.
There’s two ways people can get PLS before it trades on the open market. The first way is through the airdrop. Basically, if you hold ETH in your wallet during the snapshot. You’ll get one PLS for every ETH that you have. The second way is to their sacrifice event, which already ended. For that you could send certain coins and tokens to their address and receive sacrifice points in return. The amount of sacrifice points you got depends on a lot of different factors, but just for reference early sacrificers were getting around 10,000 sacrifice points per dollar sacrificed. And each of those points would get you one PLS in return.
Close to 14 billion dollar worth of assets were sacrificed and that means the total supply of PLS will be around 127 trillion. These numbers are just estimates since they may change but the final numbers should be relatively close. Now, a huge part of that sacrifice came from the origin address of HEX. Which stepped in at the very last minute and sacrificed billions of dollars’ worth of HEX. But if we exclude that portion there was around 700 million worth of assets sacrificed by somewhere between 40,000 to 80,000 addresses.
Now that you’re up to speed on the basics. Let’s dive into my analysis. When I was researching this project, one thing that really shocked me was their plan to copy the state of Ethereum because that means if you have 100 LINK, 10 ETH, and 1 Crypto Punk, you’ll also have a copy of those on PulseChain. But that made me wonder, why those copies would have any value? Like okay I could see PLS having value and perhaps the NFT copies would have a little bit of value too. But the actual tokens, I would be flabbergasted if they had any value.
Take USDC for example, those can be redeemed for one dollar if you go to circle or Coinbase, but why would those organizations recognize the PulseChain version? They honestly wouldn’t. That’s why pUSDC would be worthless. Also considered Chainlink, their token derives value from the underlying protocol, so you need the team to manage the oracles, upgrade the smart contracts, etc. But if they only do that for their project on Ethereum then pLINK isn’t going to be worth anything either. That’s why I see this whole fork plan as a huge question mark, and I think it could backfire on anyone who tries to buy the p versions of various tokens, thinking that they’re going to have some value in the future.
But let’s ignore that for now and evaluate this project’s value proposition. At its core, It’s just another layer one project, right? Sure, it has low fees, fast speeds, etc. But that sounds like a lot of other layer 1 projects. So what’s really unique here?
Richard Heart says that PulseChain aims to make Ethereum better, but once ETH 2 is out and roll ups are mature. Why would anyone want to use or build on PulseChain? I want to be very clear here, PulseChain is not the same thing as HEX. HEX had a very simple value proposition. It was to be a store of value and offer a blockchain certificate of deposit. So it’s much easier for HEX to fulfill its purpose. Whereas PulseChain is a platform, so it needs usage adoption and a robust ecosystem. That’s much harder to accomplish than what HEX was aiming for. And if they can accomplish that then they won’t be successful in the long haul.
Honestly PulseChain is in for massive uphill battle because they have additional hurdles that other projects don’t have to worry about. For example, they are having a difficult time attracting developers. And for a layer 1 platform, good developers are absolutely critical. Richard Heart says he has 13 core devs working for him. But he noted that they are regular devs that he’s training to be blockchain devs. Because the existing blockchain devs are “stupid”. He’s also keeping them anonymous so we can’t check out their background for ourselves to see if they’re skilled and legit.
Eric Wall posited during his debate with Richard, that all the quality blockchain devs don’t want to work with Richard because they think he’s a scammer. So that’s why he can only get inexperienced devs who don’t know blockchain. I think Eric is on to something here because keep in mind that there’s not a lot of blockchain devs out there, so they’re in high demand and they can pick whatever project they want to work on. So just throwing money at them isn’t enough, they have to want to work with you too.
That’s why I see Richard’s comment about blockchain devs as a coping mechanism because he can’t recruit any of them now. Some people may point to the hundred plus projects being built on PulseChain, to be like “look, there is interest from developers” but I took a look at some of those projects, and they look like fluff or just low quality compared to projects on other blockchains. Go take a look for yourself if you don’t believe me.
But it’s not just the developers. Another big hurdle for PulseChain comes from the legal side. At the end of the day, PulseChain sacrifice was a pre-sale investment opportunity that was open to the general public. That’s a big no-no in the eyes of the SEC because you’re not supposed to sell tokens to non-accredited investors. Remember what they did to all those ICOs back in 2017? Most of them were forced to scrap their plans and return funds. Telegram was a famous example of this, they didn’t even sell to that many US investors, but they were pressured to shut down their ICO anyways.
So if we look at PulseChain, it’s clear that Richard tried his hardest to make him not look like a securities offering. First, he branded it as a sacrifice of your tokens instead of calling it a pre-sale. Second, he stressed that you should not expect any profits from this. And third, he wrote on the website that the purpose of sacrificing your coins was simply to make a political statement.
