Introduction

In an increasingly digital world, demand for wireless internet has never been higher. The wide use of handheld devices, the growth of “smart devices,” and the commercial importance of connectivity have left traditional carriers struggling to keep up with demand.

Carriers have begun exploring zero to low-capex alternatives to provide services to their customers through the help of decentralized infrastructure networks (dePIN).  XNET is a decentralized wireless network using Citizens Broadband Radio Service (CBRS), Wi-Fi Version 6+, and a network of node operators to provide reliable and cheap connectivity to consumers and businesses. XNET owns very little physical infrastructure and no spectrum.

How Does Wireless Work?

Spectrum refers to the various lengths of wave frequencies that wireless signals travel over. The spectrum goes from 3 Hz to 300 EHz, with things like radio waves, microwaves, and infrared waves on the lower end of the spectrum, and things like UV, X-rays, and gamma rays on the high end of the spectrum.

Wireless refers to the wavelengths on the spectrum that support messaging, calls, or internet connections with wave frequencies between 20 KHz and 300 GHz. Spectrum is a finite resource because of the limited frequencies that support communication and the inability for everyone to operate on the same frequency without causing interference.

Diving deeper into the communication spectrum, it is broadly categorized into three bands – Low, Medium, and High:

• Low = Under 3 GHz – long distance with minimal interruption. Most wireless networks are built on the low spectrum and it powers almost 100% of American networks.
• High = above 24 GHz – shorter distances (meters, not miles) – extremely high capacity and fast speeds. Parts of 5G networks, satellite communications, fixed wireless networks.
• Medium = between 3 – 24 GHz = Blends the above for hybrid wireless connection. 5g networks use 3.5 GHz.

Because spectrum is a finite resource, it is regulated by the Federal Communications Commission (FCC) and National Telecommunications and Information Administration (NTIA). The FCC allocates commercial spectrum and the NTIA oversees government usage of spectrum. The U.S. government currently controls about 60% of spectrum.

The FCC usually holds commercial auctions for providers to bid on, raising money for the government through spectrum licenses, which is an expensive cost for wireless companies. There is also unlicensed spectrum that can be provided publicly or privately which is what XNET uses to power its network.

XNET

XNET is a decentralized wireless network built on Solana. XNET uses a heterogeneous network, combining the best mobile network connectivity and Wi-Fi offloading. Users can deploy XNET radios that offer different connectivity options. Their radios span different spectrum bands, including 2.4 MHz, 3.5, 5.0, LTE, 5G, Wi-Fi 6, and Wi-Fi 7. The network is meant to be deployed in layers, with Wi-Fi nodes working alongside mobile network nodes (LTE/5G). XNET leverages two different technologies to facilitate its heterogeneous network: Citizens Broadband Radio Service (CBRS) and Wi-Fi Passpoint.

Citizens Broadband Radio Service

CBRS (Citizens Broadband Radio Service) is a wireless communications service in the U.S. that operates in the 3.5 GHz band (3550-3700 MHz), known as the CBRS band. It is designed for both commercial and private use, providing more efficient use of spectrum and enabling private LTE (Long-Term Evolution) or 5G networks. CBRS introduces a new way of spectrum sharing that allows different tiers of users to coexist while still maintaining high-quality service.

CBRS uses a spectrum-sharing model divided into three tiers:

• Incumbent Access: This is for legacy users like military radar and satellite systems, which have priority and must not be interfered with.
• Priority Access License (PAL): This tier is for licensed users, typically enterprises, telecom companies, or municipalities that have paid for a priority level of access to the spectrum.
• General Authorized Access (GAA): This tier is for unlicensed users who can use the spectrum if no higher-tier users are currently using it, akin to Wi-Fi but with dynamic allocation. This is what XNET CBRS nodes use.

Unlike Wi-Fi, which operates on static, unlicensed channels, CBRS uses a system called a Spectrum Access System (SAS) to dynamically assign spectrum to users based on need and availability. XNET network operators can deploy CBRS nodes (which require separate gateways and radios to support all functionality) to begin expanding their mobile coverage.

