Immutable X Deep Dive

Is the NFT platform worth the hype?

Gamestop recently announced a partnership with the layer 2 solution Immutable X to help build its NFT marketplace. In this article, I’ll share my thoughts on the project and give Immutable X a score for each of the following categories:

1. Team

2. Usage and Value Proposition

3. Adoption

4. Competitiveness

5. Tokenomics

6. Risks

7. Future Potential

At the end, I’ll rate Immutable X overall and summarize my thoughts on the project.

The Team

First of all, you need to know that Immutable X is a partnership between Australian game developer Immutable and Israeli scaling startup StarkWare.

But Immutable is the main driver of this new platform, so we’ll cover the Immutable team first.

Immutable

The company was created in 2018 by brothers Robbie and James Ferguson who both have some pretty impressive backgrounds and were recognized in Forbes 30 Under 30.

Robbie is a Thiel Fellow who dropped out of the University of Sydney to work on Blockchain Data Analytics at KPMG.

James also went to the University of Sydney but graduated with degrees in both Finance and Law. He later worked as a co-founder for a couple of startups, a business development manager, and a front-end developer.

But, Robbie and James aren’t the only talented people involved with Immutable. The company has made some key hires, drawing in talent from across the tech world.

To give you a few examples, Immutable has hired:

· a Principal Product Manager and Senior BD Manager from Google

· a Head of Studio Engineering from EA and Microsoft

· Strategy & Ops leads from McKinsey and Bain

· a Partnerships and Content Lead from Twitch.

Finally, in case that wasn’t enough, Immutable has the backing of notable investors like Naspers, Galaxy Digital, and Coinbase.

Sounds interesting right? Just wait till you hear about StarkWare’s team.

StarkWare

StarkWare was founded in 2018 by academics and entrepreneurs with a deep understanding of cryptography.

President and chairman, Eli Ben-Sasson, is a computer science professor who has researched zero-knowledge proofs for over 20 years at places like MIT, Princeton, and Harvard.

The CEO, Uri Kolodny, has an MBA from MIT Sloan and has worked in the tech industry for years.

The chief architect, Michael Riabzev, has a PhD in Computer Science and experience working at Intel and IBM.

Last but not least, the chief scientist at Starkware, Alessandro Chiesa, has a PhD from MIT and is a co-founder of the Zerocash protocol.

I know what you’re thinking… this lineup is basically a crypto dream team.

It’s no wonder then that Starkware is one of the biggest names in the crypto industry. The company is focused on zkRollups (a scaling solution for Ethereum) and provides the scaling technology for several notable blockchain protocols. And, just recently, Starkware raised $50 million at a $2 billion valuation, receiving backing from top investors like Coinbase, Sequoia, and even Vitalik Buterin himself.

Score

Considering all of this, I give Immutable X’s team a 9 out of 10.

I don’t see any major weaknesses, but the founders of Immutable are fairly young so I dock off 1 point. This doesn’t have to be a bad thing, but it does mean the team has something to prove.

Usage and Value Proposition

To put it simply, Immutable X provides the back-end technology that companies use to build and manage NFTs on Ethereum

Still, it’s worth mentioning how it got to this point.

Immutable was originally a company called Fuel Games, and it made waves by producing play-and-earn games (e.g., Etherbots, Gods Unchained, and Guild of the Guardians).

Then, in August 2019, Fuel Games rebranded to Immutable and shifted gears, focusing on creating a blockchain platform that allows businesses to create a game, marketplace, or NFT application within hours.

Immutable partnered with Starkware after running into scaling issues on Ethereum because Starkware uses a newer type of zkRollup that uses STARK proofs instead of SNARK proofs.

Basically, what this difference boils down to is STARK proofs do not require an initial trusted setup which makes them more secure.

So, in April 2021, Immutable X was created to combine Immutable’s understanding of NFTs and StarkWare’s scaling technology to create a dominant platform for minting and managing NFTs on Ethereum.

