Lisk (LSK) is another addition to the burgeoning list of decentralized application hosting blockchains, challenging the likes Ethereum, Cardano, EOS and Ziliqa. Launched in 2016 by Max Kordek and Oliver Beddows, it raised 14,000 BTC via ICO, making it the 2nd largest public token raise at the time.
While its price has suffered in 2018, it has shown signs of life in the last week. Buoyed by an upcoming main network upgrade scheduled for August 29th, Core 1.0, its price has recovered strongly in the last week rising ~40%, to currently trade at $3.93.
While short term movements over the next week are likely to be driven by positive sentiment fueled by the launch. Pulling the microscope back, long term fundamentals and market conditions tend to tell a different story regarding Lisk’s future prospects.
The graph shows the normalized USD price, and volume, of 5 different LSK trading pairs over the last 90 days. LSK/BTC, LSK/PLN, LSK/ETH, LSK/USD and LSK/KRW. The orange line represents an Index of the prices, blue is LSK/BTC, yellow is LSK/PLN, green is LSK/ETH, navy is LSK/USD and LSK/KRW is turquoise. The bar charts below represent total trading volume in USD.
LSK token value has fallen from an ATH of $34.22 on February 17th, down over 85% in 6 months. What is also noteworthy is a dramatic fall in daily volumes.
On February 17th ~USD 89,000,000 worth of LSK was traded, while on the 16th of August, daily volume stood at ~ USD 6,000,000, a drop of ~93%. This reveals an exodus of LSK users, potentially indicating a lack of market faith in the underlying asset backed by the token.
Low trading volumes are also indicators of price volatility. Any positive price runs are more likely to be temporary because they are not supported by an active marketplace of trading.
Compare these statistics to ETH. While the Ethereum price has also taken big hits over the last six months, it has nonetheless sustained a steady transaction volume. Trading at $962.04 on February 17th with daily volume worth 1.8 billion, it traded at $281.76 with volume worth ~1.4 billion USD on August 16th — a 70% decrease in price but only a ~20% decrease in daily trading volume.
The graph shows the normalized USD price, and volume, of 5 different LSK trading pairs over the last 90 days. ETH/USDT, ETH/BTC, ETH/USD, ETH/EUR and ETH/CNY. The orange line represents an Index of the prices, blue is ETH/USDT, yellow is ETH/BTC, green is ETH/USD, navy is ETH/EUR and ETH/CNY is turquoise. The bar charts below represent total trading volume in USD.
This shows that Ethereum has been considerably more successful at retaining a user base and sustaining active trading of Ethereum tokens. This may also indicate the greater likelihood of a longer price rise when markets turn around, given that the marketplace for ETH has stuck around despite the falling price.
Exchanges and trading pairs
The most popular trading pair for LSK tokens is by some margin the BTC/LSK options, which handles over 1 million tokens daily and makes up over 85% of the market. Uniquely, the most popular fiat on-ramp option for LSK is the Polish Zloty, this may be indicative of Lisk’s European origins, the blockchain being developed in Switzerland’s crypto valley, Zug.
The three most popular exchanges for trading LSK/BTC are Yobit, HitBTC and Binance, which make up over 70% of the daily trading volume, and over USD4 million worth of trading between the pair. Yobit, the most popular of the three, appears to be registered in Bulgaria and offers a dice-based crypto gambling game on its platform.
Unique solutions offered by Lisk
At its core, Lisk is a decentralized network that specifically aims to act as a hub for blockchain-based applications and projects. Other networks such as Ethereum are designed with Dapps more as an afterthought, Ethereum’s ‘world computer’ design is meant to encompass a vast number of use cases including ICOs, business smart contracts, store of value projects (like DAI), as well as being capable of hosting Dapps.
Lisk is designed with an application software developer kit (SDK), that lets developers create their own completely customizable sidechains and run unique Dapps on top of it.
Once the sidechain and application have been developed, the Dapp is added to the Lisk directory, at which point users can download and begin to use the Dapp.
The system is designed to be akin to using Mailchimp for Newsletter distribution or WordPress for website development, meaning Lisk is an alternate for Dapp developers looking for a more user-friendly, modular application creation process.
Unfortunately for Lisk, tools such as OpenZeppelin, which streamlines the Ethereum Smart contract execution process, have allowed Ethereum Dapp developers similar modular privileges to those offered by the Lisk network — effectively negating one of Lisk’s unique selling points.
Boiled down to numbers, on August 1st the Lisk network processed 4595 transactions in a 24-hour period, while on the same day Ethereum’s network ran ~757,000 txs, more than a 150 times more. Given the advantage of Ethereum’s vast network effect, Lisk will face challenges establishing its product as via able alternative for Dapp developers. However, if Dapp developers embrace the network’s modular focus and added features it may be able to sustain its recent positive momentum.
Faring against other Proof of stake competitors
As mentioned, Lisk uses a delegated proof of stake consensus algorithm. Originally conceived by Dan Larimer for the Bitshares blockchain, it uses much less energy than the Proof-of-work consensus method, while theoretically offering faster transactions.
DPoS networks like Lisk, function with this oxymoron by operating with Delegates as block producers. Delegates are voted for by users of the community, who are LSK token holders and stake their tokens in order to have the right to vote.
Selecting block producers then becomes very streamlined because there is no extreme processing power competition as exists with networks like Ethereum and Bitcoin. It is something of a ‘trusted’ system where nodes are allocated blocks to produce based on rights earned by a community vote.
Once the voted-in Block producers signs off on new blocks, validators confirm these blocks based on standard blockchain consensus.