Wi-Fi Passpoint

Wi-Fi Certified Passpoint (Hotspot 2.0) is an industry standard technology that automates the process of finding and connecting to Wi-Fi networks. Devices automatically connect to hotspots without user intervention using a predefined set of credentials. It enhances security and improves the user experience by utilizing enterprise grade WPA2/WPA3 security protocols.

XNET leverages Hotspot 2.0 to facilitate Wi-Fi Offload, allowing mobile devices to automatically connect to XNET Wi-Fi nodes when in range and reduce demand on large cellular networks. XNET Wi-Fi offload nodes can operate in standalone fashion and are usually deployed in high-traffic public areas.

XNET’s network helps carriers by reducing network traffic and allowing for efficient spectrum usage while end-users benefit from improved network speeds and connectivity.

The table below summarizes the differences between CBRS and Wi-Fi:

XNET Tokenomics

The native token of the XNET network is XNET -7.98% . XNET was initially deployed on Polygon, but as of August 2024, they successfully migrated to Solana, creating an SPL token (XNET -7.98% ) with a max supply of 2.4 billion. The current circulating supply of XNET is 66.47 million. At a price of $0.144, XNET’s circulating market cap is $9.57 million, with an FDV of $345.6 million.

The XNET token is a governance token and aims to introduce crypto-economic incentives into its wireless network to align interests between node operators and users. Node operators earn XNET tokens in return for setting up and running nodes, while revenue from people using XNET’s services is used to buy and burn XNET tokens. Network customers pay in fiat dollars, and the XNET foundation uses 80% of its revenue to buy XNET tokens on the open market and then burn them. The other 20% goes to the XNET treasury for operational costs and other initiatives. The buy-and-burn mechanism provides buying pressure for the token while also reducing supply over time.

Rewards for node operators operate on a 2-week epoch schedule ending on Sundays. Tokens can be claimed a day or two after the next epoch starts in accordance with XNET’s rewards framework, which can be found here.

XNET’s initial supply allocations are outlined below:

• Foundation Pool: 432,000,000 tokens (18%) – Vesting began this month and will continue over several years. This pool facilitates charitable works and supports suitable organizations.
• Ecosystem Pool: 312,000,000 tokens (13%) – This pool is reserved for key strategic suppliers and partners, with a lockup period of 12-18 months and vesting beginning this month.
• Operator Pool: 936,000,000 tokens (39%) – This is the token mining reward pool for builders and validators of the XNET network. Emissions are contingent on network expansion and reward rates will be periodically reviewed.
• Investor Pool & Insider Pools: 720,000,000 tokens (30%) – Vesting begins in January 2025 at 0.20% per month and increases to 1.5% per month from April 2026 onwards.

A large amount of XNET supply is left outstanding (~97%), which presents a longer-term concern. In the near to intermediate term, it is less of a concern. XNET is projecting approximately 12 million more tokens in 2024 emissions (~$1.73m), and then insider/investor unlocks begin in January 2025, which equates to approximately 1.4 million tokens per month (0.20% / month). The market should be able to absorb that amount of supply as XNET continues scaling. Beyond 2025, emissions likely present a larger risk, as investor/insider unlocks increase to 1.5% per month in April 2026, but it is difficult to forecast what the network will look like then. The projected emissions also do not account for any tokens that will be burnt as a result of XNET’s buy-and-burn model.

Investment Thesis

The investment thesis on XNET is based on three factors:

1. The wireless sector is a large market primed for disruption
2. XNET has seen encouraging traction thus far
3. XNET provides Solana & HNT beta and portfolio diversification

Large Opportunity to Disrupt the Wireless Sector

The wireless industry has exploded over the past decade as the proliferation of smartphones and devices has fueled the need for faster speeds and increased data consumption. The number of wireless connections has been on a steady uptrend since 2013 with total wireless connections in the U.S. increasing to 558 million in 2023.

