On June 4, Jack Levin published the X1 Litepaper, delineating the future of the X1 chain, XN native coin, XEN, and VMPX BRC-20 token. While XEN and its community are the heart of the network, VMPX comes into the picture in an unexpected way. It’s a bridge between Bitcoin, Ethereum, and X1, taking ⅓ of the entire XN allocation. Here we talk about the relationship of this bridge token with XEN and its role in the entire ecosystem.
What is VMPX BRC-20
VMPX is a BRC-20 token on Bitcoin launched by Mr. Levin on May 7. Its mint caused the Bitcoin fees to reach 600 sat/vB per transaction, which is a record that caused Bitcoin’s congestion for days, forced Binance to halt withdrawals, and incentivized retired miners to rush to mine Bitcoin anew to make profit on fees. BRC-20 is a fungible token standard using ordinal inscriptions and allowing people to mint their tokens on Bitcoin. BRC-20 is a JSON data file inscribed on a single satoshi.
VMPX had no utility when it launched and was minted during the so-called mint rush for approximately 10 hours. The total supply is 108,624,000, and the total holders right after the mint exceeded 10,000, which was the highest amongst all other tokens, and the price was about $0.40.
Utility of VMPX
Mr. Levin said repeatedly that he was working on creating a utility for VMPX, and it finally arrived with the X1 Litepaper. It’s the first BRC-20 with a utility, and it comes to the space with a big leap as a bridge token connecting two of the most important chains with the biggest market caps and communities.
Trustless Bitcoin integration with X1 is necessary to achieve global adoption, and although the connection between Bitcoin and X1 isn’t direct, the importance of VMPX on XEN and XN cannot be underestimated. Litepaper gives 1 ⁄ 3 of the entire 100,000,000,000 XN allocation to VMPX because it makes ERC-20 VMPX convertible in a 1:3 ratio with XN. The rest of the supply goes to XEN burners.
The Litepaper also describes the plan to create a VMPX ERC-20 token on Ethereum with the same 108,624,000 supply in a mint rush that is going to last about 8–12 hours. This token will be in a 1:1 ratio with BRC-20. The Ethereum VMPX will be the one that is convertible to XN, so users who want to convert their BRC-20 to XN will need to swap it to the ERC-20 standard first.
VMPX tokens on both networks can be staked to provide liquidity and earn yield on cross chain Bitcoin-Ethereum swaps or from single-sided staking. This means that VMPX stakers will earn rewards on the entire traffic crossing between these two big networks. It’s also a merger between Bitcoin, Ethereum, and X1 because of the exchange of one for another and convertibility to XN.
How does the bridge work
For the bridge to work, VMPX on Ethereum and Bitcoin need to be locked into liquidity pools where they can be bridged. The Litepaper mentions Libre Chain as a bridge operator. When VMPX is placed in a pool controlled by validators, it starts earning fees on the liquidity provided.
When ERC-20 is converted to XN coin, VMPX is staked into the pool owned by the protocol, and the fees earned in VMPX can then be used for single-sided staking rewards distribution, for example. Single-sided staking bears no risk of impermanent loss and, depending on the implementation, can provide users with daily payouts and no penalties for unstaking. There may be other time-dependent solutions as well. This hasn’t been defined in the Litepaper but the possibilities are there.
Not all of the VMPX ERC-20 will be converted to XN because the game theory assumes that it will be more convenient for holders to earn passive income on VMPX liquidity. Should rewards from single-sided staking provide more rewards than liquidity provision, the exchange ratio should increase. Single-sided staking, however, is something that validators can alter and is under the control of a governance process. They can decide if they should receive incentives or if they should go to the ecosystem.
What is the relationship between VMPX and XN
The XEN community is actively debating the allocation of XN to VMPX. The relationship of VMPX to XEN and X1 is apparently weak. There’s no continuous minting process like in XEN; there’s no time function or Proof of Participation and there’s no burning of XEN to get the XN allocation. The fairness of VMPX was put into question, but this is the only thing that was possible to do with a BRC-20 on Bitcoin, and despite the technical limitations, it earned VMPX a historical mark on Bitcoin’s fee chart, which was a great marketing stunt that shook up the Bitcoin community.
People could freely mint the token by paying transaction fees, and they could also buy it from the market at a 70% discount. They will have another opportunity to participate in the mint rush of the ERC-20 VMPX on Ethereum on July 4th.
The bridge where VMPX is used is between Bitcoin and Ethereum, and all the traffic that goes through it doesn’t directly arrive at X1. Libre chain operating the bridge, is going to be the protagonist. However, as weak as it seems, the relationship between X1, XEN, and VMPX does exist, and it has to do with the relations between all of the tokens and networks involved as a whole.
If we present this relationship in a schematic way, then VMPX BRC-20 on Bitcoin is in proportion of 1:1 with VMPX ERC-20 on Ethereum and can be swapped and subsequently converted for XN on the X1 chain.
XN comes into existence primarily by burning XEN, so XEN is the core component of X1, and we’ve seen that the price of gas, especially on Ethereum, is the main factor in establishing XEN’s price. Ethereum gas sets the floor price for XEN, which means that it’s difficult for it to fall below the minimum gas cost of the mint.
The price of XN will depend on the price of burned XEN. The higher the cost of burning XEN, the higher the price of XN.
The price of VMPX on the other side of the bridge is based on the price of mint, with Bitcoin’s price and the cost of a single satoshi serving as the floor. It is predicted by many that this year, we’ll see the BRC-20 summer where the tokens will enjoy huge interest and, as more people use them, the cost to mint rises, making the block space always more scarce and expensive. We’ve observed that as soon as the VMPX price started going up, the entire BRC-20 market became green again in the wake of the possibilities that the announcement of the VMPX utility brought into space.
On the level of the bridge, VMPX is the key point where liquidity and traffic from two giants converge. The fees generated will drive the value of VMPX up.
The mint rush on Ethereum and the gas expended on it, will be the main factors in establishing the initial price of the ERC-20 token. After the bridge is open, it will balance out with the price of BRC-20.
The possibility to exchange ERC-20 VMPX 1:3 to XN means that one influences the price of another. VMPX could have a higher price than XN, which means that VMPX has a floor price not only in Bitcoin but also in XN. It’s also pulling the price of XN up thanks to the value of Bitcoin and the traffic generated on the bridge.
This is an intricate web of synergic interactions between tokens and networks. They all create a complex ecosystem where the XEN community is the heart and a generative force behind the economic power of all of them.