Lisk has a sparse 101 potential block producers, the community vote is designed to have a similar effect as processing competition in Proof-of-Work, in the sense that Block producers who do not perform to a minimum standard, are voted off the blockchain and replaced by a block producer from a pool of waiting delegates, missing out on profits.
Lisk provides simplified tools to make the voter decision making process straightforward. The Lisk delegate monitor lets users view the activity of any of the network block producers, while also providing general summaries of important information such as the most productive block producers, the least productive block producers and the delegate with the most blocks produced ever.
However, the numbers for active voters on the network is low. Based on numbers from June 2018, only 21% of active accounts (Lisk accounts with non-zero denominations) staked their LSK tokens for voting. The voting active accounts make up 42% of the total LSK in circulation meaning that over half of the issued LIsk in circulation is not being used for voting.
Additionally, the Lisk rich list indicates that the top 10 active accounts in the network hold over 40% of the LSK tokens and only one of these accounts has staked tokens and is actively participating in voting for nodes.
This may either indicate some sort of feudal system, where members of the LSK rich list are happy to retain the status quo for nodes perhaps due to some form of nepotism. Or, simply that those on the rich list aren’t that interested in the state of the network and are simply investing in LSK for speculative purposes. This begs the question whether this low stakes scenario for currently active Lisk delegates has affected network performance.
Regression Channel and Long Term Trends
On the 1D chart, the price of LSK is currently contained within a negative linear price trend. The Pearson’s R Correlation between time and price of ~0.90 for 2018 (regression channel). Price bounced off $2.50 in mid-August and currently sits at $3.91. Despite the ~56.40% price jump in little more than a week, price has consistently melted lower as volatility continuously dampens, visualized by ATR.
However, the volume flow indicator (VFI) has never consistently fallen beneath 0 since inception (black circle), which offers a little hope to investors looking for a sustained price revival. The VFI interpretation is a value above 0 is bullish and below 0 is bearish, with divergences between price and oscillator being high probability signals.
Ichimoku Clouds with Relative Strength Indicator (RSI)
The Ichimoku Cloud uses four metrics to determine if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, Lagging Span (Chikou), and Senkou Span (A & B).
The status of the current Cloud metrics on the 1D frame with singled settings (10/30/60/30) for quicker signals is bearish; price is below the Cloud, Cloud is bearish, the TK cross is bearish, and the Lagging Span is beneath the Cloud and price.
A traditional long entry would occur with a price break above the Cloud, known as a Kumo breakout, with price holding above the Cloud. From there, the trader would use either the Tenkan, Kijun, or Senkou A as their trailing stop.
LSK is currently sitting at ~$3.91 after bouncing from $2.50. Price is about a $1.50 away from re-attempting a Kumo breakout. Also, RSI currently resides at 52 after bouncing from oversold territory back in mid-August (black circle). The current RSI metrics may indicate that LSK will have sufficient buying pressure to re-attempt a Kumo breakout, $5.36 is Cloud resistance, but ultimately fail. The support levels are $3.50, $3, and $2.50. Price will need to break above ~$7 for a Kumo breakout. Price targets for a successful Kumo breakout are $7.50, $8.22, and $10.
The status of the current Cloud metrics on the 4H time frame with doubled settings (20/60/120/30) for more accurate signals is bearish; price is below the Cloud, Cloud is bearish, TK cross is bearish, and the Lagging Span is beneath the Cloud and price.
Price needs to break and hold above $9.65 (flat Senkou B) for a successful Kumo breakout with the resulting price targets of $14.14 and $19.86 (flat Senkou B). The negative linear trend, and current RSI and Momentum (dashed resistance line) indicators suggest that the probability of a successful breakout is low.
The Lisk network is a blockchain based Dapp hosting platform that has been operating since 2016. Along with others like Ethereum & NEO it is one of the originators of this form of distributed network. However, its recent struggles are concerning. A lack of market and developer interest in Lisk’s solutions have negatively affected its price and market performance in recent times.
Presently, LSK‘s primary appeal is as a vehicle for day traders to make quick short-term profits, based on speculative opportunities like the upcoming network upgrade and it may become challenging for the network to re-establish itself as a longer-term investment based on the network’s fundamentals.
The technicals for LSK are firmly bearish despite the recent uptick in RSI and price. Both, the prudent short term trader (10/30/60/30) and longer term trader (20/60/120/30) will await a positive TK cross and Kumo breakout above $7 and $9.65, respectively, before entering a long position. Both trader’s support levels are ~$3.50, $3, and $2.50 (critical to hold). The (10/30/60/30) trader’s price targets are $7.50, $8.22, and $10, while the (20/60/120/30) price targets are $14.14 and $19.86.
Disclaimer: This analysis has been designed for informational and educational purposes only. Readers are advised to conduct their own independent research into individual assets before making a purchase decision.
About the authors
Christopher Brookins is the founder and CEO of Pugilist Ventures, a quantitative investment firm focused on digital assets and blockchain technology. Chris has a deep knowledge and unique perspective on digital assets formed by his polymath experience in equity trading, credit investing, and business development at two West Coast startups (one acquired). He has been involved in the blockchain community since 2014. Follow @chris__brookins
Aditya Das is Brave New Coin’s in-house market analyst. Raised in Dubai, UAE, he holds a post-graduate honors degree in Economics from the University of Auckland and a BA in Economics from the University of Sussex. Prior to joining BNC his most recent roles were as a researcher and Economics tutor at the University of Auckland. Follow @Quartlifecrypto