There are more wireless connections than there are people in the U.S., as households often have more than one device per person. Data consumption from these connections is beginning to go parabolic. 2023 saw a record 100 trillion MB of data consumed, nearly double the amount in 2021 and the largest single-year increase ever recorded. The explosion of wireless data reflects the increasingly central role wireless networks play in everyday life and the expected trajectory of data usage throughout the remainder of the decade.

To meet the increasing demand for data, wireless providers continue to invest heavily into infrastructure to scale and improve efficiency. Yearly infrastructure investments are approaching $1 trillion and the number continues growing. The number of cell towers in the U.S. has increased by 24% since 2018 to over 430,000.

Despite expanding demand and improved infrastructure, centralized wireless providers are struggling to efficiently expand due to several significant challenges, including:

• Spectrum scarcity – The limited availability of radio frequency spectrum creates stiff competition among providers, putting pressure on what they can charge.
• Infrastructure costs – Spectrum licenses are expensive, and cell tower rent prices and lower productivity are pressuring margins. Additionally, the cost of capital and labor prohibit efficient network scaling.
• Regulation and compliance – Governments impose various regulatory hurdles, adding complexity to global operations.
• Market saturation – Mature markets, particularly in the U.S., face slowing subscriber growth. The cellular penetration rate in the U.S. is already 113%, making new subscriber growth difficult to find.
• Security concerns – Increasing threats of data breaches and cyberattacks necessitate enhanced security measures and costs.

dePIN networks like XNET are a new primitive that can solve some of the above pain points as they offer multiple advantages compared to their traditional counterparts:

• Improved cost efficiency – By distributing capital expenditures across a network of node operators, XNET can scale its wireless network much faster compared to a centralized provider that would have to pay for all infrastructure costs.
• Decentralization – a distributed network removes any single point of failure and with geographically dispersed network partipants, XNET can create more comprehensive coverage across larger areas, especially in regions where it wouldn’t be practical for company’s to typically invest in.
• Aligned Incentives – Introducing token rewards aligns infrastructure development with individual financial motivations, increasing overall network utility and incentivizing.

The wireless industry is a sector primed for disruption and XNET is well-positioned to capitalize on its accelerating growth and need for cost-efficient scaling.

Revenue Potential

The best way to visualize XNET’s potential is to simulate revenue generation in scenarios in which they disintermediate part of the wireless sector and capture varying percentages of the market.

XNET’s current focus is Wi-Fi offloading for mobile network carriers. They still plan to scale the network with their CBRS nodes, but as a newer project, they are initially more focused on expanding the Wi-Fi portion of the network. XNET has published some of its Wi-Fi revenue data from the past year, and it has averaged about 24 cents of revenue per gigabyte of data offloaded.

In 2023, the U.S. consumed slightly over 100 trillion megabytes of data, twice the amount of data in 2021 and the largest single yearly increase ever recorded (in data terms). In a scenario where they capture just half a percent of the 2023 wireless market, that would equate to 500,000 terabytes of data offloaded. This scenario forecasts no growth in data consumption, which is highly unlikely. It is expected that data consumption will triple from 2023 levels by 2029, equating to 300 trillion megabytes per year.

At 24 cents per gigabyte, XNET would be receiving $120 million in revenue in a scenario where it can offload half a percent of U.S. mobile data. 80% of that would go to buying and burning XNET tokens and 20% to the foundation. In more bullish scenarios, XNET could see its revenue move to more than half a billion dollars per year. At a $10.5 million market cap, any of the above scenarios would result in significant price appreciation for the XNET token.

It is important to note that the above estimates are illustrative, and we acknowledge it could take years for XNET to scale to a level where it could handle that much data traffic. The illustration serves more as a way to show how large of an opportunity XNET has and the revenue potential should they execute over the long term. XNET distributes infrastructure costs across anyone who is interested in being an operator, and they own no spectrum, removing license costs and making it likely that XNET can scale much faster than a traditional wireless network would be able to.

Promising Product Traction

XNET has seen impressive traction in recent months, offloading approximately 18.4 terabytes of data since July. Cumulatively XNET has seen over 6 million offload sessions across more than 1.1 million users.