Value Proposition

Why would customers choose Immutable X over other competitors?

For starters, Immutable X provides a platform that makes NFTs easy to make, scalable, and widely accessible. Given the team’s background in building games with NFTs firsthand, Immutable‘s unique industry expertise gives them an edge in product development and allows the company to focus on making NFTs easy to use and create.

For example, in an interview on November 18, 2021, co-founder Robbie said that Gods Unchained minted 20 million NFTs in 3 days, which is more NFTs than any other Ethereum game combined.

But, in addition, Immutable’s Software Development Kits or SDKs allow developers to easily integrate Immutable X into their legacy platforms, like Android, iOS, Unity, and Unreal, and they make the IP from their own games available to any developer who wants to use their platform.

In terms of scaling, Immutable’s underlying StarkWare zk-rollup scaling solution allows Immutable to scale up to 9,000 transactions per second while offering a secure solution that inherits Ethereum’s decentralization. As a result, Immutable X provides instant trading, massive scalability, and zero (yes zero!) gas fees for minting and trading NFTs.

Immutable helps make NFTs widely accessible through a shared global “order book” to facilitate liquidity (Which is basically a fancy way of saying that any NFT can be bought, sold, and traded in any of the marketplaces built on Immutable X). So, for example, imagine if all the Shopify stores in the world could list any product if it’s been listed on Shopify- that’s essentially what Immutable is doing with NFTs.

Immutable also allows for metadata-based ordering, which gives users the ability to buy and sell their NFTs based on specific characteristics, making for a more efficient process.

Lastly, Immutable is building its own NFT marketplace, which allows smaller companies to list their NFTs without having to build their own marketplaces

Given that NFTs currently comprise about 30% of Ethereum’s network usage, this is a large opportunity and Immutable is positioned to capture meaningful market share.

Score

To conclude, Immutable’s goal is to become the global backend for trading all types of digital assets on Ethereum.

Given that Immutable currently offers one of the best solutions for NFTs on Ethereum, I give Immutable a 9 out of 10 in terms of its usage and value proposition.

Adoption

Immutable X has attracted some of the most prominent partners in the blockchain space.

• In September 2021, Immutable was chosen by TikTok to handle its first dive into NFTs.
• Immutable also provide the technology for VeVe (Vee-Vee), which is the partner that is handling all the NFTs for Disney and Marvel.
• That’s not all though — Immutable also has upcoming partnerships and integrations with OpenSea, ESL, and CS:GO.
• And, on November 2021, Immutable received one of its strongest endorsements when Ember Sword, one of the biggest games on Ethereum, decided to migrate from Polygon to Immutable X for better speeds, higher security, and a more seamless UX.

As I mentioned in the beginning, Gamestop announced it would be building its NFT marketplace using Immutable, and the two companies also jointly created a $100 million fund to support creators of NFTs. Microsoft is also a big Gamestop partner and with its recent acquisition of Activision Blizzard, Immutable’s partnership with Gamestop could end up being a lot larger than people think.

Immutable is currently #7 in Total Value Locked compared to other Layer 2 solutions with only $86m, but this is understandably low because the token only launched a few months ago, and staking rewards are not yet fully functional.

Score

Overall, I rate Immutable X’s adoption a 7 out of 10 because there are extremely exciting partnerships in progress, but Immutable still faces the challenge of onboarding thousands of users.

Competitiveness

Immutable’s direct competitors are Forte and Enjin, which both offer tools for companies to create their own NFTs. But, Immutable also faces competition from Layer 1 blockchains focused on gaming and NFTs, such as Wax ($WAXE) and Flow ($FLOW).

Other layer 2 competitors include scaling solutions like Polygon, Loopring, Optimism, and Arbitrum.

Because Immutable has focused on being an infrastructure provider, it does stand out from the competition.

As you can see here, Immutable occupies every niche in the gaming industry, and having a complete suite of solutions will pay off eventually.

