From messari by Jennifer Obem, Ishraq Alim

Key Insights

Primer

Nym (NYM) is an open-source, incentivized, and decentralized physical infrastructure (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 end-to-end internet communication between any application, in addition, Nym built a proprietary application on top of the Mixnet, NymVPN. As such, it is not exclusive to blockchain-related activities. However, the Nym mixnet is closely linked to the NYM token, which runs on the Nyx Cosmos-based appchain to enable permissionless ‘bonding’ of new mix nodes to the Nym network and to pay for mixnet services.

Nym addresses a frequently neglected component of the internet’s 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

Performance Analysis

Financial Analysis

The NYM utility token serves the following functions for the Nym mixnet and the underlying Appchain:

The token and the appchain blockchain serve the economic function of the NYM mixnet, the DePin protocol responsible for private communication.

In Q3’24, NYM’s price further declined 42.9% QoQ to $0.08 after a previous 46% QoQ decline in Q2’24, both in line with the broader market contraction in the quarter. The market cap also dropped 37% QoQ, closing at $63.2 million.

NYM was originally distributed as both a native Cosmos ICS-20 token and an ERC-20 token, bridged to Ethereum via Gravity Bridge for Coinlist users. By the end of Q3, the ERC-20 NYM supply stood at 116 million, or 14.4% of the total 803 million circulating supply, up from 13.3% in the previous quarter. This suggests decreased adoption into the native mixnet ecosystem.

Ethereum ERC-20 NYM can be bridged to native Cosmos NYM through centralized exchanges such as OKX and bridges such as Gravity Bridge.

In Q3, Nym Technologies released an NYM Swapper app that allows the exchange of NYM tokens between the native Cosmos-based app chain and Ethereum’s ERC-20 tokens via MetaMask and Keplr wallets. This tool simplifies the bridging process and allows users to easily stake tokens on Nym nodes for rewards and manage delegations across the two blockchain ecosystems​.

Rewards

The protocol incentivizes operators (who run Nym Nodes or Nyx validator nodes) and delegators with Nym rewards to bootstrap the network and incentivize security. Total rewards denominated in NYM decreased by 1.3% QoQ, while rewards denominated in USD decreased by 46.4% QoQ due to the NYM token’s price depreciation. Reward distribution decreased from a 12-month high of 2.36 million NYM in September 2023 to 2.06 million NYM in September 2024. This decrease would be expected as the network moves towards commercial adoption and becomes self-sufficient in incentivizing Operators and Delegators without the need for rewards.

Operators were awarded approximately 13% of overall fees in Q3 2024, while delegators received the remaining 87%. This marks a shift from Q2 2024, where delegators received 91% of rewards and operators received 9%. In Q3, delegators earned $515,500, while operators received over $73,700. This change in rewards distribution is due to new parameter adjustments introduced in September 2024, which affected node operator costs and profit margins. The goal was to prevent a potential "race to the bottom" in operator profit margins and to control any unchecked increase in operator costs. This parameter change sets the following ranges:

Following a community vote in Q2’24, the above parameter changes were implemented through the Caramello release in September 2024. According to an official post by the project team, since the implementation of the above changes:

In the coming months, Nym plans to introduce further changes to NYM tokenomics and staking reward parameters, incorporating feedback from the node operator community. A detailed roadmap for these updates was be presented during the Nym node town hall in October 2024.

Network Analysis

In Q3’24, the total number of packets received increased by 118%, reaching over 1 million. Since all packets are uniform in size, network traffic is measured by the total packet count. However, due to dynamic cover traffic, individual user activity remains untraceable from overall packet data.

In Q2, a series of stress tests were conducted to push heavy traffic through the network and identify error messages and their sources. The first test took place on March 20, 2024, and the third concluded on April 9, 2024. Despite involving over 340 nodes, there were no significant increases in packet volume or other metrics during the tests. Most growth occurred later in Q2 and in Q3, following the beta release of NymVPN which drove substantial packet traffic to the network. The absence of packet loss or node dropouts indicates the network remained stable and experienced no downtime during the 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 to enable end-users to use the network without necessarily running a node. The primary purpose of mix nodes is to route and mix traffic through the mixnet securely.

