From messari by Red Sheehan

Key Insights

Primer

Nym (NYM) is an open-source, incentivized, and decentralized DePIN protocol that protects privacy at the network level of any application, wallet, or digital service. As a mixnet, Nym protects against traffic pattern analysis and metadata surveillance. Nym exists as a tool to facilitate private internet communication between any application, such as a VPN. As such, it is not exclusive to blockchain-related activities. However, the Nym mixnet is closely linked to the NYM token and the Nyx blockchain, which Nym uses as its Cosmos-based appchain to coordinate the NYM token.

Nym addresses a frequently neglected component of the technology stack: the transport layer. True privacy is achieved from the bottom up, starting with the transport layer. Both conventional Web 2.0 applications like Telegram and blockchain-related applications such as wallets — and even entire networks — can benefit from Nym's modular network stack. Unlike other privacy solutions, Nym's mixnet employs a unique architectural approach that enhances anonymity proportionally with the growth in network participation. For a full primer on Nym, refer to our Initiation of Coverage report.

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Key Metrics

Financial Analysis

NYM’s price continued to increase in Q1, up 40% QoQ, following a 66% increase in Q4. NYM’s market cap increased by a greater amount, 58% QoQ, with the discrepancy due to a 13% increase in circulating supply. Despite the QoQ increase, NYM’s market cap rank fell from 308th to 339th.

The NYM utility token serves the following functions for the Nym mixnet and the Nyx blockchain:

NYM was initially distributed as both a native Cosmos ICS-20 token and an ERC-20 token, bridged to Ethereum through Gravity Bridge for Coinlist users. As of the end of Q1, ERC-20 NYM had a supply of 102 million, or 14.3% of the total 715 million circulating supply. Ethereum ERC-20 NYM can be bridged to native Cosmos NYM through centralized exchanges such as OKX and bridges such as Gravity Bridge. Nym Technologies is also building a swap functionality in the Nym Wallet for such transfers.

Network Analysis

Packets are chunks of network data (i.e., traffic) either coming from users or generated as cover traffic. The Nym mixnet guarantees privacy by taking advantage of the Sphinx packet format. This format makes all packets, even those from cover traffic, indistinguishable from each other.

Because all packets are uniform in size, network traffic can be measured by the total number of packets received. However, dynamic cover traffic means that individual user activity cannot be derived from overall packet activity.

In Q1, a stress-testing series began, i.e., pushing substantial traffic and recording error messages and their origins. The first performance test was executed on March 20, 2024, with more to come in Q2. There were no significant upticks in packets or other network metrics on the date the first stress test started, but over 340 nodes participated. However, the fact that packets didn’t drop to near zero and nodes didn’t drop out suggests that the network did not experience any downtime from these tests.

Mix Nodes

The Nym mixnet is supported by a decentralized and permissionless network of mixing nodes, known as mix nodes. The network uses a client-server architecture and is not P2P. The primary purpose of mix nodes is to route and mix traffic through the mixnet securely.

As of the end of Q1, there were 765 total nodes available. Of these, the network selects 240 nodes to be active in each hour (epoch). Only 240 are selected as active in order to maximize the rewards and efficiency of the system. The number of active nodes scales with demand, and the parameter can be adjusted through governance (though it was initially set by the Nymtech team). The selection of active nodes is fully decentralized and is based on a mix node's reputation (measured by its total stake in NYM tokens) and performance.

Total NYM staked reached 473 million NYM ($128 million) as of Q1. This represents a staking rate of 66%, considering the circulating supply of 715 million NYM. NYM holders can delegate directly through the Nym explorer with familiar Cosmos tools like the Keplr browser/mobile wallet.

For one specific mix node at saturation (i.e., 986,000 NYM delegated), the average APY trended downwards as stake reached that saturation point.

Rewards

The data observed is for a median active node, i.e., an ideal mix node, rather than the entire set of nodes. In Q1, Operators were awarded 5.3% overall fees, with Delegators receiving the other 94.7%. This distribution was essentially unchanged from Q4. Operators can set their own commission rate, which they are incentivized to keep low since Delegators can always restake elsewhere. To avoid a race to the bottom, the community suggested a baseline Operator reward of 40 NYM when new nodes join the network. Without lower limits to node rewards, sophisticated actors are likely to specialize and make the service more competitive, which prices out solo Operators and ultimately leads to centralization. This problem has been observed with other blockchain networks, such as Bitcoin mining.