But I think any reasonable person would agree that the sacrificers are wanting PLS in return, and most of them participated because they want to make money in the future. So this whole approach was a clear violation of securities law and it could get them into hot water with the SEC. But hey maybe this won’t be a big deal after all. Because we’ve also seen the SEC be lenient before. Like they’ve given some projects just as small fine and let them continue to operate. So maybe it’ll just be a slap on the wrist for PulseChain after all.
However, my biggest concern about PulseChain has to do with this token distribution. Richard said that PulseChain would be better than Ethereum in terms of decentralization. But as of right now it’s looking like the most centralized project I’ve ever seen. I’m not going to rehash this entire saga because it’s already been discussed at nauseam, but essentially near the end of the sacrifice period the origin address of HEX came in and sacrificed billions of dollars’ worth of HEX. And as a result, that entity, who’s most likely Richard Heart by the way, now owns over 90% of the PulseChain supply. This is a massive issue, because PulseChain is a proof-of-stake network so this entity can now elect every single one of the 33 validators. And by doing so they have full power to control block production, double spend, and do whatever they want on the network.
Now defenders point out that Richer did it to protect the network from whale manipulation, and he would never take advantage of his power because he doesn’t want to harm his legacy. And to that I say okay, I could see this benevolent whale scenario play out, but I think Colin Talks Crypto said it best in his video. when he said that the whole point of crypto is to be trustless. And now we’re putting an immense amount of trust in a single person. So yeah I’m not a fan of this token distribution at all.
I think the only way to salvage this is that the origin address tokens are all locked up or burned forever. That way the distribution would be closer to the original plan which only gave 1% of the supply to the founders. And that would make things much more decentralized.
Now as you can tell. I have a ton of concerns about PulseChain but this does not mean that I’m calling it to crash to zero. I think where it heads depends on its initial market cap and what happens to those origin address coins. Assuming that those coins are effectively burned or locked up, then we should look to the liquid market cap of the project for clues. I expect that number to be around 700 million to 1 billion dollars because that’s what was sacrificed by normal market participants before Richard stepped in. What we can do is take that number and compare to the valuation of other layer 1 networks like Kadena for example. That was a small layer 1 project and it reached a market cap of around 3 billion during this past bull run. If PulseChain reaches that then it could be around a 3-4 x. Or take polygon, one of the best and most well-known networks out there. They reached a market cap of 20 billion dollars during its all-time high. PulseChain could theoretically reach that, if a lot of things go right for them, and that would equate to a 20 to 30x gain for them.
I want to stress here that this is the effective liquid market cap that we’re talking about. This is not the full market cap that includes all the origin address coins as well, because the full market cap is going to open at some ungodly 7 billion or so market cap, but that’s not as useful to look at when it comes to analyzing growth potential by anchoring to other projects.
Now when I talk about these 20 to 30x potentials. That’s assuming that we’re in a bull market because if we’re still in a bear market. When they launch then it’s much more likely for the price to dump instead after all. A lot of PLS holders already saw their HEX bags drop 90 plus percent so the diamond hands won’t be as strong as before. And people will want to lock in profits.
One thing I’m super confident about is that PulseChain cannot and will not do a 10,000x or anything close to what HEX did. For the simple reason that HEX started at a super low market cap while PulseChain will open at a much higher market cap. Just think about it, the initial buyers and sellers of PLS are going to mentally price it based on the rough dollar amount that they sacrifice for it. They’re not going to sacrifice a thousand dollars’ worth of coins and then sell all the PLS they got for like ten dollars. That just doesn’t make sense.
Instead, I expect PLS to open with an effective market cap of around 700 million and that prevents it from ever rising as much as HEX did. Also keep in mind that PulseChain does not have the same “pumpamentals” as HEX. Hexagons were convinced to stake their HEX for many years. Some people even elected to stake for the maximum of 15 years and that’s the thing with HEX. It’s a certificate of deposit so the whole point is a stake. Anyone who tries to withdraw their coins early would also face a harsh penalty, so these strong incentives to lock up your coins is why HEX was able to pump so much. But PulseChain doesn’t have any of that. Sure, there’s the fee burn and the maximum cap but there’s a lot of other projects with those tokenomics too.
So my whole point here is that, all those dreams of making 10,000 x gains with PulseChain, you can just kiss those goodbye.
Now after all my research my personal conclusion is that I would not buy PLS. Sure, there could be 10x potential here, but the risk and reward is just not there right now.