As of the end of Q3, there were 802 total nodes available. Of these, the network selects 240 nodes to be active in each hour (epoch), to optimize reward distribution and system efficiency. 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 happens once per hour, so the topology is continuously changing, making it difficult for an adversary to construct a malicious path. The selection is fully decentralized and is based on a mix node's reputation (measured by its total stake in NYM tokens) and performance.

The total NYM delegated to mix nodes reached 199 million NYM ($19.9 million) at the end of Q3, which is up 1% QoQ. Delegated NYM increased despite a 17% decrease in APY QoQ to 10.5%, primarily due to the increase in reward distribution to operators in the Caramello release. NYM holders can delegate directly through the Nym explorer with familiar Cosmos tools like the Keplr browser/mobile wallet or the Nym native wallet.

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. 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 NymVPN app aims to meet the growing demand for privacy protection in the familiar form of a VPN while maintaining a surveillance-resistant business model.

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.

In terms of trade off between speed and privacy, NymVPN offers two distinct modes to cater to different user needs:

Development updates to NymVPN in Q3’24 were as follows:

Notable developments planned for NymVPN in the coming months include:

Community

In Q2’24, Nym launched the Nym Delegations Program 2.0 to incentivize high-performing nodes and promote network decentralization by enabling new nodes to quickly join the active set while supporting geographically dispersed, well-managed nodes. The program was funded with a total of 32 million NYM distributed as delegations, with each qualifying node receiving 250,000 NYM. Prioritization is based on factors like location, hardware, and community contribution. The program has shown early success, contributing to Nym’s network expansion. As of writing, the Nym network spans over 88 countries, with entry and exit nodes operating across all continents except Antarctica.

Rewards generated from Nym Delegations Program 2.0 fund Squad Wealth Fund, a community treasury set up in Q1’24. The Squad Wealth Fund further amplifies Nym’s efforts to promote ecosystem growth by distributing NYM rewards to community contributors through quarterly “Squad League Missions.” As of Q3’Q4, the Squad Wealth Fund has successfully concluded three Squad League seasons, receiving a total of ~1.45 million NYM from the Nym community treasury.

Other notable community events and partnerships in Q3’24 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 38 validators, as of Q3’24. 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 will be 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.

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, and validators received rewards in NYM tokens.

Closing Summary

Q3'24 was a milestone quarter for Nym, highlighted by the public beta launch of NymVPN, its first commercial application on the mixnet. The service demonstrated Nym's scalability and usability, with packet volumes surging 118% QoQ to over 1 million and the network maintaining stability with no downtime or packet loss. Key enhancements, such as WireGuard integration and expanded global node coverage across 88 countries, bolstered NymVPN's utility, offering flexible privacy modes for diverse user needs. These developments reflect the protocol's ability to support real-world applications while driving adoption through improved accessibility and privacy features.

Nym's Caramello release adjusted operator costs and profit margins, leading to a 2x increase in rewards for high-performing nodes while reducing staker APYs from 13% to 10%. aligning incentives with performance. The Nym Delegations Program 2.0 and the Squad Wealth Fund strengthened the network’s decentralized foundation, expanding active participation across 88 countries and distributing 1.45 million NYM to contributors. These advancements position Nym to scale adoption and further refine its ecosystem in the quarters ahead.

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This report was commissioned by Nym Technologies. All content was produced independently by the author(s) and does not necessarily reflect the opinions of Messari, Inc. or the organization that requested the report. The commissioning organization does not influence editorial decision or content. Author(s) may hold cryptocurrencies named in this report. This report is meant for informational purposes only. It is not meant to serve as investment advice. You should conduct your own research, and consult an independent financial, tax, or legal advisor before making any investment decisions. Past performance of any asset is not indicative of future results. Please see our Terms of Service for more information.

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