Total rewards denominated in NYM decreased 4.7% QoQ. Despite this decrease, rewards denominated in USD increased 44.3% QoQ, due to NYM’s 40.1% QoQ price appreciation. For an ideally saturated node, daily node rewards have gradually decreased since the high of 498 NYM per day in May 2023. At the end of Q1, daily node rewards were at 439 NYM.. Flashes to zero for rewards were caused by software updates which reduced rewards during the respective epoch (1-hour period).

Governance

Zero new governance proposals were made in Q1. Nym has had 11 total proposals, of which 10 passed and 1 failed.

Ecosystem Analysis

The Nym mixnet is a privacy DePIN that can be leveraged directly, through applications that act as wrappers for tailored UX or via protocols that enshrine Nym into their networking layer.

NymVPN

NymVPN is a VPN service powered by the Nym mixnet, designed to offer users enhanced privacy and security. NymVPN has just entered its alpha phase, onboarding new users. This VPN employs the Nym mixnet and provides options for users to balance speed and privacy. It also enables payments with NYM, ensuring anonymity in transactions. The Nym VPN app aims to meet the growing demand for privacy protection in the familiar form of a VPN while maintaining a surveillance-resistant business model.

The NymVPN’s general-purpose scope has the potential to onboard many more users than previous Nym integrations (i.e., NymConnect and specific B2B Nym integrations). To increase accessibility, it automatically converts payments across a wide variety of payment methods, including Bitcoin and fiat, to NYM tokens. The NymVPN payments will then fund the mix nodes in the same way transaction fees work in other networks.

NymConnect

NymConnect is a simple interface that enables users to privacy-enhance their apps by routing traffic from third-party applications through the Nym mixnet. As a beta application, NymConnect is currently used to stress test the mixnet and features. In this way, NymConnect should be seen as a precursor to NymVPN and should not yet be fully relied on for strong privacy protections.

Through the Nym mixnet, NymConnect allows users to securely broadcast messages to interact with various applications. It is currently compatible with:

In some cases, NymConnect enhances existing privacy. For example, Monero already onion-routes transactions before broadcasting them, but it could introduce more privacy by sending them through the mixnet.

In other cases, NymConnect adds privacy where there is none. For example, without a mixnet or VPN, Telegram could be geographically censored by a government, as it was in Iraq. With NymConnect, Telegram users could not be geographically censored..

Moreover, the NymConnect interface can be configured to meet the needs of a specific application or user. NymConnect’s Speedy Mode allows users to forego cover traffic in favor of faster speeds.

Community

A community treasury of NYM tokens was established called the Squad Wealth Fund. This fund supports Nym ecosystem growth by rewarding community contributors. The Squad Wealth Fund kicked off Season 0 with 475,000 NYM in Q1.

Other recent community events and developments include:

Nyx Analysis

Nyx is a sovereign, general-purpose Cosmos Layer-1 (L1) blockchain with built-in privacy features. It was built with various open-source Cosmos technologies, such as the Cosmos SDK. Nyx will have a governance token, NYX, while using NYM for rewards.

Nyx is currently permissioned, with a Proof-of-Authority consensus mechanism run by 33 validators, as of Q1 2024. It is planned to move to a permissionless Bonded-Proof-of-Stake (BPoS) mechanism. When it changes mechanisms, Nyx will feature a BPoS Byzantine-Fault-Tolerant (BFT) consensus mechanism, as it is built with CometBFT, a fork of Tendermint Core.

The primary purpose of Nyx validators is to order transactions and reach consensus on the state of the network. The state of the network is a directory (or “map”) of all mix nodes and their reputations. While mix nodes mix traffic, validators maintain consensus of the topology and tokenomics of the mixnet. These Nyx validators will be similar to PoS validators on other Interchain networks and PoS blockchains in general.

Plans for Nyx validator rewards were released in Q1 during a validator town hall. Validators are rewarded for two types of work: block signing and running the NymAPI to monitor performance and issue zk-nym credentials for the NymVPN app. The reward scheme was implemented in February with validators receiving rewards in NYM tokens.

Closing Summary

Nym, a DePIN network for private communication, was integrated into several products and services in Q1. Most notably, the NymVPN continued development and approached its alpha release. The NymVPN offers a UX abstraction, so users (crypto-native or Web2) can leverage the privacy and security of the Nym mixnet with the UX of a traditional VPN.

NYM’s price increased 58% QoQ. NYM is used to pay for usage and distribute rewards to mixnet participants, and its price is correlated to demand for Nym’s privacy-enhanced bandwidth. Meanwhile, the Nyx blockchain is used for various supporting functions of the Nym mixnet. While it is still permissioned, Nyx is migrating towards permissionlessness.