As of the last epoch, XNET had 264 active Wi-Fi nodes, and 110 active CBRS nodes. Among the Wi-Fi nodes, each was earning on average 30.9 XNET per day.

XNET recently announced they secured a direct Wi-Fi offload contract with one of the largest carriers in the U.S. Although they did not formerly announce which carrier, it is believed to be AT&T¹, and regardless, it should provide tailwinds for data offloading going forward.

To put XNET’s traction in context, Helium Mobile, a leader in the dePIN and wireless sector, has 1468 Wi-Fi hotspots (~5.5x XNET) and offloaded about 39 terabytes of data since July, roughly double the amount of XNET, while boasting a market cap that is 100x larger. The caveat is that XNET’s FDV is $380 million, and Helium has already built out a comprehensive 5g network in addition to Wi-Fi hotspots and its LoWaRAN network.

With over 300 million wireless customers in the U.S. (and much more globally), XNET’s room for growth is substantial and is just beginning to scratch the service on how much data they can offload.

Solana and Helium Beta

Both Solana and Helium are part of our Core Strategy and we remain constructive on both assets. Solana has been one of best performing large-cap tokens since the 2022 bottom. Its network metrics are impressive, with realized transactions per second far outpacing any other layer one network. Its low fees and high throughput have made it a popular choice among crypto traders.

Although the hype surrounding Solana has faded from the highs earlier this year, it is still a staple of the industry and has high growth potential. Considering all the names in our Liquid Ventures basket are Ethereum tokens, in our view, adding XNET will diversify the portfolio and provide exposure to the broader Solana ecosystem.

Similarly, Helium is another one of our Core Strategy constituents and is seen as a leader in the dePIN sector. Helium offers similar capabilities to XNET, but the wireless sector is more than large enough to accommodate multiple providers. Over the last three months, Helium has been one of strongest tokens across crypto as it is finding material product market fit with its $20/mo mobile plan and continues expanding its network of diversified device hotspots. Should Helium continue to outperform, it is likely investors will look for small-cap beta to HNT, which XNET should provide.

In Summary

In summary, our thesis surrounding XNET is predicated on three factors:

1. The wireless market is large and primed for disruption – with traditional providers looking for low capex ways to scale their networks, dePIN networks provide a unique opportunity to disrupt a $100+ billion industry.
2. XNET’s traction thus far is promising – XNET has offloaded over 18 terabytes of data in less than three months with over 364 hotspots and over 1 million customers.
3. SOL and HNT beta – XNET is built on Solana and offers comparable services as HNT. As two of our Core Strategy constituents, providing small-cap beta to both assets through XNET is a good way to diversify our Liquid Ventures portfolio.

Risks

XNET’s circulating supply is relatively low compared to its total supply. As the token appreciates, its FDV will potentially seem rich. As discussed in the tokenomics section, emissions over the next 12-18 months are less of a concern but after 2025, they could present a larger concern for XNET’s valuation. It will be prudent to monitor how well XNET scales over the next 18 months to evaluate how well it can handle increased emissions starting in April 2026.

XNET is not the only wireless dePIN network out there, and there is always the possibility that they lose out to competitors. Its traction since July is very impressive and they have just inked a contract with one of the largest mobile network providers in the U.S., so it appears they are on the right track, but it will be pertinent to periodically monitor its KPIs and ensure that they continue to grow.

Conclusion

XNET presents a unique and promising opportunity to disrupt the traditional wireless market through its decentralized infrastructure and innovative use of Citizens Broadband Radio Service (CBRS) and Wi-Fi Passpoint technology. With the increasing demand for wireless data and the limitations faced by traditional carriers, XNET’s decentralized approach offers a scalable and cost-efficient solution that can alleviate network congestion while improving user experience. XNET’s successful traction, marked by substantial data offloading and a growing number of active nodes, highlights its potential to capitalize on the wireless sector. Additionally, XNET provides beta exposure to two of our Core Strategy selections, Solana and Helium, and will help diversify our Liquid Ventures basket.