Quantstamp (QSP) is a rarity in the cryptocurrency market – and I’ll explain why in this analysis. Smart contracts were considered a major innovation in blockchain technology because of their ability to transparently automate business logic. For all of the benefits and potential use cases that smart contracts provide, there is one glaring risk: security.
This need for smart contract security became very apparent on June 18th, 2016 when the DAO was hacked. Investors noticed that the balance of the DAO was decreasing, and watched their funds get taken because of a security vulnerability. The best way to attract a bad guy is to wave a vault of money in front of their face.
In the last few weeks, the batchOverflow vulnerability, potential Bancor bug (which was identified by the Quantstamp team, but later refuted), My Ether Wallet hack, and the EOSIO smart contract vulnerability rumour have highlighted that the blockchain space has a long way to go in terms of security.
Quantstamp is an automated security auditing protocol for smart contracts. The team is currently focused on Ethereum smart contracts, but the protocol they are building is meant to be malleable enough to be transferred to other platforms such as EOS, NEO, QTUM and ADA. Quanstamp’s competitors are mostly manual smart contract auditing teams, whereas QSP takes a two-pronged approach: (1) an automated software verification system and (2) automated bounty system payout.
In short, the Quantstamp team has created (and is continually improving) software that can automatically audit smart contracts, and then a second layer of security is added through a bounty program where community members are incentivized to find bugs in the smart contract code after the automated verification is completed.
What Are The Benefits For QSP Token Holders?
As a token holder you have utility in governance control and their Proof of Caring rewards system where token holders can receive airdrops of tokens that Quantstamp has audited. These tokens are allocated based on a holder’s “Proof of Caring score” that is calculated based on a variety of metrics related to their overall contribution to the blockchain community.
The company has partnered with both Y-Combinator (as a Y18 company) and the University of Waterloo and their team is highly academic, having more than 500 Google scholar citations combined on topics mostly related to formal verification and SAT formula difficulty levels.
This is a simplified explanation of how the audit works:
- A user sends their smart contract with the source code to Quantstamp with QSP tokens in the transaction
- Validators perform security checks on the next Ethereum block
- A ‘Proof of Audit’ is appended to the next Ethereum block once validators reach consensus
Since ERC20 tokens are smart contracts at their core, and according to Coin Market Cap there are approximately 500 ERC20 coins in circulation, it is clear that Quantstamp has a very large base target audience at this time.
An automated audit costs 25 QSP, and Quantstamp has published over 200 public reports on their website in the last two months. A requesting party has the option to keep their audit private, so the number of revenue generating audits may be much higher.
In order to request a manual audit you must hold 200,000 QSP tokens (value of approximately $46k USD as of May 7th 2018) and the audit could cost as much as $500k USD depending on the scope and breadth of the audit. Manual fees are typically accepted in QSP, which drives significant demand for the token. According to the community, the team has more than 50 manual audits in queue.
What Makes Quantstamp Unusual In The Crypto Market?
I am bullish on Quantstamp in the short and medium term for the following reasons in order of importance:
- Real Use Case: It’s rare to find a live platform, yet alone a platform that uses blockchain technology to solve a significant problem for the community. Just last week QSP assisted Binance to audit its listed ERC20 tokens to make sure that they were not affected by the recent batchOverflow and proxyOverflow vulnerabilities. Binance is the world’s leading cryptocurrency exchange and QSP used their automatic and manual audits to quickly affirm that none of the coins listed on Binance could be attacked.
- Income Generative Revenue Model: QSP is one of few projects earning revenue, and they’ve been earning revenue since their launch. The demand from the community is growing.
- Lack of Competition: Their closest competitors are manual security auditing firms, such as Consensys Diligence, but QSP is scaling their operations through automation; differentiating themselves on scale and speed.
- Growth Potential: As an investor who is fundamentally bullish on the large-scale adoption of blockchain technology, I believe smart contracts have the ability to proliferate worldwide and we could see exponential smart contract growth with wide-spread adoption. The use cases are plentiful. In addition, QSP has the opportunity to adjust their platform to accommodate other smart contract platforms such as EOS, which will increase their target audience, the demand for their token, and decrease their reliance on the Ethereum platform.
- Unique Dividend Model: Active community members who are token holders have the ability to earn airdropped tokens through QSP’s “Proof of Caring” model, where QSP will airdrop tokens that the team has done an audit for.
- Strong Team: Linda Selker, former VP of General Counsel at Visa, joined Quantstamp several weeks ago. The team has scaled from 2 to 30 members in a matter of months and members have strong industry and academic backgrounds.
- Timely Delivery: The QSP platform was delivered over 6 weeks early and the team decided to build a web application for their service with their extra time. The application was built by Google UI engineers because the team evaluated that their testnet was too difficult for users to interact with.
- Scaling Potential: QSP has partnered with the University of Waterloo, Canada’s premier engineering school located in the “Silicon Valley of Canada”, to use artificial intelligence technology to enhance their automated auditing software.
- Temporary Constrained Supply: Richard Ma, the CEO of Quantstamp Technologies, publicly stated in the company’s official telegram channel that 100% of the token revenue generated from manual audits will be put in cold storage for the “foreseeable future”. Temporarily constraining a sizeable amount of the liquid QSP tokens on the market puts less downward pressure on the price, and the law of basic economics states that constrained supply coupled with sustained demand could drive the price up in the near term.
What May Happen With QSP Token Demand?
Token demand is derived from two main sources: (1) token utility in the Proof of Caring model, and (2) the need to purchase and hold QSP tokens to have your smart contract manually or automatically audited.
For those reasons I believe that demand should be sustained and increase proportionally with the use of smart contracts.
A major catalyst for growth is the realization that code in a nascent industry is inherently vulnerable to attacks and it is in the best interest of security to take responsible measures, such as using Quantstamp for an audit. If an ICO team is trusted with millions of dollars of investor funds they need to make security a priority.
At a market capitalization that values Quantstamp outside of the top-100 coins on CoinMarketCap.com, I think the upside-return potential has yet to be priced into the asset. There’s room for more trading liquidity (meaning listing on more exchanges), smart contract proliferation, and general industry-wide adoption.
- Passes the GDAX digital asset framework
- Continues to make compliance a priority
- Rewards users for participation
- Is a Y-Combinator project (just like Coinbase was and there is a strong YC alumni network)
- Is an ERC20 token
- Is San Francisco based (just like Coinbase)
- Is listed on other large exchanges (Binance, Huobi and Kucoin)
A Coinbase listing, which would be considered a very bull scenario for QSP, would provide greater liquidity, access (with a fiat trading pair), familiarity (where investors can price their investment in dollars versus satoshis), mainstream advertising exposure, and legitimacy.
However, I am bullish on QSP whether they are listed on Coinbase or not.
*Disclaimer: I do own Quantstamp tokens*
The opinions expressed above are solely the opinion of the author and do not necessarily reflect the views of Crypto Briefing or its employees.