Immutable’s use of Starkware zkRollups also makes it one of the most scalable solutions out there, but since transactions are settled on Ethereum it doesn’t have to sacrifice security.

Score

I give Immutable an 8 out of 10 in competitiveness because of its unique position in the market, but it isn’t too far ahead of its competitors and could still be passed in the long run.

Tokenomics

Let’s next look at Immutable X’s token (IMX) and its tokenomics.

IMX tokens are used for governance, to pay transactions fees, and for staking to earn rewards.

20% of every transaction fee is paid in $IMX tokens, but if you use another currency like Ethereum (ETH), that currency will automatically be swapped for IMX on the open market.

The IMX tokens are then sent to a staking rewards pool where rewards are distributed proportionately at regular monthly intervals. Basically, the more you stake, the more you earn.

Moving on, the total supply of IMX tokens is 2 billion, and about 52% will be used to incentivize ecosystem development. Only about 19% was sold in public and private sales, which is a relatively low number compared to other crypto projects that sell the majority to private investors.

Still, only 225 million IMX tokens (11% of its total supply) are in circulation currently. So, one main concern is that if you own IMX today you will be heavily diluted in the future.

Private investors and project development tokens have a 1-year lock-up which ends in October 2022, and all tokens will be available for sale within the next 4 years.

This leads to a steady flow of about 33 million IMX being circulated into the market every 28 days for the next 4–5 years.

Score

From an investing standpoint, IMX’s tokenomics are pretty terrible. I give this category a rating of 1 out of 10.

Risks

Immutable X’s risks include:

1. Competition

The Ethereum ecosystem as a whole is under threat from other Layer 1s. But, Immutable X is also facing a lot of competition in the NFT scaling space from projects like Enjin Coin, Flow (from Dapper Labs), and Forte.

2. Adoption Hurdles

There is always the possibility of regulation and/or the lack of adoption of NFTs, especially since many gamers are not too fond of NFTs.

3. Poor Tokenomics

I think this is the most impactful as there is a lot of selling pressures with lock-ups expiring over the next 4 years and so a ton of dilution is coming soon.

Score

I’m okay with the competition and adoption hurdles but Immutable X’s poor tokenomics is really tough to overlook. I give the rate the project a 3 out of 10 in this category.

Future Potential and Price Prediction

Let’s consider Immutable X’s potential upside for a moment.

On a fully diluted basis, IMX is valued at about $5.7 billion, a far cry from Polygon’s fully diluted market cap of $17 billion (a reasonable potential ceiling for IMX).

For another point of reference, OpenSea was just valued at $13.3 billion, which shows how big investors expect this market to be.

With these two data points, in 1–2 years Immutable can achieve a base case fully diluted market cap of $15 — $20 billion, implying a price range of $7.50 to $10.

But, keep in mind crypto is currently facing a bear market.

More optimistically, if the crypto markets double or triple in value over the next few years and if Immutable executes on becoming the dominant NFT platform on Ethereum, a fully diluted market cap of $50–100 billion is within reason, which implies a price ceiling of $25 — $50.

I give this scenario about a 20% chance of happening. So, you can also view the probability adjusted price target to be $5 to $10.

On the other hand, if competition beats out Immutable, the token could pretty much go to $0 so there is considerable risk here.

Score

Adoption and execution will really be key for Immutable and given that its team has shown a lot of initial promise, I give Immutable’s potential upside a 6 out of 10 score.

Conclusion

To recap, let’s look at all our ratings and Immutable X’s final score

Each category was scored out of 10, but I weigh each differently based on importance.

Tallying up all the scores then, we get an overall score of 6.25 out of 10 for Immutable X.

Even though this is my first time using this type of rating system, I think a 6.25 is a very on-the-fence type score, which is how I feel about Immutable X.

Immutable is a great play on the NFT space, but I worry about its tokenomics, and so personally, I would only dedicate a small portion of my portfolio to Immutable X.