Guide to Understanding COTI's Supply: Analysis and Insights
COTI's multi-chain structure, as well as the COTI bridge that manages it, has caused some consternation among the COTI community. COTI has a maximum supply of 2 billion native tokens, which were all minted in June 2019. There will never be any more native COTIs. COTI went "multi-chain" in 2019, issuing COTI tokens on ERC20, BEP2, BEP20, and potentially other chains in the coming years. This is accomplished by encrypting some of the original 2 billion native tokens and creating "wrapped" tokens on a corresponding chain.
How COTI Bridge Works
If a token is converted from native to ERC20, the bridge generates and sends an equal amount of COTI ERC20 tokens to the designated user address. The native tokens are stored on bridge addresses and are only moved when a reverse transaction occurs.
Tokens are sent to a specific bridge address when they are converted from ERC20 to native. There is currently no automated process for ERC20 tokens. At the moment, the smart contract powering the COTI bridge cannot burn tokens. When a native token is sent to the bridge, it generates new ERC20 tokens. If 100 native COTIs are locked in the bridge, 100 new ERC20 tokens are created immediately.
When these tokens are returned to the bridge and then sent again, another 100 new ERC20 tokens will be created, while the previous 100 ERC20 tokens will remain locked in the dedicated address. As a result, the "Max/Total Supply" in Etherscan indicates the total size of the bridge instead of the actual supply or circulation.
CMC and CoinGecko provide the best indication of circulating supply. These databases are updated every six months, which may result in inconsistencies between updates. The COTI team intends to increase the frequency of these updates in the future.
The current bridge structure is safe, but it is not suitable. The bridge is expected to operate with a fixed reserve amount, and any tokens that exceed the reserve amount will be burned. Some bridge funds are transferred daily to a cold wallet and to 3rd party custody (Binance Custody) as part of a new security process implemented on the bridge, according to Etherscan. Individual address funding with ETH is both costly and inefficient, considering the present implementation of the ERC20 contract. A comprehensive coin burn across all addresses would also be expensive. However, the team intends to make changes to the contract that will allow coins to be transferred to a small set of main addresses in charge of managing the bridge reserve.
The team also intends to impose a stiffer reserve limit on the bridge to guarantee that it does not exceed a smaller, predefined threshold. It is important to note that these tokens are sent to custody for safekeeping and are not traded or circulated.
COTI has several custodians and market makers, lots of exchange accounts, and a large number of cold and hot wallet addresses for its tokens. Uncirculated tokens are safely stored with custodians and cold wallets, while some are held as security deposits by exchanges and third parties.
First published on Mar 25, 2023